The 3 Most Undervalued Consumer Stocks to Buy in July 2024

  • Pick up these consumer staples stocks while they are dramatically undervalued.
  • British American Tobacco (BTI): The tobacco giant is pivoting to safer nicotine products while offering a huge dividend yield.
  • Kraft Heinz (KHC): The fallen food giant may be set for a major comeback.
  • Molson Coors (TAP): Investors have grown much too negative about the outlook for this brewing conglomerate.
Undervalued Consumer Stocks - The 3 Most Undervalued Consumer Stocks to Buy in July 2024

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The stock market keeps hitting new all-time highs. For investors in growth and technology stocks, the future has never looked brighter.

But many other sectors and industries have gotten left behind. Consumer stocks, for example, have underperformed. There have been high-profile stock price implosions in companies such as Lululemon (NASDAQ:LULU) and Starbucks (NASDAQ:SBUX) as the economy starts to stumble.

Even the normally recession-resistant consumer staples stocks are under pressure. The good news, though, is that these stocks — unlike technology names — have already sold off sharply due to these concerns. These three undervalued consumer stocks are set to outperform as investors factor in the shifting economic landscape.

British American Tobacco (BTI)

British American Tobacco logo on a building
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A lot of investors avoid the tobacco companies, and understandably so given the health consequences associated with smoking. However, consumer staples investors might want to give British American Tobacco (NYSE:BTI) a second look.

That’s because British American Tobacco has been the most aggressive company within the tobacco industry on moving away from cigarettes. Rather, it is investing heavily in alternatives such as vaping and heated not burned delivery systems.

In fact, British American Tobacco took a large writedown on the value of its cigarette brands last year. At the same time, it noted that growth in its alternative nicotine products category is ahead of schedule. The company’s long-term business model evolution is working.

Yet shares remain deeply depressed, with BTI stock selling more than 50% below its 2017 peak. That’s quite remarkable in its own right. It also means that British American Tobacco shares are selling for less than seven times forward earnings while offering an enticing 11.5% dividend yield.

Kraft Heinz (KHC)

A photo of both the Kraft and Heinz logo
Source: Eyesonmilan/Shutterstock.com

It’s been a long and difficult road for Kraft Heinz (NASDAQ:KHC) in recent years. Kraft and Heinz merged in 2015 building a gigantic multinational food company that appeared set to dominate.

However, the company failed to deliver on its promise. Merger-based synergies didn’t appear as planned, and Kraft Heinz struggled to grow revenues. Meanwhile, caught up with a huge debt load, KHC had to cut its dividend and slash costs to survive. Subsequently, the pandemic further crimped profits as supply chain troubles and mounting commodity prices impacted profitability.

By now, it’s conventional wisdom that Kraft Heinz is not worth investors’ time or capital. But, perhaps sentiment has swung too far the wrong way.

For one thing, Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) remains a massive KHC stockholder and collects huge dividends from the company. Given KHC stock’s current low valuation, it wouldn’t be shocking to see Buffett or other noted value investors increase their positions in the company.

For another, Kraft Heinz could be well positioned for a recession. In them, consumers tend to trade down, and the company’s array of budget-friendly grocery products should shine as folks seek to maximize their spending.

Morningstar’s Erin Lash agrees that KHC stock is dramatically undervalued. She assigns a fair value of $57/share whereas shares trade for just $32 each today.

Molson Coors (TAP)

Molson Coors (TAP) logo on a web browser magnified by a magnifying glass
Source: OleksandrShnuryk / Shutterstock.com

Molson Coors (NYSE:TAP) is a large brewing company in the North American market, and it also has substantial operations in Europe. Previously, Molson Coors had gained from Anheuser-Busch Inbev’s (NYSE:BUD) marketing missteps, but the company’s good luck has run out. TAP stock is down 25% over the past 12 months.

This makes for a great dip-buying situation. While the beer market has been pressured recently, it remains a highly cash flow generative industry that is quite immune from economic shocks.

People tend to drink about as much regardless of whether the economy is in a boom or bust. If anything, hard times might cause people to trade down from craft beers and premium products back to Molson Coors’ line-up of more affordable drinks.

Further, Morningstar’s Dan Su believes that TAP stock should trade for about 14 times earnings, whereas shares are currently going for less than 10 times forward earnings. Su sees fair value at $70/share for Molson Coors while the stock sells for just $50 right now.

On the date of publication, Ian Bezek held a long position in BTI and TAP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.


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