Wall Street suffered from severe volatility in the third quarter of 2019 as trade tensions between the United States and China heightened. Global economic slowdown intensified owing to lingering trade conflict between the two largest trading countries of the world.
Against the backdrop of several economic and financial hurdles, market participants are keenly watching third-quarter 2019 earnings of U.S. corporates.
Third Quarter at a Glance
Wall Street witnessed continuation of the bull run at the start of the third quarter. However, the rally ended in August owing to inversion of the government bond yield curve, which is believed to be a sign of an impending recession. Trade jitters, yield curve inversion and global economic slowdown, especially in the Eurozone, significantly dented investors’ confidence.
Moreover, geopolitical conflict in the Middle East between Iran and Saudi Arabia, and the drone attack on Saudi Arabia’s largest oilfield caused a temporary oil shock. Meanwhile, Brexit-related problems continued and political turmoil in Italy injected volatility in the stock markets.
As far as the United States is concerned, several economic data were mixed, which confused economists and financial experts. However, as a major relief to the market, the Fed reduced the benchmark interest rate by 50 basis points in two tranches during the third quarter. Notably, the rate was cut for the first time in more than a decade.
Why Consumer Staples Stocks?
The consumer staples sector includes companies that provide necessities and products of daily use. This makes the sector defensive in nature. So, this has always been the go-to place for investors, who want to play it safe during extreme market fluctuations.
Adding stocks from the consumer staples basket lends more stability to portfolios in an uncertain market condition. Moreover, the sector remains a lucrative space for income-seeking investors given its strong dividend yield.
Notably, year to date, the Consumer Staples Select Sector SPDR (XLP) has gained 20.3%, almost in line with the broad-market S&P 500 Index’s rise of 20.6%. However, during third-quarter 2019, when volatility, XLP gained 6.2% compared with the benchmark index’s increase of just 1.2%.
Our Top Picks
We have narrowed down our search to five consumer staples stocks that have gained in the past six months. Each of these stocks carries a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to gain after their earnings release.
The Boston Beer Co. Inc. SAM produces and sells alcohol beverages primarily in the United States. Aside its flagship Samuel Adams Boston Lager beer, it offers various beers, hard ciders and hard seltzers under the Samuel Adams, Twisted Tea, Angry Orchard Hard Cider and Truly Hard Seltzer brands. This Zacks Rank #2 company has an Earnings ESP of +4.18% for the soon-to-be reported quarter.
The company has an expected earnings growth rate of 22.2% for the current year. The Zacks Consensus Estimate for the third quarter and the year improved 1.8% and 0.9%, respectively, over the last 30 days. The company delivered positive earnings surprise in the last four quarters with an average beat of 35.2%. The stock has climbed 23.5% in the past six months. The Boston Beer is slated to release third-quarter on Oct 29, after the closing bell.
US Foods Holding Corp. USFD is a foodservice distributor that serves independent and multi-unit restaurants, healthcare and hospitality entities, government and educational institutions. It sports a Zacks Rank #1. US Foods Holding has an Earnings ESP of +0.55% for the to-be-reported quarter.
The expected earnings growth rate for the third quarter and the current year is 10.9% and 13.3%, respectively. The Zacks Consensus Estimate for the quarter to be reported and the full year improved 1.7% and 8.8%, respectively, over the last 30 days.
The company delivered positive earnings surprise in the three out of last four quarters with an average beat of 2.1%. The stock has gained 9.4% in the past six months. US Foods Holding is scheduled to release earnings on Nov 5, before the opening bell.
e.l.f. Beauty Inc. ELF is a beauty company, which provides cosmetic and skin care products under the e.l.f. brand name worldwide. It carries a Zacks Rank #1. e.l.f. Beauty has an Earnings ESP of +10.71% for the third quarter.
The Zacks Consensus Estimate for the current year improved 2.3% over the last 30 days. The company delivered positive earnings surprise in the last four quarters with an average beat of 72.2%. The stock has jumped 32.9% in the past six months. e.l.f. Beauty is due to release earnings results on Nov 6, after the closing bell.
Grocery Outlet Holding Corp. GO owns and operates a chain of grocery stores primarily in the United States. It offers products which include grocery, dairy and deli, produce, refrigerated and frozen, floral, beer and wine, general merchandise, and health and beauty care as well as fresh meat and seafood and natural, organic, specialty and healthy products. This Zacks Rank #2 company has an Earnings ESP of +2.70% for the third quarter.
The Zacks Consensus Estimate for the third quarter and the current year improved 5.6% and 1.4%, respectively, over the last 30 days. The company delivered positive earnings surprise of 53.9% on average in the last four quarters. The stock has rallied 10.2% in the past six months. Grocery Outlet Holding is scheduled to release earnings on Nov 12.
Luckin Coffee Inc. LK is engaged in the retail sale of freshly brewed drinks, and pre-made food and beverage items in the People's Republic of China. It offers freshly brewed drinks, including freshly brewed coffee and non-coffee drinks; and food and beverage items, such as light meals.
This Zacks Rank #2 company has an Earnings ESP of +10.59% for the third quarter. The Zacks Consensus Estimate for the current year improved 1.4% over the last 30 days. The stock has gained 12.2% in the past six months. Luckin Coffee is slated to release earnings on Nov 13, before the opening bell.
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