Moody's Ratings Affirms Utz's B2 Cfr, Changes Outlook To Negative

Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. On the other hand, they usually underperform during bull runs, and this paradigm has rung true over the past six months as the sector’s -1.4% decline paled in comparison to the S&P 500’s 5.2% gain.

Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. Taking that into account, here are three consumer stocks best left ignored.

Mission Produce (AVO)

Market Cap: $881.3 million

Founded in 1983 in California, Mission Produce grows, packages, and distributes avocados.

Why Should You Sell AVO?

• Smaller revenue base of $1.39 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
• Forecasted revenue decline of 15% for the upcoming 12 months implies demand will fall off a cliff
• Gross margin of 10.9% is an output of its commoditized products

At $12.48 per share, Mission Produce trades at 15.9x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including AVO in your portfolio.

Utz (UTZ)

Market Cap: $1.11 billion

Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.

Why Are We Out on UTZ?

• Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
• Modest revenue base of $1.43 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
• Underwhelming 0.3% return on capital reflects management’s difficulties in finding profitable growth opportunities

Utz is trading at $12.93 per share, or 14.3x forward P/E. Check out our free in-depth research report to learn more about why UTZ doesn’t pass our bar.

Edgewell Personal Care (EPC)

Market Cap: $1.07 billion

Boasting brands such as Banana Boat, Schick, and Skintimate, Edgewell Personal Care sells personal care products in the skin and sun care, shave, and feminine care categories.

Why Do We Pass on EPC?

• Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
• Earnings per share fell by 2.6% annually over the last three years while its revenue was flat, showing each sale was less profitable
• Capital intensity has ramped up over the last year as its free cash flow margin decreased by 4.9 percentage points

Edgewell Personal Care’s stock price of $22.93 implies a valuation ratio of 7.1x forward P/E. Dive into our free research report to see why there are better opportunities than EPC.

Stocks We Like More

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What Happened?

A number of stocks fell in the pre-market session after markets pulled back amid hotter-than-expected inflation data. The main concern for investors was the July Producer Price Index (PPI), a measure of wholesale inflation. The higher-than-expected reading suggests that companies could face squeezed profit margins due to rising costs. This also reduces the likelihood of the Federal Reserve cutting interest rates, which could further dampen economic activity. Compounding these inflation fears are multiple reports signaling a weakening consumer.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Shelf-Stable Food company Utz fell 6.6%. Is now the time to buy Utz? Access our full analysis report here, it’s free.
• Personal Care company Estée Lauder fell 6.5%. Is now the time to buy Estée Lauder? Access our full analysis report here, it’s free.
• Beverages, Alcohol, and Tobacco company MGP Ingredients fell 3%. Is now the time to buy MGP Ingredients? Access our full analysis report here, it’s free.
• Shelf-Stable Food company B&G Foods fell 4.1%. Is now the time to buy B&G Foods? Access our full analysis report here, it’s free.
• Perishable Food company Beyond Meat fell 3.4%. Is now the time to buy Beyond Meat? Access our full analysis report here, it’s free.

Zooming In On Utz (UTZ)

Utz’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 1 day ago when the stock gained 3.4% on the news that markets continued to rally as a surprisingly subdued inflation report fueled hopes for an imminent interest rate cut from the U.S. Federal Reserve. The July Consumer Price Index (CPI) report showed a year-over-year increase of 2.7%, which was slightly below market expectations. This tamer-than-expected inflation data was viewed by investors as a key signal that price pressures are easing. As a result, the market has strengthened its conviction that the U.S. Federal Reserve will implement an interest rate cut in September. The prospect of lower borrowing costs tends to boost corporate profitability and can stimulate economic activity, creating a more favorable environment for consumer-facing companies and fueling a broad-based market rally.

Utz is down 11% since the beginning of the year, and at $13.48 per share, it is trading 27.5% below its 52-week high of $18.60 from September 2024. Investors who bought $1,000 worth of Utz’s shares 5 years ago would now be looking at an investment worth $983.22.