As I’ve noted in the past, many staples stocks have attained valuations that I consider to be far too high for any name in this category. These stocks have done so amid overdone fears about a recession. Despite the recent retreat of many staples stocks, some equities in the category remain way too expensive. For example, Clorox (NYSE:CLX) has an elevated forward price-earnings ratio of 21.5, while Coca-Cola’s (NYSE:KO) forward P/E ratio of 18.75 is also rather high, given its status as a staples company. I believe that investors should look for staples names that are trading with P/E ratios of 15 or below. Therefore, the stocks that I selected for this column meet that criteria.
Additionally, while I believe that the impact of the new weight-loss drugs is being exaggerated by many, I think that it’s prudent to avoid staples stocks that could be extensively, negatively affected by these new treatments. Finally, because of the electrification of transportation, I view electric utilities as attractive staples stocks with “a growth kicker.” With that said, here are three top-notch, beaten-down staples stocks to buy now.
Primo Water (PRMW)
A supplier of “pure-play water solutions,” Primo Water (NYSE:PRMW) provides bottled water, water dispensers, purified bottled water, self-service refill drinking water, premium spring, mineral water, sparkling and flavored water, filtration equipment and coffee.
Since the vast majority of the company’s offerings are beverages with few or no calories, the firm is well-positioned to benefit from the new weight-loss drugs. That’s because those drugs suppress appetite. They are also considered likely to enable many overweight people to stop drinking high-calorie beverages and switch to low-calorie options. these include water and coffee without milk or sugar.
Moreover, Primo reported strong second-quarter results. Its EBITDA, excluding certain items, jumped 13% year-over-year to $121.6 million. Its adjusted net income rose by $5.5 million to $38.8 million.
PRMW has an attractive forward price-earnings ratio of 14.5. The shares have dropped 8.7% in the last month.
Campbell Soup (CPB)
Many if not most of Campbell’s (NYSE:CPB) offerings have very few calories. For example, its Hearty Chicken with Vegetables Soup only has 110 calories per serving. Among its offerings other than soup are a number of healthy brands and products. These include Prego’s spaghetti sauce, V8 vegetable juice, beans, canned chicken and Pace salsa. Therefore, although the company has some unhealthy snack offerings, I expect it to be more helped than hurt by the proliferation of the new weight-loss drugs.
Encouragingly, the company’s Pacific Brands unit, which focuses on organic soups, is gaining market share “among millenials.” CPB’s acquisition of Italian sauce-maker Sovos Brands is expected to cause Campbell’s growth to accelerate.
The forward price-earnings ratio of CPB stock is an appetizing 12.2. The shares have slipped 7.6% in the last month and 14% in the last three months.
PG&E Corporation (PCG)
Utility stocks have dropped meaningfully this year as the sector, largely known for its dividends, has been upended by the rising yields of treasuries. Californian electric utility PG&E (NYSE:PCG) has not been spared from this trend. Its shares sank 18% between July 11 and Oct. 6.
Portfolio manager Bobby Edemeka expects the profits and dividends of utilities to climb about 5% annually. That’s a good combination for investors.
Moreover, throughout the longer term with electric vehicles proliferating, I expect electric utilities’ profit growth to accelerate. Since California is a leader in the EV space, I believe that PCG is especially well-positioned to benefit from the EV trend. Also, throughout the longer term, I expect treasury yields to drop as inflation fears become less pronounced and the Fed cuts rates
Also noteworthy is that on Aug. 7, Swiss bank UBS upgraded PCG to “buy,” citing the utility’s efforts to prevent its equipment from causing wildfires and its belief that California regulators are becoming more friendly towards the company.
PCG has a low forward price-earnings ratio of 11.5.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
