U.S. markets close in 2 hours 8 minutes
  • S&P 500

    3,447.08
    +3.96 (+0.12%)
     
  • Dow 30

    28,281.94
    -26.85 (-0.09%)
     
  • Nasdaq

    11,534.19
    +17.69 (+0.15%)
     
  • Russell 2000

    1,609.66
    -8.05 (-0.50%)
     
  • Crude Oil

    39.95
    -1.75 (-4.20%)
     
  • Gold

    1,928.70
    +13.30 (+0.69%)
     
  • Silver

    25.23
    +0.25 (+0.98%)
     
  • EUR/USD

    1.1872
    +0.0044 (+0.37%)
     
  • 10-Yr Bond

    0.8030
    +0.0060 (+0.75%)
     
  • GBP/USD

    1.3163
    +0.0216 (+1.67%)
     
  • USD/JPY

    104.4880
    -0.9820 (-0.93%)
     
  • BTC-USD

    12,781.47
    +1,724.46 (+15.60%)
     
  • CMC Crypto 200

    256.24
    +11.35 (+4.63%)
     
  • FTSE 100

    5,776.50
    -112.72 (-1.91%)
     
  • Nikkei 225

    23,639.46
    +72.42 (+0.31%)
     

4 Predictable Consumer Defensive Stocks to Consider as Coronavirus Concerns Continue

GuruFocus.com
·7 mins read

As the Covid-19 virus, also referred to as the coronavirus, continues to spread across the globe, uncertainty will remain as supply chains are disrupted and whole countries shut down. Although stocks will inevitably take a hit during market corrections and recessions, the underlying companies may not suffer as much as investors fear. For instance, while consumers will avoid making unnecessary purchases of things like luxury goods and new cars, they will continue to be in need of everyday items like groceries, which will keep the revenue streams steady for the companies that provide them. In addition, stores are being inundated by shoppers stocking up on the necessary staple foods and supplies they will need in case there are shortages later on down the road.


As a result, the GuruFocus All-in-One Screener, a Premium feature, found several retail defensive companies with a business predictability rank of at least four out of five stars. It also identified companies that had a 10-year revenue growth rate per share of at least 8%. Stocks that met these criteria as of March 3 were Big Lots Inc. (NYSE:BIG), Casey's General Stores Inc. (NASDAQ:CASY), Dollar Tree Inc. (NASDAQ:DLTR) andThe Kroger Co. (NYSE:KR).

Big Lots

Headquartered in Columbus, Ohio, the operator of discount retail stores, which provides a broad range of merchandise, including food, furniture, electronics and home goods, has a $667.24 million market cap; its shares were trading around $17.17 on Tuesday with a price-earnings ratio of 2.63, a price-book ratio of 0.88 and a price-sales ratio of 0.12, which GuruFocus noted are near 10-year lows.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued. The GuruFocus valuation rank of 10 out of 10 also supports this analysis.

83de5f1827fe5c1ec7f9b897228c1698.png
83de5f1827fe5c1ec7f9b897228c1698.png

GuruFocus rated Big Lots' financial strength 5 out of 10. Although the company has issued $214.68 million in new long-term debt over the past three years, it is at a manageable level due to having adequate interest coverage. The Altman Z-Score of 3.24 also indicates it is in good financial condition despite recording an operating income loss over the past three years. The return on invested capital, however, is below the weighted average cost of capital, which means it may not be capital efficient.

The company's profitability scored a 9 out of 10 rating, driven by operating margin expansion, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 5, which implies business conditions are stable. Boosted by consistent earnings and revenue growth, Big Lots also has a five-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.

Of the gurus invested in Big Lots, Louis Moore Bacon (Trades, Portfolio) has the position with 0.81% of outstanding shares. Barrow, Hanley, Mewhinney & Strauss, Robert Olstein (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Hotchkis & Wiley are also shareholders.

Casey's General Stores

Operating a chain of gas stations and convenience stores in the Midwest and Southern U.S., the Ankeny, Iowa-based company has a market cap of $6.03 billion; its shares were trading around $163.22 on Tuesday with a price-earnings ratio of 25.88, a price-book ratio of 3.86 and a price-sales ratio of 0.65.

