In a world where investors focus on the tech stocks of the future, the equities representing the products we use every day often get ignored. When many investors hear “consumer staples stocks,” they tend to think of names such as Procter & Gamble (NYSE:) or Clorox (NYSE:). While those firms may make the products necessary for people’s lives, they might also struggle to attract investor interest.
However, investors should take a closer look at consumer staples stocks. Consumer staples is a diverse category, and some subsectors generate investor excitement. It can include consumer electronics. Additionally, the emerging marijuana and hemp sectors have also reinvigorated interest in consumer stocks.
Moreover, due to depressed price-to-earnings (P/E) ratios for many consumer staples stocks, some offer not only deep value, but also increased cash payouts. These four consumer-oriented equities provide a unique opportunity for significant cash payouts and stock-price growth:
Consumers often forget that some consumer staples stocks come with a tech focus. Such is the case with Apple (NASDAQ:). The company has long depended on the iPhone for the majority of its revenue. However, amid competition, consumers have shown less willingness to pay Apple’s premium prices. Moreover, traders also worry about how the U.S.-China trade war will affect the company. As a result, AAPL stock remains in a bear market.
The good news for AAPL longs is that arguably no other company is better positioned to reinvent itself than Apple. In recent months, the company has ventured into streaming media, credit cards, information, and other businesses in an attempt to return to double-digit growth. Even after investing in some of these areas, their cash hoard stood at $225.4 billion at the end of the first quarter.
Moreover, their trailing P/E ratio stands at about 15.4. While profits will likely stagnate this year, analysts forecast that Apple will return to double-digit profit growth in 2020. Furthermore, holders of AAPL stock now earn an annual dividend of $3.08 per share. Though this brings the yield to only about 1.6%, investors should note that payouts have increased every year since they began in 2012.
Apple stock may struggle in the near term as the company explores new revenue streams and deals with a trade war. However, once the company profits from new businesses and the U.S. and China agree on trade, AAPL stock should again resume its move higher.
Greif (NYSE:) may not serve as one of the better-known consumer staples stocks. However, its packaging plays a vital role in the industrial sector. Moreover, the company’s financial metrics may make some investors want to secure some GEF stock in their portfolio.
Since the beginning of 2018, concerns about a slowing economy weighed on GEF stock. Investor worries worsened with the purchase of Caraustar industries earlier year. As a result, GEF trades at a discount of more than 40% from its 52-week high.
The forecasted earnings growth of only 4.2% this year may explain some of the stock’s decline. Still, profits have typically increased at double-digit rates in the past. Wall Street predicts that that growth rate will return next year with a 12% increase forecasted.
Moreover, this also leaves its trailing P/E ratio at just 9.7 times earnings. This compares well to other consumer staples stocks as many trade at a multiple above 20.
Investors should also pay attention to the dividend. The annual payout of $1.76 per share takes the yield to around 4.75%. While that dividend does not increase every year, it has gradually moved higher over time. Between this payout and the low multiple, GEF stock holds tremendous potential as both a growth and an income play.
United Breweries (CCU)
United Breweries (NYSE:), known in its native Chile as Compañía Cervecerías Unidas S.A., is the number one producer of beer in Chile. United Breweries also derives a significant percentage of its revenue from Argentina, Uruguay, Paraguay, and Bolivia. Despite the beer-oriented name, the company also sells wine, spirits, and non-alcoholic drinks.
Chile has gradually become one of Latin America’s wealthiest countries. CCU stock has grown with the country. Despite this growth, CCU stock trades at a trailing P/E ratio of 10.4.
Volatility may partially explain the low multiple in CCU stock. Analysts expect profits to increase by 76.9% this year. However, in 2020, they forecast an earnings decline of 26.2%. Still, they predict that growth to average 11.37% per year over the next five years. This represents a turnaround from previous years as profits had shrunk more often than not.
That positive growth should also reduce the volatility of its dividend. The company will pay out $1.32 per share in dividends this year. That translates to a yield of 5.0% at current prices. Despite the yield and the improving profit picture, investors need to prepare for some fluctuation in the payout. The company paid only 36 cents per share in 2018, down from 56 cents per share in 2017.
CCU stock will require stockholders to exercise patience with the ups and downs. However, for those that can handle the volatility, CCU should remain one of the consumer staples stocks that should have investors raising a glass.
Nu Skin Enterprises (NUS)
Nu Skin Enterprises (NYSE:) utilizes multilevel marketing and social media to sell its dietary and skin-care products. It began operations in 1984 and sells its products under the Nu Skin and Pharmanex brands. Though it didn’t sell outside of the U.S. until 1990, non-U.S. sales now account for about 88% of revenues.
Consequently, worries about currency risk and trade in the second quarter have weighed on NUS stock, and it has struggled in recent days. The Provo, Utah-based firm spiked higher by 19% after beating on earnings and revenue in its 1Q 2019 report. However, in subsequent trading sessions, it has given most of that gain back as trade-related uncertainty returns. NUS stock trades at more than 40% below its 52-week high.
However, that creates an opportunity among consumer staples stocks. Despite these worries, earnings forecasts for both this year and next have moved higher over the last 30 days. More importantly, these revisions point to double-digit earnings increases for both 2019 and 2020. This has helped to take its forward P/E ratio to around 11.7.
Also, thanks to the decline in the stock, the $1.48 dividend yields almost 2.9%. Since this payout has increased every year for the past 18 years, investors can probably expect the annual payout hikes to continue. Both the high, increasing payout and the low P/E ratio position NUS stock for both growth and income once trade war-related tensions ease.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can at @HealyWriting.
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