Elevated inflation, a tight labor market, and tighter lending standards are adding to the concerns of the economy tipping into a recession. To that end, investors could look to buy fundamentally strong consumer stocks Unilever PLC (UL), Yue Yuen Industrial (Holdings) Limited (YUEIY), and Edgewell Personal Care Company (EPC). These stocks are Buy-rated in our POWR Ratings system.
Before taking a closer look at their fundamentals, let’s discuss why it could be wise to invest in the consumer goods sector.
Despite macroeconomic headwinds and growing concerns of a slowing economy, retail sales rose 0.4% in April, and core sales increased 0.7%. Several economists expect consumer spending to support the economy despite rising recession risks.
Citigroup’s chief U.S. economist, Andrew Hollenhorst, believes that this consumer spending report will help reassure markets that consumer spending is not about to contract, rather, it will support modest continued economic growth.
Amid recessionary fears, investing in sectors less prone to changes in economic cycles could be wise. The consumer goods industry performs steadily because of the inelastic demand for its products. Such companies are able to pass on high input costs to their customers, helping them maintain their profit margins.
Considering these factors, it could be wise to buy the featured stocks. Let’s take a closer look at their fundamentals.
Unilever PLC (UL)
Headquartered in London, the United Kingdom, UL operates as a fast-moving consumer goods company. It operates through Beauty & well-being, Personal Care, Home Care, Nutrition, and Ice Cream segments.
In terms of forward non-GAAP P/E, UL’s 18.49x is 0.8% lower than the 18.64x industry average. Likewise, its 15.20x forward EV/EBIT is 1.8% lower than the 15.47x industry average.
UL’s turnover for the fiscal first quarter ended March 31, 2023, increased 7% year-over-year to €14.75 billion ($15.95 billion), with an underlying sales growth of 10.5%. Its underlying sales growth came in at 10.5%.
Its Beauty & Wellbeing turnover rose 13.3% year-over-year to €3.09 billion ($3.34 billion). Also, its Home Care turnover increased 8.6% year-over-year to €3.35 billion ($3.62 billion).
Analysts expect UL’s revenue for the quarter ending June 30, 2023, to increase 5.6% year-over-year to $16.93 billion. Its EPS for fiscal 2023 is expected to increase 2.6% year-over-year to $2.83. Over the past year, the stock has gained 19% to close the last trading session at $52.34.
UL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Goods industry, it is ranked #5 out of 52 stocks. It has a B grade for Value, Stability, and Sentiment.
To see the additional POWR Ratings of UL for Growth, Momentum, and Quality, click here.
Yue Yuen Industrial (Holdings) Limited (YUEIY)
Headquartered in Kwun Tong, Hong Kong, YUEIY is engaged in manufacturing and sale of athletic, athleisure, casual, and outdoor footwear worldwide. The company operates as an original design manufacturer/original equipment manufacturer for various international brand names, such as adidas, Asics, New Balance, Nike, Salomon, and Timberland.
In terms of forward Price/Sales, YUEIY’s 0.25x is 68.8% lower than the 0.81x industry average. Its 0.38x forward EV/Sales is 65.3% lower than the industry average of 1.10x. Likewise, its 4.23x forward EV/EBITDA is 54.5% lower than the 9.28x industry average.
YUEIY’s revenue for the first quarter that ended March 31, 2023, came in at $2.11 billion. Its gross profit came in at $497.62 million. The company’s profit for the period came in at $65.89 million.
Street expects YUEIY’s revenue for the quarter ending December 31, 2023, to increase 30% year-over-year to $2.60 billion. Over the past six months, the stock has gained 14.2% to close the last trading session at $6.97.
YUEIY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #6 in the same industry. It has an A grade for Growth and Value and a B for Stability. Click here to see the other ratings of YUEIY for Momentum, Sentiment, and Quality.
Edgewell Personal Care Company (EPC)
EPC manufactures and markets personal care products worldwide. It operates through three segments: Wet Shave, Sun and Skin Care, and Feminine Care.
In terms of forward non-GAAP P/E, EPC’s 17.51x is 6.1% lower than the 18.64x industry average. Its 10.46x forward EV/EBITDA is 14.3% lower than the 12.20x industry average. Likewise, its 0.97x forward Price/Sales is 11.2% lower than the 1.09x industry average.
EPC’s non-GAAP operating income increased 33.8% year-over-year to $62.50 million for the fiscal second quarter that ended March 31, 2023. The company’s adjusted EBITDA increased 12.6% year-over-year to $83 million.
In addition, its non-GAAP net earnings increased 7.4% year-over-year to $29 million. Its non-GAAP EPS came in at $0.56, representing a 12% increase over the prior-year quarter.
EPC’s EPS for the quarter ending December 31, 2023, is expected to increase 16.3% year-over-year to $0.36. Its revenue for the quarter ending June 30, 2023, is expected to increase 3.3% year-over-year to $644.45 million. Over the past year, the stock has gained 26.1% to close the last trading session at $42.87.
EPC’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The stock is ranked #16 in the Consumer Goods industry.
The stock has a B grade for Growth and Value. Click here to see the additional ratings of EPC for Momentum, Stability, Sentiment, and Quality.
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UL shares were trading at $52.32 per share on Tuesday afternoon, down $0.02 (-0.04%). Year-to-date, UL has gained 5.75%, versus a 9.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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