The Zacks Consumer Products – Staples industry consists of companies involved in marketing, producing and distributing a wide range of consumer products. These include personal care items, cleaning equipment, stationery, bed and bath products and household goods like kitchen appliances, cutlery and food storage. Some of the industry participants provide batteries and lighting products, while the space includes food store retailers operating superstores, convenience stores, supermarkets and drugstores.
Let’s take a look at the three major industry themes:
- Several industry players are likely to gain on rising demand for staples or essential goods – stemming from consumers’ increased stay at home and stock-piling trends amid the coronavirus outbreak. Markedly, essentials like hand sanitizers, tissue paper, toilet paper, cleaning wipes, grocery, infant supplies and related staples are seeing a spike in demand as Americans are spending more time at home and undertaking extra measures for safety and sanitization. This makes the role of several consumer products companies such as Kimberly-Clark (KMB - Free Report) important. In fact, demand for most of the products provided by these industry participants remains fairly stable. No wonder, consumer product players are focused on concerted revenue-boosting initiatives to squeeze out more from their operations.
- Players in the space are committed toward portfolio optimization via buyouts and divestitures, which enable them to increase focus on areas with higher growth potential. Also, innovation in areas that are witnessing increasing consumer interest, such as organic products, is adding to portfolio strength. Companies are also adopting prudent pricing strategies to gain market traction and fight input cost challenges.
- Some players are enhancing their digital and e-commerce capacities to keep pace with evolving consumer patterns. While these endeavors act as major tailwinds, the related costs keep margins under pressure. Also, higher advertising and other growth-related investments are a threat to margins. Nevertheless, the companies’ solid cost-containment and restructuring plans should offer some respite.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Consumer Products – Staples industry is housed within the broader Zacks Consumer Staples sector. It currently carries a Zacks Industry Rank #71, which places it in the top 28% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Given the favorable near-term prospects, we will present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Lags on Stock Market Performance
The Zacks Consumer Products – Staples industry has lagged the S&P 500 index, while it has outperformed the broader Zacks Consumer Staples sector over the past year.
The industry is down 0.1% over this period, compared with the S&P 500 index’s growth of 16.4%. Meanwhile, the broader sector has lost 4.9%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer staples stocks, the industry is currently trading at 22.27X compared with the S&P 500’s 22.81X and the sector’s 19.98X.
Over the last five years, the industry has traded as high as 22.83X, as low as 13.74X, and at the median of 18.24X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Burgeoning demand for essential items amid the pandemic is likely to work well for some players in the Consumer products – Staples industry. Apart from this, focus on portfolio optimization, innovation and e-commerce developments bode well. Also, companies in the space are likely to tide over cost-related hurdles with stringent saving measures, restructuring plans and efficient pricing. Stiff competition from private players cannot be ignored.
All said, we are presenting a few stocks from the Consumer Products – Staples space that are well positioned to capitalize on the opportunities.
Newell Brands Inc. (NWL - Free Report) : The Zacks Consensus Estimate for Newell Brands’ current-year EPS has moved 7.8% north in the last seven days. This Atlanta, GA-based company has beaten the consensus mark by 38.7%, on average, in the trailing four quarters. The Zacks Rank #1 (Strong Buy) company has an estimated long-term earnings growth rate of 1.7%. Further, shares of the consumer and commercial products provider have rallied 42.5% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NWL
Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) : This Zacks Rank #1 company has an estimated long-term earnings growth rate of 21.5%. Further, shares of the company have jumped 40.4% in the past three months. We note that Ollie's Bargain delivered an earnings surprise in the last reported quarter. The Zacks Consensus Estimate for the company’s current-year EPS has risen 18.6% in the last 30 days.
Price and Consensus: OLLI
Grocery Outlet Holding Corp. (GO - Free Report) : The Zacks Consensus Estimate for this California-based company’s current-year EPS has moved up by a cent in the last 30 days. The company has an estimated long-term earnings growth rate of 13.5%. The Zacks Rank #2 (Buy) company has seen its shares rise as much as 22.8% in the past three months.
Price and Consensus: GO
Purple Innovation, Inc. (PRPL - Free Report) : This Zacks Rank #2 company has an estimated long-term earnings growth rate of 19.1%. The provider of mattresses, pillows and cushions has seen its shares jump 84.4% in the past three months. Additionally, the company has a significant earnings surprise history, on average, for the trailing four quarters.
Price and Consensus: PRPL