3 Consumer Stocks That Fall Short

Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. The flip side is that they frequently fall behind growth industries when times are good, and this perception became a reality over the past six months as the sector was down 3.5% while the S&P 500 was up 5.7%.

Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Taking that into account, here are three consumer stocks best left ignored.

Molson Coors (TAP)

Market Cap: $9.04 billion

Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE:TAP) is a global brewing giant with a rich history dating back more than two centuries.

Why Do We Think TAP Will Underperform?

1. Shrinking unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 36.1 percentage points
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

At $48.14 per share, Molson Coors trades at 10.2x forward P/E. Dive into our free research report to see why there are better opportunities than TAP.

Mission Produce (AVO)

Market Cap: $1.00 billion

Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.

Why Do We Pass on AVO?

1. Subscale operations are evident in its revenue base of $1.39 billion, meaning it has fewer distribution channels than its larger rivals
2. Projected sales decline of 17.8% for the next 12 months points to a tough demand environment ahead
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 11.9%

Mission Produce is trading at $13.85 per share, or 20.4x forward P/E. Read our free research report to see why you should think twice about including AVO in your portfolio.

Kraft Heinz (KHC)

Market Cap: $28.67 billion

The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ:KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.

Why Should You Dump KHC?

1. Falling unit sales over the past two years suggest it might have to lower prices to stimulate growth
2. Projected sales decline of 2% over the next 12 months indicates demand will continue deteriorating
3. Operating margin declined by 25.2 percentage points over the last year as its sales cratered

Kraft Heinz’s stock price of $24.28 implies a valuation ratio of 12.1x forward P/E. To fully understand why you should be careful with KHC, check out our full research report (it’s free).

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