The Zacks Consumer Products – Staples industry participants are engaged in manufacturing, marketing and distribution of items such as food, personal care products, cleaning equipment, stationery as well as household goods like kitchen appliances, cutlery and food storage among others. Some companies also provide batteries, lighting products, indoor and outdoor decor items. The firms operating in this space sell their products mostly through wholesalers, convenience stores, supermarkets, drugstores, grocery chains, independent stores, as well as online retailing platforms.
Let’s take a look at the three major industry themes:
• Since the industry mainly deals in products that are required on a daily basis, demand remains fairly stable. Moreover, incentivizing consumers with attractive offers, unique store experiences, as well as concerted marketing tactics have been effective in ramping up revenues. Companies are also adopting prudent pricing strategies to offer greater value to consumers as well as to combat the risks stemming from rising input costs.
• Acquisitions have played an important role for most consumer products companies when it comes to optimizing their portfolio. Also, innovations in areas that are witnessing increasing consumer interests such as organic and cruelty free products are adding to portfolio strength. However, competition from cheaper alternatives is a threat.
• With technology ruling the roost, consumer products companies are adopting prudent ways to enhance the shopping experience. In fact, e-commerce is aiding companies to establish a one-on-one relationship with consumers. Moreover, due to wider product availability and convenient payment options, online shopping is preferred over traditional mode of shopping. Digitization has also disrupted traditional supply chain models and created dynamic interconnected networks that efficiently combine resources and various interest groups. Such systems lead to better tracking of information as well as elimination of redundancies.
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 #80, which places it in the top 31% 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 encouraging 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.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.
Given the solid 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 S&P 500 and Sector
The Zacks Consumer Products – Staples industry has lagged the S&P 500 Index and the broader Zacks Consumer Staples sector over the past year. The industry has lost 1.5% over this period against the S&P 500 Index’s rise of 4.5% and the broader sector’s increase of 4%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer staples stocks, the industry is currently trading at 17.78X compared with the S&P 500’s 17.16X and the sector’s 19.59X.
Over the last five years, the industry has traded as high as 20.75X, as low as 13.25X, and at the median of 17.42X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Consumer products industry players are likely to keep benefiting from the prospects emerging from technological advancements and new product development. Portfolio enhancement efforts are also helping these companies to eliminate low-key businesses and divert resources toward areas with high growth potency. Additionally, actions to boost operational efficiency are boosting savings, which are likely to help tide over rising cost pressure.
All said, we are presenting a few stocks from the Consumer Products – Staples space that are well positioned to capitalize on opportunities.
Kimberly-Clark Corporation (KMB - Free Report) , a well-known personal care products company, currently sports a Zacks Rank #1 (Strong Buy). The stock has rallied 28.7% in the past year. The company has been benefiting from solid restructuring and savings initiatives. The Zacks Consensus Estimate for current-year earnings has increased 4 cents in the past seven days. Its long-term earnings growth rate is 5.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: KMB
WD-40 Company (WDFC - Free Report) , specializing in home care and maintenance products, currently carries a Zacks Rank #2 (Buy). It has an estimated long-term earnings growth rate of 10% and delivered average positive earnings surprise of 3.1% in the trailing four quarters. The Zacks Consensus Estimate for fiscal-year earnings has gone up by 10 cents over the past 30 days.
Price and Consensus: WDFC
Investors can also count on Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) , which has gained 16.6% in the past year. The company, which offers a variety of consumer products, is gaining from strong merchandising initiatives, cost-containment efforts and reward programs. It delivered average positive earnings surprise of 4.3% for the trailing four quarters. The Zacks Consensus Estimate for fiscal-year earnings has remained stable over the past 30 days. Further, this Zacks Rank #3 (Hold) stock has an estimated long-term earnings growth rate of 22.1%
Price and Consensus: OLLI