According to the Peter Lynch chart, the stock is overvalued. Along with a share price and price ratios near multiyear highs, the GuruFocus valuation rank of 1 out of 10 also leans toward overvaluation.

0e1ab19cf802bda1d8c2c3d0f8415c6b.png
0e1ab19cf802bda1d8c2c3d0f8415c6b.png

Casey's financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued approximately $376.9 million in new long-term debt over the past three years, it is at a manageable level due to sufficient interest coverage. The robust Altman Z-Score of 4.63 also indicates the company is in good financial standing.

The company's profitability scored an 8 out of 10 rating. While the operating margin is in decline, it still outperforms a majority of industry peers. Casey's also has strong returns and a moderate Piotroski F-Score of 5. Although it has recorded a decline in revenue per share growth over the past 12 months, the company has a five-star business predictability rank.

With 0.23% of outstanding shares, Steven Cohen (Trades, Portfolio) is the company's largest guru shareholder. Mairs and Power (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) also have positions in the stock.

Dollar Tree

The company, which is headquartered in Chesapeake, Virginia, operates a chain of discount retail stores. It has a $19.62 billion market cap; its shares were trading around $83.58 on Tuesday with a forward price-earnings ratio of 16.08, a price-book ratio of 3.2 and a price-sales ratio of 0.84.

Based on the median price-sales chart, the stock appears to be undervalued. The GuruFocus valuation rank of 6 out of 10 also supports undervaluation as its share price and price ratios are near multiyear lows.

aa1abefeefe09e8aeefb91974e98dd1f.png
aa1abefeefe09e8aeefb91974e98dd1f.png

GuruFocus rated Dollar Tree's financial strength 4 out of 10. Despite having adequate interest coverage, the Altman Z-Score of 2.15 suggests the company is under some financial pressure.

The company's profitability fared much better, scoring a 9 out of 10 rating. Although its operating margin is in decline, it still outperforms a majority of competitors. Dollar Tree also has negative returns, a low Piotroski F-Score of 3, which indicates operations are in poor shape, and its assets are building at a faster rate than revenue is growing. Due to a slowdown in revenue per share growth over the past year, the 4.5-star business predictability rank is on watch. GuruFocus says companies with this rank typically see their stocks gain an average of 10.6% per year.

Chuck Akre (Trades, Portfolio)'s firm is the company's largest guru shareholder with a 2.15% stake. Other top guru investors are Cohen, Lee Ainslie (Trades, Portfolio), Pioneer, Wallace Weitz (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Olstein, Glenn Greenberg (Trades, Portfolio) and Ken Fisher (Trades, Portfolio).

Kroger

The Cincinnati-based grocery store chain has a market cap of $23.86 billion; its shares were trading around $30.04 on Tuesday with a price-earnings ratio of 15.2, a price-book ratio of 2.68 and a price-sales ratio of 0.2.

The Peter Lynch chart suggests the stock is slightly overvalued. The GuruFocus valuation rank of 6 out of 10, however, leans more toward undervaluation even though the share price and price-sales ratio are at multiyear highs.

83f2db867d735f1e68dcdd4dd621875f.png
83f2db867d735f1e68dcdd4dd621875f.png

Weighed down by debt and poor interest coverage, Kroger's financial strength was rated 5 out of 10 by GuruFocus. The Altman Z-Score of 3.08, however, indicates the company is in good financial health.

The company's profitability scored an 8 out of 10 rating. While the operating margin is in decline, Kroger is supported by strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 6. Kroger's five-star business predictability rank is on watch as a result of a slowdown in revenue per share growth over the past 12 months.

Of the gurus invested in Kroger, Warren Buffett (Trades, Portfolio) has the largest stake with 2.37% of outstanding shares. Jim Simons (Trades, Portfolio)' Renaissance Technologies, Pioneer, Jeff Auxier (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Ainslie, Greenblatt, Fisher and Richard Snow (Trades, Portfolio) are also shareholders.

Disclosure: No positions.

Read more here:

  • Gurus Weigh In on the Potential Economic Impact of the Coronavirus Outbreak

  • Glenn Greenberg Goes 3 for 1 in 4th Quarter

  • Bill Ackman Continues to Chip Away at Largest Holding



Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

This article first appeared on GuruFocus.