1 Consumer Stock to Target This Week and 2 We Question

Consumer staples stocks are solid insurance policies in frothy markets ripe for corrections. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 5.8%, a far cry from the S&P 500’s 12.7% ascent.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one resilient consumer stock we’ve added to our cart and two we’re passing on.

Two Consumer Staples Stocks to Sell:

Brown-Forman (BF.B)

Market Cap: $13.16 billion

Best known for its Jack Daniel’s whiskey, Brown-Forman (NYSE:BF.B) is an alcoholic beverage company with a broad portfolio of brands in wines and spirits.

Why Do We Think Twice About BF.B?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
3. Operating margin declined by 6.6 percentage points over the last year as its sales cratered

At $28.50 per share, Brown-Forman trades at 17.1x forward P/E. Read our free research report to see why you should think twice about including BF.B in your portfolio.

Medifast (MED)

Market Cap: $121.8 million

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE:MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Why Do We Pass on MED?

1. Sales tumbled by 36% annually over the last three years, showing consumer trends are working against its favor
2. Revenue base of $429.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

Medifast is trading at $11.71 per share, or 2.3x forward EV-to-EBITDA. To fully understand why you should be careful with MED, check out our full research report (it’s free for active Edge members).

One Consumer Staples Stock to Buy:

Cal-Maine (CALM)

Market Cap: $4.16 billion

Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.

Why Do We Love CALM?

1. Remarkable 27.7% revenue growth over the last three years demonstrates its ability to capture significant market share
2. Incremental sales over the last three years have been highly profitable as its earnings per share increased by 66.4% annually, topping its revenue gains
3. CALM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its improved cash conversion implies it’s becoming a less capital-intensive business

Cal-Maine’s stock price of $85.91 implies a valuation ratio of 12.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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