Over the past quarter, U.S. stock investors wary of a Federal Reserve rate hike have moved away from some of the traditionally defensive sectors of the market like utilities and telecoms in favor of more risky, cyclical sectors like technology and industrials.
The worst-performing sector over the past month has been non-cyclical consumer goods, which is normally a defensive sector. This sector includes industries such as food and beverage, household products and tobacco — industries that are normally safe havens in volatile times. The recent underperformance of consumer goods stocks has left many looking attractive based on forward price-earnings ratios and earnings growth projections.
We used the Recognia Strategy Builder to search for large-capitalization U.S. consumer goods stocks looking well valued due to recent pullbacks.
[See: 7 Stocks to Buy for the Fourth Quarter.]
We began by setting a minimum market capitalization threshold of $5 billion to focus on larger, more established companies in the market. Next, to find non-cyclical consumer good stocks that have already moved lower recently, we screened for stocks in this sector with negative price performance over the preceding four weeks.
Earnings-per-share growth is also a key aspect of our strategy so we will screen to find stocks with EPS growth rates of 5 percent or more (this year versus last year) based on analyst projections. To ensure we don’t overpay for our investments, we will also filter based on a forward P/E ratio of 25 or less.
Hanesbrands (ticker: HBI). Topping our list is basic apparel-maker Hanesbrands, which has a strong projected EPS growth rate of 15 percent and very low forward P/E of 12.4. Hanesbrands stock price is off 7.5 percent over the past month. This is in spite of a third-quarter financial release on Oct. 28 in which the company announced earnings and revenue that were in line with analyst estimates.
Tyson Foods (TSN). Springdale, Arkansas-based Tyson Foods is another consumer goods stock with strong prospects and a lagging stock price. A consensus of analysts are bullish on Tyson, projecting a 45 percent EPS growth rate this year over last year. On Oct. 7, Tyson Foods received a downgrade from one research firm causing the stock to plummet 8.9 percent in just one day. The stock has since made back some of this loss but still sits down 5.9 percent over its price four weeks ago. Tyson Foods also has the lowest forward P/E ratio on our list at just 15.7.
[See: 7 Ways to Tell if a Stock Is a Good Price.]
Estee Lauder Companies (EL). The worst one-month price performance on our list belongs to Estee Lauder, which is down almost 10 percent in the past four weeks. Much of this decline has come since its first-quarter earnings release on Nov. 2. Although the company beat analyst expectations for earnings, investors were spooked by declining revenue growth and drove the stock lower by almost 8 percent over two trading days. Estee Lauder also looks attractive based on its forward P/E of 23 and its 1.5 percent dividend yield.
Clorox Co. (CLX). Clorox is a value investing darling sought for its consistency in earnings and dividend growth. This stock has had a rough ride over the past month, down 6.5 percent. Although it released lukewarm earnings on Oct. 27, the stock declined fairly steadily over the entire past month. As a dividend growth stock, one explanation for its decline is interest rate sensitive investors moving money out of the stock and into investments less exposed to Fed interest rate policy. That said, Clorox is staple of any dividend growth investor’s portfolio. The company has raised dividends every year since 1977 and will very likely do so for the foreseeable future. The recent pullback may be an excellent opportunity for a long-term investor.
Historical performance. Recognia Strategy Builder provides a backtesting capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly re-balancing, the screen described had a 21.1 percent annualized return compared to 11.2 percent for the Standard & Poor’s 500 index and 8.7 percent for the Dow Jones industrial average.
[See: 20 Awesome Dividend Stocks for Guaranteed Income.]
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.
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Brighten Your Portfolio With These 4 Consumer Goods Stocks originally appeared on usnews.com
