The consumer staples sector has been drawing investors’ attention lately, as an improving economy and rising consumer confidence is doing the trick for this sector. Labor market optimism, strong GDP numbers and a resurgent housing market have played crucial roles in raising buyers’ confidence and suggest that the economy is in good health.
However, North Korea’s latest nuclear test has spurred global tensions and unnerved investors, who seem to remain unsure of Trump’s policies. Nevertheless, we believe these are short-term headwinds and can be well taken care of. At this juncture, it may be a good idea to buy consumer staple stocks, as there are signs of continuing strength in consumer confidence which in turn will lead to higher consumer spending and fuel growth in the near term.
However, despite the prevailing optimism around the sector, there still remain stocks which are not capable of delivering desired returns, probably due to headwinds like pricing pressure, highly promotional environment or unfavorable currency. So let's find out which consumer staples stocks are underperforming and are not fit for your portfolio currently.
How to Identify Underperforming Stocks?
This is where our VGM Score comes into play. Such a score allows you to eliminate the negative aspects of stocks and select the sure winners. Our research shows that stocks with VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.
The undermentioned stocks have a VGM Score of C or D, along with a Zacks Rank #4 (Sell). The Zacks Consensus Estimates for these stocks have also been declining over the past 30 days and their share prices are trending lower than the industry average. As a result, these underperforming stocks should not be included in your portfolio.
5 Stocks to Avoid
B&G Foods Inc. (BGS - Free Report)
NJ-based B&G Foods, a manufacturer and distributor of shelf-stable foods, is failing to impress of late. The stock has a Zacks Rank #4 and a VGM Score of C. Moreover, the Zacks Consensus Estimate for the third quarter as well as for 2017 and 2018 has been declining over the past 30 days. Further, this food company has delivered negative sales surprise in six of the last eight quarters.
If we look into the share price performance, we note that the stock has declined significantly by 24.5% in the last six months, wider than the industry’s fall of 6.8%.
Coty Inc. (COTY - Free Report)
We do not recommend investing in Coty, a manufacturer and marketer of beauty products worldwide. Based in New York, Coty carries a Zacks Rank #4 and a VGM Score of D. The Zacks Consensus Estimate for the first quarter fiscal 2018 as well as for fiscal 2018 and 2019 has steeply declined over the past 30 days. It posted negative surprise in three of the past four quarters, with an average negative surprise of 27.65%. We believe sluggish consumer beauty segment, competitive pressure, currency headwinds and changing consumer preferences have been the major deterrents.
The stock has declined 9.9% in the last six months against the industry’s 11.9% growth.
Lancaster Colony Corporation (LANC - Free Report)
Lancaster is another stock which investors should avoid right now. The company has a Zacks Rank #4 and carries a VGM Score of C. The Zacks Consensus Estimate for the first quarter fiscal 2018 as well as for fiscal 2018 and 2019 has declined over the past 30 days period. This Columbus, OH-based food company posted negative surprise in two of the past four quarters, making it for an average negative surprise of 3.32%.
Looking into the share price performance of the company, we note that the stock has declined 9.2% in the last six months, wider than the industry’s decline of 6.8%.
Flower Foods Inc. (FLO - Free Report)
Georgia-based Flower Foods produces and markets bakery products in the United States. It has a Zacks Rank #4 and a VGM Score of C. The Zacks Consensus Estimate for the third quarter 2017 as well as for full-year 2017 and 2018 has also marginally declined over the past 30 days. Flower Foods has reported negative sales surprise in nine out of the last 10 quarters. We note that the company has been grappling with sluggish sales due to high promotional environment and higher marketing costs.
The stock has declined 9.6% on a year-to-date basis, in comparison to the industry, which fell 7.9%.
Hormel Foods Corporation (HRL - Free Report)
Austin, MN-based Hormel Foods Corporation is a multinational manufacturer and marketer of consumer-branded meat and food products. It has a Zacks Rank #4 and a VGM Score of D. The Zacks Consensus Estimate for the fourth quarter and fiscal 2017 has declined steeply over the past 30 days. Hormel Foods has also reported negative sales surprise in the last four quarters, while it has posted negative earnings surprise in three out the last four quarters, making it for an average negative surprise of 4.28%.
Looking into the share price performance of the company, we note that the stock has declined 8.4% in the last six months against the industry’s 7.4% gain.
An intelligent selection of stocks greatly benefits investors and therefore, it is recommended to avoid the abovementioned stocks from your portfolio.
You can also use the Zacks Stock Screener to find other stocks with winning combination. Your search ends 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. As we know, a sturdy portfolio always gives favorable returns.
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