Consumer staples stocks have been frustrating many investors in 2024. The year started with optimism that consumer spending was about to be unleashed due to interest rate cuts. However, as it becomes clearer that investors should expect few, if any, cuts this year, it’s time to look for consumer staples stocks to sell.
But this story is about more than interest rates. Inflation continues to eat away at the purchasing power of low- to middle-income consumers. And with data showing that more affluent consumers are shopping at Walmart (NYSE:WMT) to make their dollars stretch further, many companies lack the pricing power they had the last couple of years.
The takeaway for investors is that now is a time to focus on valuation. A common trait of the three consumer staples stocks to sell on this list is that they each have a high valuation in comparison to the sector average. These stocks may still offer some value for long-term investors, but traders and momentum investors may want to avoid these names.
Clorox (CLX)
The conventional wisdom about Clorox (NYSE:CLX) is that the downturn in the stock is due to post-pandemic normalization of revenue and sales. But the numbers don’t exactly show that.
In the first three quarters of the company’s fiscal year 2021 which began with the quarter ending in October 31, 2021, Clorox delivered $5.35 billion in revenue. For the first three quarters of this year, the company has delivered $5.19 billion, a difference of about 3%. That’s not nothing, but it’s not proportional to the performance of CLX stock in that time.
Nevertheless, CLX stock comes with a current price-to-earnings over 70x, and a forward P/E of around 23x. That’s only slightly higher than the current sector average of over 20.1x.
Long-term investors will likely be attracted to Clorox for its dividend, which currently has a 3.84% yield. However, five out of 24 analysts have a strong sell rating on CLX stock. And BNP Paribas initiated coverage on the stock with an underperform rating and a $130 price target.
Anheuser-Busch (BUD)
Anheuser-Busch (NYSE:BUD) has been one of the consumer staples stocks to sell since consumers began to boycott its Bud Light brand in 2023. But the performance of BUD stock since October 2023 implies that it’s not a major factor anymore. Despite being down 10% in 2024, BUD stock is still up 2% in the last 12 months.
Instead, this looks like a case of a stock that moved too high, too fast. And with a P/E of 24x, it’s a little too expensive. That’s not just high compared to the sector average, it’s high compared to the company’s historic earnings growth rate of around 12%.
In fairness, analysts project earnings growth of 14.6% for the next 12 months, so bulls could argue that it’s worth the premium valuation. But with a company that is holding $68 billion more in debt than it has in cash on hand, the balance sheet needs work.
Church & Dwight (CHD)
Church & Dwight (NYSE:CHD) is a good example of how silly it sounds to put some quality stocks on a list of consumer staples stocks to sell. However, in a market that lacks breadth, traders can find better options than CHD stock.
My arguments are more technical in nature. For example, Church & Dwight stock is up about 9% in 2024. However, short interest in the stock has increased by over 10% in the last 30 days. That has sent the stock about 5% lower in the last two weeks of June. It’s now at a level of resistance at $104.87.
Yet, the stock still trades at a forward P/E of around 29.9x. That just feels a bit too high without evidence that the market rally is expanding to more stocks. Currently, analysts have a mixed outlook on CHD stock.
On the date of publication, Chris Markoch did not have (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.
