Many analysts have been calling for an imminent recession. And yet, the economy keeps hanging in there. In fact, it’s a great time to be looking for bargain consumer stocks as Americans show little sign of slowing down their shopping heading into the back half of 2023.
Certain risks were shaking up the market. Interest rates surged, and inflation pressured peoples’ spending power. Despite that, however, the job market is strong, wages are rising, and inflation seems to be cooling down.
Even still, money continue to change hands, making for an intriguing time to buy undervalued consumer stocks. These three strong brands, with powerful economies of scale and focus on delivering consumers value, should fare well in the current macroeconomic environment.
Home Depot (HD)
Home Depot (NYSE:HD) operates more than 2,300 warehouse-style stores offering a vast array of home improvement, maintenance, and gardening products.
Investors bid up HD stock in 2021 amid the boom in the housing and home improvement markets. Shares ultimately topped $400 at one point. As people returned to work and school, however, the need for home improvements dipped a bit. As a result, several of Home Depot’s product categories showing sharp drops in demand back in May.
Investors have punished the stock, sending it down more than 20% from the 2021 peak. To the extent that higher interest rates and a weaker housing market may hit the consumer, that is understandable.
However, the worst may have already passed, with analysts expecting Home Depot to return to revenue and profit growth over the next 12 months. In any case, with the share price decline, the stock goes for a reasonable 21 times forward earnings. Not a bad deal for a dominant retailer with a powerful brand and strong business economics.
Kroger (KR)
Kroger (NYSE:KR) is a U.S. supermarket chain operating more than 2,700 stores. The vast majority of these also have pharmacies, and about 60% sell fuel as well.
Grocery stores are a highly competitive and low profit margin business. However, Kroger has been able to stand out in a crowded field. Several reasons account for this.
For one, Kroger has leaned heavily into private-label products which offer consumers strong value for their money. That has particularly stood out as an advantage in the current inflationary market. The company’s scale also gives it advantages in using big data to drive pricing and promotional strategies. Kroger is also a pioneer in deploying robots and self-driving vehicles to lower fulfillment costs in the grocery market.
KR stock has been roughly flat over the past year. This leaves the company going for a bargain 11 times forward earnings.
Unilever (UL)
Unilever (NYSE:UL) is a leading consumer staples company. It focuses on personal care, home care, and packaged foods. Personal care is the largest category at around 50% of sales. Leading product categories include ice cream, haircare, sauces and flavorings, bath and shower products, deodorant, and laundry goods.
The company is a multinational giant. Based out of the United Kingdom, it has operations in most parts of the world and generates more than $60 billion in annual revenues.
Prior to the pandemic, Unilever had been struggling, with its business generating minimal revenue or profit growth. However, the pandemic has changed the math. Unilever has been able to push through solid price increases on many of its most important products. Now that inflation is starting to cool off, that eases up pressure on the cost of goods sold, which should leave Unilever with significantly higher profitability.
Unilever is currently trading at less than 18 times forward earnings, and analysts see mid-single digits growth going forward. Paired with a 3.6% dividend yield, this should be a sweet deal for Unilever’s shareholders.
On the date of publication, Ian Bezek held a long position in UL stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
