Whenever I see a headline in the Wall Street Journal like the one from a few weeks ago that declared that consumer staples stocks had “fallen out of favor” with investors, I am reminded of Warren Buffett’s famous aphorisms about investing.
Buffett urges investors “to be fearful when others are greedy and to be greedy only when others are fearful.”
Indeed, the S&P 500 Consumer Staples Index has jumped more than 9% since the start of the year, underperforming the broader market, which gained more than 13% during that same time period. Even though many stocks in the sector are trading at or near their average 52-week price targets, there are a few names that have some gas left in their tanks.
Let’s take a closer look at three of these consumer stocks, which are among the best stocks to buy in the sector now.
Campbell Soup (CPB)
Year-to-Date Gain: 12%
Forward Price-to-Earnings Ratio: 14.3
Market Capitalization: $10.98 billion
Average 52-Week Price Target: $35.62
The turnaround at Campbell Soup (NYSE:CPB) is for real.
CPB’s latest earnings report exceeded Wall Street’s expectations and the food company is making progress in unwinding former CEO Denise Morrison’s ill-advised expansion into the fresh food business and it is also unloading its international operations. Earlier this month, CPB sold its Garden Fresh salsa business, which it acquired for $232 million in 2015, for $60 million. A sale of Bolthouse Farms, which Campbell acquired for $1.55 billion in 2012, is also in the works. CPB will take a loss on this sale as well.
Indeed, under Morrison’s leadership, CPB wrote more than $1.4 billion from the value of the business it bought. Her acquisitions weren’t a total bust, but they weren’t bargains either.
Campbell acquired Snyder’s-Lance for $6 billion last year to increase its foothold in the fast-growing snack market. Snacks were a bright spot in CPB’s recent better-than-expected earnings report. The company’s soup business, which has been in decline for years, is also showing signs of improvement. Billionaire Activist Investor Dan Loeb is a big holder of CPB stock and controls two board seats.
Church & Dwight (CHD)
YTD Gain: 3%
Forward P/E: 24.8
Market Cap: $16.2 billion
Average 52-Week price target: $64.53
Church & Dwight (NYSE:CHD) stock is reeling from a disappointing earnings report and lackluster guidance that ended its streak of eight straight earnings beats. The corporate parent of Arm & Hammer, though, has got plenty going for it, including an eclectic portfolio of brands including Trojan condoms, Orajel dental care and the OxiClean line of stain fighter and laundry detergents.
Let’s not forget its best-known product Arm & Hammer Baking Soda. According to the company, half of all refrigerators have the product, which also is used to bake cookies, purify the blood of kidney dialysis patients and treat swimming pools. According to CHD, seven of the company’s 11 “power brands” maintained or gained market share in 2018.
CHD expects organic sales to jump 3.5% in 2019, its biggest gain since 2014. Unlike other consumer products companies, CHD doesn’t have much competition from private label brands. CHD is also getting a nice bump from its e-commerce business, which made up about 8% of its sales. Furthermore, it should benefit from its expansion overseas, price increases and innovative products like The Waterpik Sonic Fusion, which enables people to brush and floss simultaneously.
YTD Gain: 4%
Forward P/E: 23.2
Market Cap: $20.1 billion
Average 52-Week Target: $152.27
Best-known as a maker of bleach, Clorox (NYSE:CLX) is one of the least sexy companies in the Fortune 500. However, as CEO Benno Dorer noted during a recent industry conference, CLX stock has outperformed the S&P 500 over the last year, three years, five years, 10 years and 20 years. And it has been in the top quartile of its peer group.
“We know how to deliver shareholder return and we know how to do it well,” Dorer said.
Indeed, more than 80% of its product portfolio in the U.S. and international markets are either ranked No. 1 or No. 2 in their respective spaces. Among its brands are Glad trash bags, Liquid Plummer, Burt’s Bees personal care products, Pine-Sol household cleaners and Fresh Steps cat litter.
CLX’s latest earnings report was solid, beating Wall Street’s expectations. One area of weakness was its Household business, where trash bags and food storage product sales fell because of “heightened competitive activity.” Other companies, including Tupperware, are in the same situation. The company is planning to increase its marketing spending to boost Glad sales.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.