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3 consumer stocks walking a fine line

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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 1.5%, disappointing since the S&P 500 climbed 6.3%.

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 best left ignored.

Molson Coors (TAP)

Market cap: $7.46 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 Is TAP Risky?

  1. Falling unit sales over the past two years imply it may need to invest in product improvements to get back on track
  2. Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 37 percentage points
  3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up

Molson Coors’s stock price of $40.14 implies a valuation ratio of 8.9x forward P/E. If you’re considering TAP for your portfolio, see our FREE research report to learn more.

Utz (UTZ)

Market cap: $1.27 billion

Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.

Why Are We Bearish on UTZ?

  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. Revenue base of $1.45 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
  3. ROIC of 0% reflects management’s challenges in identifying attractive investment opportunities

Utz is trading at $14.25 per share, or 17.7x forward P/E. Dive into our free research report to see why there are better opportunities than UTZ.

Ingredion (INGR)

Market cap: $6.02 billion

Known for its ability to turn ordinary corn into thousands of different food ingredients, Ingredion (NYSE: INGR) transforms grains, fruits, vegetables and other plant-based materials into specialty starches, sweeteners and other ingredients for food, beverage and industrial markets.

Why Is INGR Not Exciting?

  1. Products aren’t resonating with the market as its revenue declined by 4.2% annually over the last three years
  2. Sales are projected to be flat over the next 12 months and imply weak demand
  3. Free cash flow margin dropped by 6.1 percentage points over the last year, implying the company became more capital intensive as competition picked up

At $95.46 per share, Ingredion trades at 8.8x forward P/E. Check out our free in-depth research report to learn more about why INGR doesn’t pass our bar.

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