The consumer staples sector (including food and beverage stocks) has successfully grabbed investors’ attention, of late. Nevertheless, amid a sound U.S. economic picture and an upbeat consumer confidence data, aspects such as heightened geopolitical tensions due to North Korea’s slew of nuclear tests or uncertainty regarding President Trump’s policies has made investors skeptical.
Over the last few months, companies in the consumer staples sector have been countering several challenges like intense competition, input cost inflation and tight margins. Notably, food deflation added to the woes over the past year, where a supply glut in some types of food — particularly meat, poultry and dairy — dragged down prices and forced several companies resort to aggressive promotional activities.
We note that the Zacks Consumer Staples sector is currently placed at the bottom 13% out of the 16 Zacks Sectors. On a year-to-date (YTD) basis, the sector has yielded a return of 15.1%, underperforming 22.9% growth recorded by the benchmark S&P 500 market.
Moreover, the Consumer Staples Select Sector SPDR ETF (XLP) has gained only 10.2% on a YTD basis, performing better than only three sectors among 11 of the S&P 500.
Will U.S. Tax Cuts be a Game Changer?
At present, investors are keeping a close eye on the precise earnings impact of the current tax legislation in the United States. The S&P 500 earnings for 2018 have already been predicted to be up 11.8%, with the growth pace estimated to be roughly double, as a result of the tax legislation. (Read: Earnings Boost from the Tax Legislation).
A section of market observers feels that added stimulus could actually be counterproductive for an economy which is operating almost at its full capacity and undergoing near-full-employment levels. Such a state has been upheld in an ultra-low rate environment, comprising sluggish inflation rate.
However, tax cuts might escalate inflation rates, which, in turn, might compel the Federal Reserve to initiate sharper and faster rate hikes. Such an outcome might depress the equity universe and persuade investors to park money in the safe-haven sectors such as utilities and consumer staples.
Companies categorized under the consumer staples sector sell relatively low-priced products. Hence, these stocks are considered to be defensive and are mostly trusted during periods of economic downturn.
We believe many food stocks in the Consumer Staples sector will benefit from the aforementioned scenario. So, it is not an easy task to find potential winners in this space.
However, we have taken the help of the Zacks Stock Screener to zero down on four promising stocks that currently carry a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
To further cut short the list, we selected those stocks which have outperformed the industry on a YTD basis and surpassed the Zacks Consensus Estimate for earnings in the last reported quarter. Also, the projected earnings per share (EPS) growth rate for these picks is higher than that of the industry average.
4 Promising Picks
Pilgrim's Pride Corporation (PPC - Free Report) currently sports a Zacks Rank of 1. On a YTD basis, the stock has yielded a return of 66%, outperforming 27.4% growth recorded by the industry.
In the last reported quarter, the company’s adjusted earnings of 98 cents per share surpassed the Zacks Consensus Estimate by 27.3%. Notably, the stock’s EPS is projected to be up 5.09% in 2018, as against the estimated 3% loss to be incurred by the industry.
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Medifast, Inc. (MED - Free Report) holds a Zacks Rank of 2, at present. The stock has yielded a return of 79.6%, as against 2.4% loss incurred by the industry, in the year so far.
In the last reported quarter, the company’s adjusted earnings of 55 cents per share outpaced the Zacks Consensus Estimate by 7.8%. Notably, the stock’s EPS is estimated to rise 19.82% in 2018, as against 14.70% growth predicted for the industry.
Nomad Foods Limited (NOMD - Free Report) also carries a Zacks Rank of 2. The stock has appreciated 76.1%, as against 2.4% loss incurred by the industry, year to date.
In the last reported quarter, the company’s adjusted earnings of 29 cents per share surpassed the Zacks Consensus Estimate by 26.1%. Notably, the stock’s EPS is projected to be up 18.14% in 2018, as against 14.70% growth estimated for the industry.
US Foods Holding Corp. (USFD - Free Report) carries a Zacks Rank of 2. The stock has gained 15.1%, as against the 2.4% loss incurred by the industry, in the YTD period.
In the last reported quarter, the company’s adjusted earnings of 39 cents per share outpaced the Zacks Consensus Estimate by 2.6%. Notably, the stock’s EPS is projected to be up 24.54% in 2018, as against 14.70% growth predicted for the industry.
Wall Street’s Next Amazon
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