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Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. But they’re also double-edged swords as they often lag in booming conditions, and this pattern has persisted recently. Over the past six months, the industry has recorded a loss of 7.9%, a far cry from the S&P 500’s 6.7% ascent.

Investors should tread carefully as the low switching costs for everyday products mean that not all businesses are created equal. On that note, here are three consumer stocks we’re passing on.

Conagra (CAG)

Market Cap: $12.12 billion

Founded in 1919 as Nebraska Consolidated Mills in Omaha, Nebraska, Conagra Brands today (NYSE:CAG) boasts a diverse portfolio of packaged foods brands that includes everything from whipped cream to jarred pickles to frozen meals.

Why Do We Pass on CAG?

1. Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track

2. Sales are projected to tank by 1.4% over the next 12 months as demand evaporates

3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 6.2 percentage points

At $25.40 per share, Conagra trades at 9.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CAG .

Kellanova (K)

Market Cap: $28.44 billion

With Corn Flakes as its first and most iconic product, Kellanova (NYSE:K) is a packaged foods company that is dominant in the cereal and snack categories.

Why Are We Hesitant About K?

1. Falling unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy

2. Sales are projected to be flat over the next 12 months and imply weak demand

3. Earnings per share have contracted by 2.5% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance

Kellanova is trading at $82.80 per share, or 21x forward price-to-earnings. Read our free research report to see why you should think twice about including K in your portfolio, it’s free .

SunOpta (STKL)

Market Cap: $665.7 million

Committed to clean-label foods, SunOpta (NASDAQ:STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.

Why Does STKL Give Us Pause?

1. Annual sales declines of 3.8% for the past three years show its products struggled to connect with the market

2. Modest revenue base of $724 million gives it less fixed cost leverage and fewer distribution channels than larger companies

3. Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 16.6% that must be offset through higher volumes

SunOpta’s stock price of $5.47 implies a valuation ratio of 21.5x forward price-to-earnings. If you’re considering STKL for your portfolio, see our FREE research report to learn more .

Stocks We Like More

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