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5 Consumer Staples Stocks with Strong Growth Prospects

Zacks Equity Research

The Consumer Staples sector has been weak for quite some time now, making investors skeptical. Headwinds like unfavorable currency, food deflation, declining volumes, potential price wars, a competitive environment, slowdown in international markets and other global issues have been plaguing the companies in the sector.

Overall, even though the economic data have been impressive with rising consumer and home builder confidence and surging manufacturing numbers it did not to transfer to actual growth. With the first-quarter 2017 earnings season knocking at the door, we note that the bottom-line growth have slowed down, compared with the robust earnings recorded in the preceding quarter.

US Economy Stable and Improving

The recent rebound in oil prices, encouraging employment numbers along with a gradual improvement in the manufacturing sector and housing market signal that the economy is beaming with growth and consumer spending is rising.

Consumer confidence – a key determinant of the economy’s health – increased sharply in March, after mild improvement in February. The consumer confidence index rose to 125.6, up from 116.1 in February, which reflects the strength in the economy.

Additionally, the expectations index improved from 103.9 in February to 113.8 in the following month as consumers foresee a positive labor market. A rise in wages has also boosted household wealth and eventually consumer spending. Given the renewed strength in the labor market, we expect consumer spending to increase in the days ahead.

The improvement in the economic scenario is also supported by the GDP rate provided by the Commerce Department in consumer spending for the fourth quarter of 2016. GDP rose at an annualized rate of 1.9% in the fourth quarter of 2016, according to the second estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP had increased 3.5%.

The rise in benchmark interest rate by the Federal Reserve on Mar 15 also signals rising consumer confidence as well as the U.S. economy’s growth. The widely anticipated move, in view of strengthening labor market and stabilizing inflation, takes the Fed rate from 0.5–0.75% to 0.75–1%. Further, the Fed indicated that it anticipates the next hike in June and another one in December.

Though rising consumer spending generally benefits the staples sector, currently it seems that with the improving U.S. economy and global economic growth, investors might look for other lucrative sectors than the defensive staples that generally act as a port in times of storm.

Trump Policies Loses Fizz

Investors are unnerved after President Donald Trump’s failure to repeal and replace Obama’s Affordable Care Act. Trump’s Republican bill would have offered refundable tax credits to Americans to acquire health insurance and would have also eliminated Obamacare’s penalty for those who don’t have coverage. The bill was also expected to cut down tax by almost $1 trillion over the next decade.

However, Trump was unsuccessful to win votes for the healthcare bill. Hence, financial markets are getting increasingly skeptical on whether he will be able to deliver on the other economic policies such as tax reforms and infrastructure spending.

Amid such uncertainty, consumer staple sector seems to be a reliable and attractive area to invest in. So if you are on the hunt for great growth stocks, amid this uncertain market conditions, we have selected some stocks that deserve immediate attention.

The Winning Strategy

With the help of our new style score system, we have shortlisted five stocks that have excellent prospects and hold immense growth potential. Our Growth Style Score condenses all the essential metrics from a company’s financial statements to get a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best investment opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

All the stocks selected herein flaunt a Zacks Rank #1 or 2, with a Growth Style Score of ‘A’ and have the potential to ride out the impending volatility.

5 Prominent Picks

Energizer Holdings, Inc. ENR

We recommend investing in Energizer Holdings, which manufactures, markets, and distributes household batteries, specialty batteries, and lighting products worldwide. This St. Louis, Missouri-based company has delivered an average positive surprise of 20.5% in the trailing four quarters. It is expected to witness earnings growth of 18.8% in fiscal 2017 and 7.9% in fiscal 2018.

This Zacks Rank #2 stock has a long-term earnings growth rate of 9.45%, beta of 0.62 and a Growth Score of ‘A.’

Further, Energizer Holdings’ stock price history reveals that the company hasn’t been a disappointment in a long time. In fact, over the past one year, the stock has risen 36.04%, outperforming the Zacks categorized Consumer Products-Miscellaneous Staplesindustry, which fell 0.72%.

Sysco Corporation SYY

Houston, Texas-based Sysco markets and distributes a range of food and related products primarily to the foodservice or food-away-from-home industry in the United States, Bahamas, Canada, Ireland, Costa Rica and Mexico.

Sysco has been consistently showcasing an improvement in sales, driven by acquisitions and volume growth. The buyouts of Brakes Group and Supplies on the Fly e-commerce platform are encouraging. Further, it seems that the company’s growth strategy is paying off and its efforts to boost sales and margins are bearing fruit. The company has delivered an average positive earnings surprise of 9.3% in the trailing four quarters. It is expected to witness earnings growth of 17.4% in fiscal 2017 and 10.8% in fiscal 2018.

Further, the stock has risen 11.95% over the last one year, outperforming the Zacks categorized Food-Miscellaneous/Diversified industry, which showcased growth of 1.65%.

With a Growth Score of ‘A’, beta of 0.54, long-term earnings growth rate of 8.69% and an attractive Zacks Rank #2, this stock is a hot pick for investors.

Tyson Foods, Inc. TSN

Springdale, AR-based Tyson Foods is the world's largest fully-integrated producer, processor and marketer of chicken and poultry-based food products. The company offers a wide array of meat products and enhances its portfolio through innovation and acquisitions. Its sales-boosting initiatives and strong international presence are also appealing.

The Zacks Rank #2 company has a low beta of 0.16, while it has an attractive long-term earnings per share (EPS) growth rate of 11.0%. Further, it has delivered an average positive surprise of 6.79% over the past four straight quarters. It is expected to witness earnings growth of 13.4% in fiscal 2017.

Though the stock has been declining since past one year, the decline is narrower than the Zacks categorized Food-Meat Products industry. The stock declined 8.50%, wider than the industry’s decline of 13.07%.

Castle Brands Inc. ROX

New York-based Castle Brands develops, markets, imports, and sells beverage alcohol products in the United States and internationally. The stock carries a Zacks Rank #2 and has a Growth Score of ‘A.’

The company is expected to witness earnings growth of 150% in fiscal 2017 and 100% in fiscal 2018. It has a beta of 0.61.

Castle Brands’ shares have increased 53.06% in comparison to the Zacks categorized Beverages-Alcohol industry’s decline of 0.48% over the past year.

The Hershey Company HSY

Based in Hershey, Pennsylvania, Hershey carries a Zacks Rank #2 and a Growth Score of ‘A.’ It manufactures and sells confectionery products.

The company has a low beta of 0.34 and its long-term EPS growth rate is 7.8%. Further, it has delivered an average positive surprise of 7.85% over the past four straight quarters. It is expected to witness earnings growth of 8.52% in 2017 and 8.55% in 2018.

Further, the stock has outperformed the Zacks Categorized Food-Confectionery industry over the past year, as the stock’s return was 18.84% in comparison to the industry’s negative return of 7.59%.

Bottom Line

Intelligently selecting stocks for investments greatly benefits investors. The above-mentioned stocks can prove to be valuable additions to your portfolio.

You can also use the Zacks Stock Screener to find other stocks with this winning combination. Your search ends at stocks with a favorable Zacks Rank of either #1 or 2 which encompasses its strong fundamentals, promises price movement and highlights analysts’ constructive view on the same via positive estimate revisions. As we know, a sturdy portfolio always gives favorable returns.

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