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2 Consumer Good Stocks to Buy This Month, 1 to Sell Despite Growth Potential

Amid turbulent macroeconomic conditions, consumer good companies that remain resilient to economic cycles could be strategic investments. Therefore, investors could look to buy fundamentally strong consumer goods stocks Unilever (UL) and Mannatech (MTEX). On the other hand, Peloton Interactive, Inc. (PTON) could succumb to the pressure due to its weak fundamentals. Keep reading...

Amid lingering concerns about an impending recession, investing in sectors less prone to economic downturns could be beneficial. Given the inelastic demand for the products of the consumer goods industry, investors could benefit from fundamentally strong consumer goods stocks Unilever PLC (UL) and Mannatech, Incorporated (MTEX). However, despite its growth potential, Peloton Interactive, Inc. (PTON) is not worth buying for the short term.

The consumer price index (CPI), which measures inflation by evaluating changes in a multitude of goods and services, increased 3% from a year ago, its lowest level since March 2021. On a monthly basis, the index rose 0.2%.

Similarly, a decline was seen in the producer price index, increasing bets that the Federal Reserve could achieve a soft landing for the U.S. economy.

While inflation remains high, the Fed is determined to bring it down to its ideal level of 2% through interest rate hikes. Despite the inflationary pressures, consumer goods companies can secure their profit margins by passing on high input costs to consumers. With necessary goods always in demand, businesses are able to generate steady profits.

Investors’ interest in consumer goods stocks is evident from the iShares US Consumer Staples ETF’s (IYK) 2% returns over the past month.

Given these factors, investors could take a look at the featured consumer goods stocks. Let’s take a closer look at their fundamentals.

Stocks to Buy:

Unilever PLC (UL)

Headquartered in London, the United Kingdom, UL operates as a fast-moving consumer goods company. It operates through five segments: Beauty & Wellbeing; Personal Care; Home Care; Nutrition; and Ice Cream.

UL’s net income grew at a CAGR of 12% over the past three years. Its revenue grew at a CAGR of 5.7% over the past three years. Moreover, its EPS grew at a CAGR of 13.2% in the same time frame.

In terms of the trailing-12-month EBIT margin, UL’s 13.61% is 331.1% higher than the 3.16% industry average. Its 12.56% trailing-12-month levered FCF margin is 321.6% higher than the 2.98% industry average. Likewise, its 42.06% trailing-12-month Return on Common Equity is 305.4% higher than the industry average of 10.37%.

UL’s turnover for the fiscal first half increased 2.7% year-over-year to €30.43 billion ($16.18 billion). The company’s net profit increased 20.7% year-over-year to €3.88 billion. Its underlying operating profit increased 3.3% year-over-year to €5.21 billion. Moreover, its underlying EPS came in at €1.46, representing a 9% increase over the prior-year quarter.

Analysts expect UL’s revenue estimates for the fiscal quarter ending September 30, 2023, to increase 4.7% year-over-year to $16.53 billion. Over the past nine months, the stock has gained 17.7% to close the last trading session at $53.54

UL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #6 of 54 stocks in the Consumer Goods industry. In addition, it has a B grade for Value, Stability, Sentiment and Quality. We have also given UL grades for Growth and Momentum. Get all UL ratings here.

Mannatech, Incorporated (MTEX)

MTEX operates as a health and wellness company worldwide. It develops, markets, and sells nutritional supplements; topical and skin care, and anti-aging products; and weight-management and fitness products.

In terms of the trailing-12-month asset turnover ratio, MTEX’s 2.48x is 181.1% higher than the 0.88x industry average. Its 75.97% trailing-12-month gross profit margin is 142.3% higher than the 31.36% industry average.

MTEX’s net sales for the first fiscal quarter ended March 31, 2023, increased 5.3% year-over-year to 34.11 billion. Its gross profit increased 5.6% year-over-year to $26.70 billion. The company’s net income increased 350.7% year-over-year to $604 million. Its EPS increased 433.3% year-over-year to $0.32.

Over the past month, the stock has fallen 2.4% to close the last trading session at $11.73

MTEX’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. It is ranked #4 in the same industry. It has an A grade for Value and Quality and a B grade for Sentiment. To see additional ratings of MTEX for Growth, Momentum and Stability, click here.

Stock to Sell:

Peloton Interactive, Inc. (PTON)

PTON operates an interactive fitness platform in North America and worldwide. The company offers connected fitness products with a touchscreen that streams live and on-demand classes under the Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+ names. It also provides connected fitness subscriptions for various household users, and access to various live and on-demand classes, as well as Peloton Digital app.

PTON’s revenue grew at a CAGR of 25.3% over the past three years. And its total assets grew at a CAGR of 5.5% over the past three years.

In terms of trailing-12-month Return on Common Equity, PTON’s negative 279.85% compares to the industry average of 9.90%. Its trailing-12-month EBITDA margin of negative 32.35% compares to the industry average of 10.65%. Likewise, its negative 80.21% trailing-12-month net income margin compares to the 4.18% industry average.

PTON’s total revenue for the third quarter ended March 31, 2023, declined 22.3% year-over-year to $748.90 million. The company’s adjusted EBITDA loss narrowed 90.4% year-over-year to $18.70 million. Its net loss per share attributable to common stockholders came in at $0.79. PTON’s EPS for the quarter ended June 30, 2023, is expected to remain negative.

Over the past six months, PTON has fallen 41.3% to close the last trading session at $9.61.

PTON’s positive outlook are reflected in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system. It is ranked #48 of 54 in the Consumer Goods industry. It has an F grade for Stability and Sentiment and a D for Value. Click here to see the other POWR Ratings of PTON for Growth, Momentum, and Quality.

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UL shares were trading at $53.07 per share on Wednesday morning, down $0.47 (-0.88%). Year-to-date, UL has gained 7.27%, versus a 18.94% rise in the benchmark S&P 500 index during the same period.



About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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