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2 Stocks In This Hated Sector Are Showing Signs Of Life – Should You Invest?

2 Stocks In This Hated Sector Are Showing Signs Of Life – Should You Invest?

Two stocks in one of the most hated sectors right now are looking ripe for the picking. Here’s why.

When headlines are bleak, that’s usually when it’s time to start buying.

Meet the most hated stocks in the market today,” CNBC headline from May 22, 2018.

Trouble in Big Food: America’s cereal, soda and soup companies are in turmoil,” CNNMoney headline from May 21, 2018.

And just this morning, this from Bloomberg: “Tired Old Brands Can’t Stomach Amazon-Whole Foods – For the lumbering giants of the packaged-food and consumer-products industries, things are getting rough.”

And its true. In the last year, consumers have been dumping “soup and cereal stocks” over fears of consumers’ changing tastes and rising interest rates. So much so that the sector is down over 10% on average this year.

But in June, the sector is showing some signs of life bouncing 3% so far this month.



“If you think about the big picture, consumer staples are late-cycle performers so they tend to perform once an economic expansion has already pretty much gone through its process, peaked and is starting to slow,” Gina Sanchez, CEO of Chantico Global, told CNBC. “We believe that that is probably happening as we speak.”

She joins a growing chorus of voices that say the next U.S. recession is on the horizon and will begin within the next 2 years. Sanchez is anticipating that U.S. economic growth will slow by the end of 2018 and into 2019.

“This is exactly the time when consumer staples should start to benefit. Investors are getting tired of their growth trades, they’re starting to rationalize those multiples and we’ve already seen the S&P generally roll over,” Sanchez said.

Two names in the sector that investors should consider are Costco (NASDAQ: COST) and Pinnacle Foods (NYSE: PF).



Costco (NASDAQ: COST)

Costco, for its part, has outperformed the consumer staples sector for 8 of the last 10 years, and the trend has continued this year. The stock has been hovering at January resistance, but this week has finally broken out and is likely to resume its bull trajectory.

Source: TradersPro.

And there’s good reason for investors to be upbeat about the stock. Last month, Costco reported its revenue had increased 14% year-over-year, with 8% comparable-store sales growth.

The warehouse store’s growth momentum is also accelerating. Comparable sales growth—excluding rising gas prices—for March, April, and May were 5.8%, 7.3%, and 8%, respectively.



Pinnacle Foods (NYSE: PF)

At first blush, Pinnacle looks a lot like the typical processed foods company that investors have fled from this year. However, the parent of grocery store staples Duncan Hines baking products and Bird’s Eye veggies has done a much better job of appealing to 21st century tastes than many companies in the same sector.

In its last earnings report, the company boasted adjusted earnings of 14% year-over-year, and net sales beat estimates at $778.8 million. Retail consumption expanded 3.5%, and market share increased 0.4%. That may seem small, but it marks the 16th consecutive period of growth for the company.

Overall, PF’s commitment to diversifying away from its stodgy legacy business—including through brands like its Smart Balance and Earth Balance dairy-free spreads, as well as various gluten-free products—and its focus on sustainability for its traditional food stuffs, has helped it avoid some of the pain other companies in the sector have faced.


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