1 Consumer Stock for Long-Term Investors and 2 We Avoid

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’s 2.6% return has trailed the S&P 500 by 3.9 percentage points.

The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one consumer stock boasting a durable advantage and two best left ignored.

Two Consumer Staples Stocks to Sell:

B&G Foods (BGS)

Market Cap: $445.5 million

Started as a small grocery store in New York City, B&G Foods (NYSE:BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.

Why Should You Dump BGS?

1. Products have few die-hard fans as sales have declined by 5.4% annually over the last three years
2. Performance over the past three years was negatively impacted by new share issuances as its earnings per share dropped by 23.1% annually, worse than its revenue
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

B&G Foods is trading at $5.61 per share, or 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than BGS.

Hormel Foods (HRL)

Market Cap: $11.74 billion

Best known for its SPAM brand, Hormel (NYSE:HRL) is a packaged foods company with products that span meat, poultry, shelf-stable foods, and spreads.

Why Do We Steer Clear of HRL?

1. Shrinking unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
2. Gross margin of 16.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities
3. Sales over the last three years were less profitable as its earnings per share fell by 8.8% annually while its revenue was flat

Hormel Foods’s stock price of $21.42 implies a valuation ratio of 14.3x forward P/E. Read our free research report to see why you should think twice about including HRL in your portfolio.

One Consumer Staples Stock to Watch:

Coca-Cola (KO)

Market Cap: $338.1 billion

A pioneer and behemoth in carbonated soft drinks, Coca-Cola (NYSE:KO) is a storied beverage company best known for its flagship soda.

Why Does KO Catch Our Eye?

1. Products command premium prices and lead to a best-in-class gross margin of 61.4%
2. Healthy operating margin of 27% shows it’s a well-run company with efficient processes, and its rise over the last year was fueled by some leverage on its fixed costs
3. Free cash flow margin expanded by 27.5 percentage points over the last year, providing additional flexibility for investments and share buybacks/dividends

At $78.60 per share, Coca-Cola trades at 23.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

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