3 Consumer Stocks We Approach with Caution

Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector’s -9.2% decline paled in comparison to the S&P 500’s 11.7% gain.

Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. On that note, here are three consumer stocks best left ignored.

Kimberly-Clark (KMB)

Market Cap: $33.53 billion

Originally founded as a Wisconsin paper mill in 1872, Kimberly-Clark (NYSE:KMB) is now a household products powerhouse known for personal care and tissue products.

Why Do We Think Twice About KMB?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Projected sales growth of 2% for the next 12 months suggests sluggish demand
3. Free cash flow margin dropped by 6.3 percentage points over the last year, implying the company became more capital intensive as competition picked up

At $101.14 per share, Kimberly-Clark trades at 13x forward P/E. Dive into our free research report to see why there are better opportunities than KMB.

Post (POST)

Market Cap: $5.21 billion

Founded in 1895, Post (NYSE:POST) is a packaged food company known for its namesake breakfast cereal and healthier-for-you snacks.

Why Does POST Give Us Pause?

1. Shrinking unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its three-year trend
3. ROIC of 5.7% reflects management’s challenges in identifying attractive investment opportunities

Post is trading at $99.92 per share, or 14.6x forward P/E. If you’re considering POST for your portfolio, see our FREE research report to learn more.

Herbalife (HLF)

Market Cap: $1.32 billion

With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.

Why Does HLF Fall Short?

1. Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
2. Anticipated sales growth of 2.9% for the next year implies demand will be shaky
3. Issuance of new shares over the last three years caused its earnings per share to fall by 15.9% annually, even worse than its revenue declines

Herbalife’s stock price of $12.78 implies a valuation ratio of 5x forward P/E. Check out our free in-depth research report to learn more about why HLF doesn’t pass our bar.

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