3 Consumer Stocks Walking a Fine Line

Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. Unfortunately, the sector hasn’t provided much protection lately as it pulled back by 10% over the past six months. This drop was worse than the S&P 500’s 1.6% fall.

Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. Keeping that in mind, here are three consumer stocks we’re swiping left on.

USANA (USNA)

Market Cap: $532.4 million

Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE:USNA) manufactures and sells nutritional, personal care, and skincare products.

Why Is USNA Not Exciting?

1. Sales tumbled by 10.4% annually over the last three years, showing consumer trends are working against its favor
2. Smaller revenue base of $854.5 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Sales were less profitable over the last three years as its earnings per share fell by 23.1% annually, worse than its revenue declines

At $27.81 per share, USANA trades at 9.8x forward price-to-earnings. Read our free research report to see why you should think twice about including USNA in your portfolio.

Coca-Cola (KO)

Market Cap: $304.4 billion

A pioneer and behemoth in carbonated soft drinks, Coca-Cola (NYSE:KO) is a storied beverage company best known for its flagship soda.

Why Do We Think Twice About KO?

1. Sizable revenue base leads to growth challenges as its 6.7% annual revenue increases over the last three years fell short of other consumer staples companies
2. Efficiency has decreased over the last year as its operating margin fell by 3.4 percentage points
3. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 11.2 percentage points

Coca-Cola’s stock price of $70.89 implies a valuation ratio of 24.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than KO.

Fresh Del Monte Produce (FDP)

Market Cap: $1.46 billion

Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE:FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.

Why Should You Dump FDP?

1. Sales stagnated over the last three years and signal the need for new growth strategies
2. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 8.3%
3. Underwhelming 5.1% return on capital reflects management’s difficulties in finding profitable growth opportunities

Fresh Del Monte Produce is trading at $30.60 per share, or 10.7x forward price-to-earnings. If you’re considering FDP for your portfolio, see our FREE research report to learn more.

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