Gabby Jones/Bloomberg
Consumer staples have been anything but sleepy recently. There are plenty of factors working against the group, as their pandemic boost is ending and higher interest rates make their generous dividends look less attractive. Yet the group has bounced back in recent weeks. It’s time for investors to get selective, says Wells Fargo.
Analyst Chris Carey takes a look at the group on Tuesday, arguing that there’s reason for investors to take a look at some of the laggards, even as others still look pricey.
While most staples stocks have done better than the
since the sector bottomed on March 5,
(EL) and
Holdings (SPB) are two that have not. Carey sees that as a buying opportunity: He upgraded Estee Lauder last week, citing recent data from China that show the company can deliver much stronger results than the market is expecting. Likewise, he raised his price target on Spectrum by $10 to $105 on Monday, given low expectations, attractive valuation, and its business mix of both cyclical and defensive exposure.
(CLX) is a name that’s only slightly outpaced the S&P 500 in recent weeks, even as Carey sees upside to fiscal-third-quarter revenue, and expects the company to retain pricing power. Looking past the Covid-19 impact, there’s reason to be optimistic about the company’s sales and margins going forward, he says.
In the beverage category, he like
(STZ) and
(MNST), whose stock performances have been in the middle of the pack. Constellation will benefit from stronger beer demand than investors expect, he believes, while Monster’s growth catalysts are nearly as robust as Estee Lauder’s, but with a cheaper multiple.
While he has an Overweight rating on all five of the above stocks, Carey reiterated an Underweight rating on Coty (COTY). He argues that the company’s premium valuation persists, ignoring the impact that Covid had on earnings, and that ongoing challenges evident in the first quarter show that fundamentals have worsened.
Write to Teresa Rivas at teresa.rivas@barrons.com
