It is safe to say that 2024 has been a disappointing year for those who invested in consumer staple stocks. The widely feared and talked about recession has not arrived, and so far the Fed has not made any rate cuts this year despite high anticipation. Although the interest rate cut is most likely going to occur during the September meeting, there is still a good chance that the Fed will not take the cut aggressively, and the cut journey will occur gradually.
This would mean that it will take a couple of years for the interest rate to go back to the normal rate. Thus, it is simply not enough for investors to buy say consumer staples are recession proof and instead, they should also consider the current valuation of the stock before making the purchase. This is because all of the consumer stocks in the market are largely overvalued.
Below are the three consumer staple stocks investors should plan on selling soon.
Costco Wholesale Corporations (COST)
Costco Wholesale Corporations (NASDAQ:COST) has delivered massive returns to investors in recent years as the stock has nearly tripled since the beginning of the pandemic. Costco’s growth is largely attributed to its unique business model. Unlike other grocery stores, Costco works on a membership base where people pay an annual fee to shop at Costco. Costco offers wholesale items at affordable prices. This brought immense success to the company as it attracted consumers who were looking for cost-friendly places to do groceries during high inflation.
However, I have two issues with Costco right now. The first is that it announced a membership fee increase for the first time in seven months that could make Costco less competitive. Individual membership is now $65 instead of $60 annually, and the new executive membership costs $130, up $10 from the previous price tag. The second reason is that the stock seems too overvalued at the moment. It’s trading at a price-to-earnings ratio of 53.02, and this expensive cost is difficult to justify.
While Costco has certainly been on an impressive run, it seems like it might be finally running out of gas and at its current price, I simply cannot recommend Costco.
Clorox (CLX)
Clorox (NYSE:CLX) is an American consumer products company. It is famously known for its household cleaning products such as disinfectants and bleach. Historically speaking, the sales of these products have been consistent regardless of the economic conditions. However, sales are not the issue.
In fact, although the sales are relatively robust, the actual problem is that its profit margins are diminishing as a result of growing competition. This indicates that even if Clorox were to maintain solid sales in the downturn of the economy in the future, it will simply not return the same financial outcomes as it used to even after disregarding boost from the pandemic.
Although it’s 3.39% divided yield might appear attractive to long term investors, another problem with Clorox is its valuation. Right now, the stock is simply too overvalued. The current price-to-earnings ratio of Clorox is at 74.66x, which is too expensive to justify considering its profitability.
Tyson Foods (TSN)
The final consumer staple stock to sell is Tyson Foods (NYSE:TSN), the second largest meat processor in the world. Started in Springdale, Arkansas, the company has been around for almost 90 years. In the U.S., it is responsible for exporting the most amount of beef and boasts numerous subsidiaries like Jimmy Dean, Ball Park, and Hillshire Farm.
Like many other consumer staples companies, this year has been a great year for Tysons Food. The stock has underperformed relative to the S&P 500, but that is not the main issue. Recently, the current CFO John Tyson was arrested for DWI. He was previously arrested back in 2022 for illegal trespassing after public intoxication. Especially considering that Tyson is a family controlled business and irresponsible behavior like these are recurring themes from the leadership, the executive board is simply not trustworthy enough to convince investors that Tyson Foods is a good reliable long term investment. Investors should exit positions in the stock as soon as possible.
On the date of publication, Andy Kim did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.