InvestorPlace’s Louis Navellier recommended some great consumer stocks to buy back in early May. Except for Campbell Soup (NYSE:CPB), I’m totally on his side with the other six picks. They’ll all make you money over the long haul.
A little over two years ago, I picked seven consumer stocks to get excited about. I think they’ve done alright.
Performance – April 26, 2018 – June 23, 2020
|Company||Cumulative Return (excluding dividends)|
|Estee Lauder (NYSE:EL)||30.4%|
|Keurig Dr. Pepper (NYSE:KDP)||10.7%|
|Church & Dwight (NYSE:CHD)||64.8%|
|McCormick & Co. (NYSE:MKC)||61.6%|
Interestingly, the only stock on my list that’s on Navellier’s list in 2020 is Brown-Forman, the maker of Jack Daniels. Except for Keurig Dr. Pepper, it has been the biggest disappointment of the seven names. A well-run, family-controlled liquor business, it ought to be doing better.
If you listen to my colleague and buy some of the Kentucky company, I expect you’ll be very happy in 3-5 years’ time.
Faced with the task of selecting 10 consumer stocks to buy for the long haul, I’m going to make things tougher on myself by disqualifying the 13 stocks selected by my colleague and me.
To make things even tougher on myself, two of the picks will have to have a market capitalization of less than $3 billion; two will have to be worth at least $100 billion, and the rest somewhere in between:
- Tesla (NASDAQ:TSLA)
- Costco (NASDAQ:COST)
- Constellation Brands (NYSE:STZ)
- Clorox (NYSE:CLX)
- Freshpet (NASDAQ:FRPT)
- Starbucks (NASDAQ:SBUX)
- MercadoLibre (NASDAQ:MELI)
- Mohawk Industries (NYSE:MHK)
- Canada Goose (NYSE:GOOS)
- Franchise Group (NASDAQ:FRG)
With these two caveats in mind, here are my 10 consumer stocks to buy.
Consumer Stocks to Buy: Tesla (TSLA)
Market Cap: $185.7 billion
Year-to-Date Total Return (through June 23): 139.5%
The first time I ever wrote about Elon Musk and Tesla for InvestorPlace was in 2012. The article was entitled Why America Needs More Teslas. Almost eight years later, my feelings haven’t changed on the subject.
Elon Musk might say some stupid things sometimes — but who hasn’t in their lifetime? He’s only human — a smart human, but a human nonetheless.
Recently, in a double-handed backslap to the Ford family, I wrote about how Ford (NYSE:F) should have bought Tesla when it had the chance back in 2017. The business was good. The economy was good. Ford was good.
Instead, Ford let Mark Fields go. Three years later, Jim Hackett is still in the top job and F stock has gone from $11 to $6. Tesla is more than seven times as large.
The most difficult task for Musk and Tesla isn’t keeping ahead of Ford. It’s coming up with a suitable encore. That’s going to be tough.
Market Cap: $133.0 billion
Year-to-Date Total Return (through June 23): 3%
I’ve been to Costco a couple of times during the pandemic. It’s easy to see that the parking lots aren’t nearly as full as usual, which is why it’s not surprising that its April sales fell 1.8% from $11.6 billion last year to $11.4 billion this year. However, COST stock is still one of the more appealing consumer stocks out there right now.
In the U.S., its same-store sales fell 3.3% in April. Worldwide, same-store sales fell 4.7%. The only bright spot is online sales, which saw an 86% increase, and that’s on top of a 48% jump in March.
Overall, Costco continues to be a well-oiled machine.
In the first quarter ended May 10, 2020, the company’s overall same-store sales rose 4.8%, with the only blemish being a 2.5% decrease from its Canadian stores, but even that comes with a silver lining. If you exclude foreign exchange and changes in gas prices, the Canadian same-store sales in the third quarter rose 3% and 5% through the first 36 weeks of the fiscal year.
Whatever happens over the remainder of 2020, you can be sure that Costco will figure out how to deliver for shareholders. More importantly, as long as it continues to grow its membership fees — 5.8% higher in the first 36 weeks to $2.44 billion — COST stock will continue to move higher.
It’s an amazing business.
