Consumer stocks are in an interesting position. Numerous consumer discretionary stocks have been oversold amid growing economic uncertainty, while consumer defensive stocks are defensive plays that can protect against a volatile economy.
Considering the above, I undertook a rigorous screening process to identify three prudent consumer stocks. Methodologically, I looked for a mix of undervalued and low-beta assets, allowing investors to select from a basket of differentiated stocks. Although I screened for differentiated stocks, I left no stone unturned in ensuring each company’s fundamentals were in check. Moreover, I meticulously examined factors like valuation multiples, technical analysis and event-driven activities to ensure complete alignment.
Without further ado, here are three best-in-class consumer stocks to watch.
Constellation Brands (STZ)
Constellation Brands (NYSE:STZ) is a consumer staples stock, meaning it is a defensive play. For those unaware, Constellation Brands is one of the world’s largest alcohol distributors, including beer, wine and spirits.
I included STZ stock in this list due to numerous reasons. Firstly, the firm’s robust market positioning and exposure to the consumer staples sector can protect against an economic decline. Furthermore, Constellation Brands has an operating profit margin of 35.45%, suggesting it has achieved economies of scale, which allows price flexibility.
Another salient feature of Constellation Brands is its backing from Wall Street. For example, STZ stock maintains a “buy” rating from Goldman Sachs. The investment bank thinks Constellation Brands’ underlying business and management’s growth plan will lead STZ stock to the $300 mark.
Lastly, STZ stock’s financial market-based variables seem promising.
STZ stock has dipped by about 8% in the past twelve months, placing its forward price-to-earnings ratio at 18.15x, which I consider low for a consumer staples stock. STZ stock’s forward dividend yield of 1.64% also provides a welcoming add-on.
I’m bullish here, folks!
Ford Motor Company (F)
Ford’s (NYSE:F) stock has deep value written all over it. The American automaker’s stock price has slipped by about 20% year-over-year amid weaker sales and rising input costs. However, as a contrarian investor, I’m optimistic about F stock — here’s why.
Although it has encountered a rough patch, Ford remains a market leader, meaning its sales trajectory will likely revert to mean in due course. The company sold 173,223 vehicles within the U.S. in July, down 0.2% from a year ago. However, much of Ford’s recent misfortunes are down to systematic risk instead of idiosyncratic issues. As such, I think it might be a good time to enter a position in F stock while the chips are down, as opposed to waiting until a recovery manifests.
Furthermore, Ford’s Electric Vehicle (EV) exposure could be a game changer. Despite the waning sentiment of U.S. consumers, Ford’s monthly U.S. EV sales jumped by 31.2% year-over-year. This illustrates the secular growth embedded in Ford’s EV segment, not to mention EV as a sales diversifier.
F stock has a price-to-earnings-growth (PEG) ratio of 0.56x, suggesting a growth-at-a-reasonable price (GARP) opportunity has emerged. Moreover, F stock has a price-to-sales ratio of only 0.22x, implying that it is a grossly undervalued stock.
Don’t get me wrong, Ford will need numerous positive catalysts to recover, but as the old saying goes: “buy low, sell high.”
British American Tobacco (BTI)
British American Tobacco’s (NYSE:BTI) stock blends defense and value. The tobacco maker provides a defensive option through its exposure to consumer staples. However, given its ongoing restructuring, it simultaneously has a value aspect attached to it.
While the company’s restructuring may not have fully won over investor confidence, I see great potential in it. With approximately 17.9% of its sales mix coming from smokeless products, BTI is aligning itself with modern consumers. Furthermore, it recently increased its stake in Canadian cannabis producer Organigram (NASDAQ:OGI) to 45% , opening up diversified growth opportunities through an ancillary industry.
Another promising aspect to consider is British American Tobacco’s deleveraging. The company’s management has set a 2x to 2.5x net EBITDA target amid its robust cash generation. This strategy, though currently an isolated observation, could potentially deliver significant value to British American Tobacco’s investors.
Lastly, BTI stock’s multiples are in good shape. For instance, it has a forward price-to-earnings ratio of 8.06x and an enterprise value/revenue ratio of 3.64x. Moreover, BTI stock’s forward dividend yield of 8.15% provides income-seeking investors with much to cheer about.
On the date of publication, Steve Booyens 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
