Backed by an improving economy and increasing consumer confidence, the consumer staples sector has been performing really well among most product categories over the past few months.
Consumer confidence, which has been on an uptrend, is now at its highest level since the recession. The consumer confidence index surged for the second consecutive month in September, signaling that the economy is improving. Stepped-up economic activities, better business conditions, housing market recovery, a buildup in inventories and improving labor market are some favorable economic indicators that play a key role in raising buyers’ confidence.
However, several events like the debate between Donald Trump and Hillary Clinton for the U.S. Presidential election 2016, along with a sudden surge in oil prices and uncertainties surrounding the Fed rate hike, are expected to spur market volatility and unnerve investors in the near term. Further, with the stage all set for the third-quarter earnings season, investors’ anxiety is at its peak as to how the quarter will unfold amid mixed economic data, thus fueling market speculations.
In such a scenario, the consumer staples sector – normally defensive in nature – appears quite reliable. In fact, market experts also believe the economy is not in bad shape and these worries are short lived, as economic activity is gradually picking steam. This makes the consumer staples sector attractive.
5 Consumer Staples Stocks with Growth Potential
With the help of our new style score system, we have identified five consumer staples stocks that have excellent prospects and might prove to be profitable for long-term investors.
Our Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.
To arrive at the best value picks, we first shortlisted stocks that either have a Zacks Rank #1 or #2 with a Value Style Score of ‘A’ or ‘B.’ From among them, we selected stocks with long-term growth of over 10% and finally zeroed in on five stocks that have a market capitalization of over $100 million.
The Ridgefield, CT-based The Chefs' Warehouse, Inc. (CHEF - Snapshot Report) , which is a distributor of specialty food products in the United States and Canada, has a long-term earnings growth rate of 12.50%. Adding further to its inherent strength story, this Zacks Rank #2 stock currently possesses a Value score of ‘B’ and has a market cap of about $300 million.
You can also add Rosemont, IL-based US Foods Holding Corp. (USFD - Snapshot Report) to your portfolio. This Zacks Rank #1 company markets and distributes fresh, frozen, and dry food and non-food products to foodservice customers in the United States. The stock has seen positive estimate revisions for 2016 and 2017 over the past two months. US Foods currently possesses a Value score of ‘A’, long-term earnings growth rate of 18.59% and has a market cap of about $5 billion, which make it an attractive pick.
Investors can count on Aramark (ARMK - Snapshot Report) , which provides food, facilities, and uniform services in North America and internationally. This company has a market cap of more than $9 billion, beta of as low as 0.57 and a long-term growth rate of 11.87%.
The company not only flaunts an impressive earnings surprise history over the past four quarters, but its positive estimate revisions for fiscal 2016 and fiscal 2017 over the past two months also instill confidence among investors. This Philadelphia, PA-based company can be a perfect fit for investors’ portfolio, armed with a Value score of ‘B’ and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
To satiate investors’ appetite further, we suggest investing in Tupperware Brands Corporation (TUP - Snapshot Report) , with a market cap of more than $3 billion. Headquartered in Orlando, FL, this Zacks Rank #2 company operates as a direct-to-consumer marketer of various products across a range of brands and categories worldwide.
The company’s strong earnings surprise history and favorable estimate revisions for full year 2016 and 2017 over the past 60 days, highlight its solid prospects. Tupperware Brands also has a Value score of ‘B’ and a long-term earnings growth rate of 11%, which make it a solid bet.
Another company that warrants a look is Springdale, AR-based Tyson Foods, Inc. (TSN - Analyst Report) . The Zacks Rank #1 company, with a market cap of more than $27 billion, has not been a disappointment, as is evident from its average trailing four-quarter earnings surprise of 12.24%.
Further, the stock’s beta of 0.26 is likely to shield it from the market tussles. Tyson Foods also showcases upward revisions in its estimates for fiscal 2016 and fiscal 2017 over the past 60 days – making it a solid bet. Not enough? Take a look at its Value score of ‘B’ and a long-term earnings growth rate of 11%, and you will be sure to add this meat company to your portfolio.
You can also use the Zacks Stock Screener to find other stocks with this winning combination. Investors can confidently end their search at stocks with a favorable Zacks Rank of either #1 or #2, which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives favorable returns.
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