Constellation Brands (STZ)
Market Cap: $34.8 billion
Year-to-Date Total Return (through June 23): -4.1%
On June 17, JPMorgan analyst Andrea Teixeira reiterated her overweight rating on STZ stock and raised her target price by 23% to $200. At current prices, that provides 11% upside over the next 12 months. More importantly, she added STZ stock to the company’s list of top growth ideas.
Investor’s Business Daily, which believes relative strength drives higher stock prices, recently upped its relative strength (RS) rating from 64 to 72. In the publication’s opinion, stocks with a rating above 80 tend to see more significant price appreciation. It appears that STZ is getting close to making a push to $200.
The maker of Corona beer, Casa Noble tequila, Kim Crawford wine and the controlling shareholder of Canopy Growth (NYSE:CGC), one of North America’s largest cannabis producers, last traded above $200 on a consistent basis in 2017 and 2018.
Canopy Chief Executive Officer David Klein, who was promoted from chief financial officer last December, believes that the market for cannabis-infused drinks can be bigger than hard seltzer. If that’s true, Constellation’s next leg up could be a big one.
Market Cap: $26.9 billion
Year-to-Date Total Return (through June 23): 40.4%
Clorox is having another spectacular year in the markets thanks to the novel coronavirus. It seems everyone can’t get enough of its disinfecting wipes and disinfecting bleach. It has been so busy during the pandemic that it has created a page on its website for information and resources about the virus.
Of course, the California-based company has been knocking it out of the park for shareholders for years. It has a 15-year, annualized total return of 10.55%, 155 basis points higher than the entire U.S. market.
Clorox is one of my favorite consumer stocks. In March 2017, I selected CLX stock and six others for an income-rich retirement. In March 2020, I argued that investors should buy Clorox to hold beyond Covid-19.
As long-term investments go, you can’t beat it. It plays good defense and offense.
Market Cap: $3.5 billion
Year-to-Date Total Return (through June 23): 48.2%
MarketWatch recently featured four small-cap stocks liked by the small-cap fund manager, Mary Lisanti, of Lisanti Capital Growth. One of the stocks on her list of diamonds in the rough is Freshpet, the maker of fresh dog and cat food.
“I don’t think I’ve ever seen a period of time where there’s this much innovation and this much maturity among the smaller companies that are public. They’re run by experienced people, they’ve got good strategies, they’re getting better all the time and to me it’s probably one of the best class of smaller companies I’ve seen,” Lisanti told MarketWatch June 24.
Freshpet has an excellent management team, including former Sunny Delight Beverage CEO William Cyr. As someone whose felines have enjoyed Freshpet very much, I know it’s on to something.
I recently picked FRPT as one of seven pet care stocks to buy. Frankly, I don’t know what took me so long to bring it to the attention of readers.
Market Cap: $88.2 billion
Year-to-Date Total Return (through June 23): -13.2%
Compared to the Morningstar US Market Index, which has a year-to-date total loss of 2.2%, Starbucks is getting crushed in 2020. Much of the pain is beyond its control.
However, to accelerate initiatives to be more responsive to customer needs, it recently announced a restructuring of its store footprint that will see it close 400 stores in the U.S. and Canada over the next 18 months. At the same time, it will open as many as 300 locations for takeout and pickup.
“This reflects the accelerated repositioning of a number of company-operated stores as we blend store formats and strategically optimize our portfolio primarily in U.S. urban markets as outlined above,” Starbucks said in its 8-K.
Covid-19 showed Starbucks management that its real estate footprint was too expensive, given the requirements of its customers. The company has noted that almost 80% of its customers take their drinks and food to go, making the sit-down spaces redundant.
Let’s face it. Starbucks was becoming a place for business meetings and students seeking free Wi-Fi to do their school work. The pandemic showed management it could survive with less dine-in locations.
In my experience, Starbucks has always figured out what was necessary to reignite growth. This time is no different. SBUX stock remains an excellent long-term hold and it stands out well among other consumer stocks.
Market Cap: $48.6 billion
Year-to-Date Total Return (through June 23): 70.9%
Motley Fool contributor Anders Bylund’s shocking headline of June 5 that MercadoLibre, Latin America’s largest e-commerce company, gained 46% in the month of May, reminded me just how powerful the global e-commerce movement really is.
