3 Most Undervalued Consumer Stocks to Buy Now

  • Various undervalued consumer stocks provide high-quality attributes and value in abundance.
  • Home Depot (HD): Investors overreacted to rising input costs, drawing the stock into investable territory.
  • Coca-Cola (KO): Organic sales continue to prosper despite global economic headwinds. Additionally, 
  • NKE (NKE): Although Chinese manufacturing has slowed, Nike continues to surprise with its earnings report conveying sustainability.
undervalued consumer stocks - 3 Most Undervalued Consumer Stocks to Buy Now

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Broadly speaking, consumer stocks are in poor shape as they’re inextricably linked to the broader economy, which is likely heading for a severe contraction. However, if you do a deeper dive into the sector, you’ll be able to find a few undervalued consumer stocks to pick from.

For example, if you follow a basic relative valuation approach, you’d be able to find a number of consumer discretionary stocks that are still trading below their intrinsic value. Alternatively, a statistical market segmentation approach identifies numerous consumer staple stocks that are underpriced and set to perform cohesively with a risk-off market.

As such, it’s not all doom and gloom out there; here are three undervalued consumer stocks to consider.

Ticker Company Current Price
HD The Home Depot, Inc. $299.83
KO The Coca-Cola Company $62.53
NKE Nike, Inc. $109.19

Undervalued Consumer Stocks: Home Depot (HD)

Home Depot (HD) sign backdropped by blue sky
Source: Rob Wilson / Shutterstock.com

Home Depot’s (NYSE:HD) dramatic 27% year-to-date drop is an overreaction by investors, which stemmed from investors fearing rising input costs. However, at a Beta coefficient of 1.0, it’s trivial that this stock has crashed beyond what’s statistically acceptable. Moreover, with rising interest rates, much of Home Depot’s wage cost issues could be resolved amid an easing in the labor market.

HD stock is undervalued on a normalized basis, with its price-earnings ratio at a 20.1% discount. Additionally, the firm’s 33.6% gross profit margin implies that it has plenty of pricing power over its competitors. As such, it could dodge most of the current economic headwinds.

Coca-Cola (KO)

Close-up of Coca Cola drink cans lying on paper background
Source: Tetiana Shumbasova / Shutterstock.com

Second-quarter sales data convey that soda and energy drink sales are holding up well and outperforming alcohol sales. For example, as per sample, Coca-Cola’s (NYSE:KO) sales have risen by approximately 9.4% year-over-year, showing no signs of slowing down. The company’s first-quarter earnings report revealed exemplary organic growth with a 22% increase in Europe, the Middle East and Africa sales and an astounding 39% increase in Latin American sales.

Furthermore, Morgan Stanley analyst Dara Mohsenian recently opined that Coca-Cola could sustain its earnings momentum into late 2022 and 2023. According to Dara Mohsenian: “Coke still has room for relative multiple expansion, with Coke’s 2023 P/E multiple essentially in-line with mega-cap CPG peers PG/CL/PEP vs. a 6% premium in the beginning of 2020 pre-COVID.”

KO stock provides a dividend yield of 2.7%. I see this as a critical feature because I believe investors will be chasing dividends for the remainder of the year as a means of fighting capital gains uncertainty.

Undervalued Consumer Stocks: Nike (NKE)

Nike (NKE) store in a shopping mall in Penang, Malaysia. robinhood stocks
Source: TY Lim / Shutterstock.com

Nike (NYSE:NKE) stock’s advantage is its high-quality attributes stemming from its market position. For instance, Nike’s 27.4% athletic footwear market share allows it to achieve sustainable sales throughout the economic cycle. Investors tend to skew their investors towards high-quality stocks during market adversity due to risk aversion.

Many of Nike’s investors are worried about a slowdown in Chinese manufacturing due to regional pandemic lockdowns. However, despite its supply-line challenges, Nike still managed to beat its fourth-quarter earnings estimate by 9 cents per share. Additionally, Nike completed $1.1 billion worth of share repurchases during the quarter, revealing its commitment to maximizing shareholder value.

On the date of publication, Steve Booyens held indirect long positions in HD, KO and NKE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London and is working towards his Ph.D. in Finance, in which he’s attempting to challenge the renowned Fama-French 5-factor pricing model by incorporating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.


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