Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. On the other hand, they usually underperform during bull runs, but the sector has bucked this trend lately as its six-month return of 6.9% has closely followed the S&P 500.
Still, picking the right companies isn’t shooting fish in a barrel. Investors must exercise caution as essential products like bread have low switching costs. With that said, here is one resilient consumer staples stock we’ve added to our cart and two we’re swiping left on.
Two Consumer Staples Stocks to Sell:
Coty (COTY)
Market Cap: $6.09 billion
With a portfolio boasting many household brands, Coty (NYSE:COTY) is a beauty products powerhouse spanning cosmetics, fragrances, and skincare.
Why Are We Hesitant About COTY?
- Estimated sales growth of 4.6% for the next 12 months implies demand will decelerate from its three-year trend
- Free cash flow margin shrank by 3.7 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
- Underwhelming 0.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $6.93 per share, Coty trades at 12x forward price-to-earnings. Read our free research report to see why you should think twice about including COTY in your portfolio.
Nature's Sunshine (NATR)
Market Cap: $279.5 million
Started on a kitchen table in Utah, Nature’s Sunshine Products (NASDAQ:NATR) manufactures and sells nutritional and personal care products.
Why Are We Cautious About NATR?
- Muted 1.3% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
- Smaller revenue base of $445.1 million gives it less operating leverage and negotiating power with suppliers
- Incremental sales over the last three years were much less profitable as its earnings per share fell by 5% annually while its revenue grew
Nature's Sunshine is trading at $14.84 per share, or 20.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why NATR doesn’t pass our bar.
One Consumer Staples Stock to Buy:
Inter Parfums (IPAR)
Market Cap: $4.17 billion
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ:IPAR) manufactures and distributes fragrances worldwide.
Why Will IPAR Beat the Market?
Annual revenue growth of 18.5% over the last three years was superb and indicates its market share increased
Unique products and pricing power are reflected in its top-tier gross margin of 58.9%
Industry-leading 26% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
Inter Parfums’s stock price of $130.32 implies a valuation ratio of 23.1x forward price-to-earnings. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market to cap off the year - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,704% between September 2019 and September 2024) as well as under-the-radar businesses like Sterling Construction (+1,003% five-year return). Find your next big winner with StockStory today for free.