Don’t get me wrong; I’ve been bullish about MercadoLibre for a while now. In May 2017, I suggested MercadoLibre was one of the best growth stocks to buy. At the time, it was growing its gross merchandise volume by 61% per quarter. Factor out the currency and it was still growing them by more than 30%.
It’s up 255% since then, a big chunk of it in 2020.
Pymnts.com does a great job explaining why MELI stock is so attractive :“Imagine if a North American company had the market share of Amazon, the payment flexibility of PayPal and the credit portfolio of Visa … In Latin America, such a company exists in the form of MercadoLibre, a triple-threat regional financial powerhouse based in Argentina. It is one of the region’s fastest-growing companies.”
As Latin American investments go, MELI stock is one of the best. It’s also a strong play if you’re looking for promising consumer stocks to hold.
Mohawk Industries (MHK)
Market Cap: $7.4 billion
Year-to-Date Total Return (through June 23): -23.8%
If there’s a mid-cap consumer stock that’s deeply disappointed in the past few years, Mohawk Industries would have to be it. A $10,000 investment in the flooring, tile and carpet manufacturer five years ago today is worth $5,368.
Housing and renovations have been booming over this period, so it’s hard to understand what’s gone wrong. In November 2017, I called Mohawk one of the 10 stocks I wished I’d bought that year. “A $10,000 investment in Mohawk Industries at the beginning of the bull market back in March 2009 would be worth a little more than $163,000, an annualized annual return of 37.6%,” I wrote.
Between 2009 and 2017, it didn’t have a calendar year of negative returns. The entire downturn has been in the past three fiscal years.
Yet, it has $920 million in free cash flow, the highest it has ever been, and an FCF yield of 9% based on an enterprise value of $10.2 billion. Of these 10 consumer stocks, MHK stock is easily the best value.
Canada Goose (GOOS)
Market Cap: $2.7 billion
Year-to-Date Total Return (through June 23): -31.9%
The wheels of Canada Goose’s glorious rise to fame started to come off before Covid-19 stopped retail dead in its tracks.
Last November, it announced solid second-quarter 2020 earnings. However, it failed to up its guidance for 2020, something that had become expected by investors. In February, Canada Goose cut guidance due to the effects of the coronavirus in China. However, in early June, Canada Goose reported better than expected sales — CAD 140.9 million versus the consensus estimate of CAD 67.9 million — sending GOOS stock 17% higher on the Q4 2020 beat.
In the past, I’ve raved about its triple threat of wholesale, in-store retail and online, but that has gotten me seriously burned. Now, it seems the emphasis on wholesale is being reduced, in large part, because of the new normal in retail.
CFO Jonathan Sinclair told analysts during its June conference call that “[i]t remains strategically important but we are increasing our emphasis on DTC … This allows us to control the consumer experience directly, while earning double the revenue and triple the profit.”
In hindsight, I wish management had followed Lululemon’s lead and focused on direct to consumer. Better late than never, I guess.
Franchise Group (FRG)
Market Cap: $895.9 million
Year-to-Date Total Return (through June 23): 12%
Of all the names on my list of consumer stocks to buy, Franchise Group is the one I’m least familiar with. However, it turns out that’s because it has been operating under a new name since last September.
What used to be called Liberty Tax, a competitor to H&R Block (NYSE:HRB), changed its name on September 19, 2019, to Franchise Group, after making some acquisitions of other franchises. “[T]he Company is currently undergoing a shift in strategic direction, focusing on the acquisition of, or investment in, franchise-oriented or complementary businesses,” stated chairman Andrew Laurence at the time. “We have recently completed the acquisition of Buddy’s Home Furnishings and have entered into definitive agreements to acquire the Vitamin Shoppe and the Outlet business of Sears Hometown and Outlet, which we expect to close prior to the end of the year. Our new name is another step in this new strategic direction, and we are excited about this next phase for the Company.”
The direction of the company changed in 2018 when Liberty founder, John Hewitt, sold his shares to Vintage Capital Management. Hewitt had been fired as CEO in 2017 for inappropriate sexual conduct.
Vintage Capital owns 45.4% of the company. Vintage managing partner Brian Kahn became CEO of the Franchise Group in October. It now owns five different franchise concepts. Expect it to make further acquisitions in the future.
This is the riskiest of the 10 stocks on my list, but an interesting value proposition.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.