Grab these bargains while they remain at dirt-cheap prices.
So far, issues ranging from trade war concerns, the U.S. federal government shutdown, and the Federal Reserve’s next moves with interest rates have all weighed on the performance of the broad market, consumer goods stocks included.
However, while uncertainty still runs high, there are plenty of consumer stocks that are now oversold. Investors have overreacted to negative macro and company-specific news.
While some of these oversold consumer stocks could become value traps, there are plenty that could bounce back in a big way, as the companies make improvements and as subsequent results prove better than feared.
The following three consumer goods stocks fall firmly in that category.
1. Conagra Brands pays you while you wait for the turnaround
Conagra Brands (CAG +0.86%) is a packaged foods company, best known for its brands like Duncan Hines, Healthy Choice, and Slim Jim. Like many of its publicly traded competitors, negative sentiment has placed pressure on shares. Blame this on concerns such as inflationary pressures, low growth, and high debt.
Today’s Change
(0.86%) $0.16
Current Price
$18.78
Key Data Points
Market Cap
$9B
Day’s Range
$18.51 – $18.98
52wk Range
$17.89 – $29.91
Volume
72
Avg Vol
12M
Gross Margin
25.36%
Dividend Yield
0.07%
But Conagra, at a forward price-to-earnings (P/E) ratio of 10.9, trades a discount to many of these peers, including General Mills, which trades at a forward P/E of 13.8.
In time, Conagra’s turnaround efforts like asset sales could lower debt and boost profits, which in turn could narrow the valuation gap. While waiting for a rebound, you can earn a steady return, from the stock’s 7.5% forward dividend yield.
2. Concerns about Keurig Dr. Pepper’s latest acquisition may be overblown
Keurig Dr. Pepper (KDP 1.01%) is another consumer goods stock under pressure due to negative market sentiment. However, in the case of this beverage giant, key concerns are company-specific. That is, investors aren’t liking Keurig Dr. Pepper’s plans to buy coffee giant JDE Peet’s for $18 billion, then split into two independent companies.
Today’s Change
(-1.01%) $-0.28
Current Price
$27.39
Key Data Points
Market Cap
$37B
Day’s Range
$27.36 – $28.10
52wk Range
$25.03 – $36.12
Volume
47
Avg Vol
18M
Gross Margin
51.91%
Dividend Yield
0.03%
However, this complex transaction could both unlock and create value. Trading for less than 12 times forward earnings, Keurig Dr. Pepper sells at a discount to beverage industry peers, mostly on uncertainty regarding coffee commodity prices.
Split into two, though, the soft drink segment could rerate to a forward multiple of 15 to 20, on par with Coca-Cola and Pepsico. The coffee business will likely sport a lower valuation, but this could still result in a net gain for investors prior to the split-up. The JDE Peet’s deal could also produce $400 million in cost synergies, creating further value for investors.
3. Target could rebound in a big way, even if a takeover bid fails to emerge
Recently, I have discussed how retailer Target (TGT 0.39%) has been the subject of private equity takeover rumors yet again. I wouldn’t buy Target for this reason, but there is another strong reason to buy it.
Today’s Change
(-0.39%) $-0.37
Current Price
$94.03
Key Data Points
Market Cap
$43B
Day’s Range
$93.46 – $94.73
52wk Range
$85.36 – $158.42
Volume
200K
Avg Vol
7.9M
Gross Margin
25.43%
Dividend Yield
0.05%
Why? There’s high upside potential, just from Target staying independent and successfully executing a turnaround. Moving forward, lower interest rates could help ease issues like weak consumer demand. At the same time, efforts to improve the customer experience could also enhance profitability.
In turn, the stock could surge on both earnings growth as well as valuation expansion. In the meantime, you can collect a 5% annual yield from this Dividend King. Target’s dividend has increased 56 years in a row.