1 Consumer Stock with Competitive Advantages and 2 We Turn Down

Consumer Staples: Defensive, But Not Always Outperforming

Consumer staples stocks are typically viewed as reliable choices during turbulent market periods, thanks to their defensive nature. However, these stocks often lag behind more dynamic sectors when the market is thriving. This trend has been evident recently, with the sector declining by 4.8% over the past six months, while the S&P 500 managed a 3.1% gain.

It's important to note that not every company in this space is equally affected. Some standout businesses continue to achieve earnings growth regardless of market conditions. With that in mind, let's look at one consumer staples stock with a strong competitive edge, as well as two others that may be worth avoiding.

Two Consumer Staples Stocks to Consider Selling

Celsius Holdings (CELH)

Market Capitalization: $11.13 billion

Celsius Holdings (NASDAQ:CELH) is known for its energy drinks, which are based on its unique MetaPlus formula and feature natural ingredients aimed at supporting fitness and weight management.

What Are the Drawbacks for CELH?

• Operating expenses have grown as a share of revenue over the past year, leading to a 5.9 percentage point drop in operating margin.
• Free cash flow margin has decreased by 4.8 percentage points, suggesting the business is becoming more capital-intensive as competition intensifies.
• The company's return on invested capital (ROIC) stands at just 2.5%, highlighting difficulties in finding profitable investment opportunities.

With shares trading at $43.08 and a forward P/E ratio of 26.2, investors may want to look elsewhere for better value.

Darling Ingredients (DAR)

Market Capitalization: $8.23 billion

Darling Ingredients (NYSE:DAR) specializes in converting animal by-products, used cooking oil, and other bio-nutrients into valuable components for food, animal feed, fuel, and industrial uses.

Why Might DAR Disappoint?

• Revenue has declined by 2.1% annually over the past three years, indicating weak demand for its products.
• The company failed to adjust its cost structure as sales fell, resulting in a 3.7 percentage point drop in operating margin over the past year.
• Earnings per share have shrunk by 41.3% per year over the last three years, which is a significant obstacle for long-term stock performance.

Currently priced at $51.90 per share with a forward P/E of 16.8, investors should exercise caution.

One Consumer Staples Stock Worth Watching

WD-40 Company (WDFC)

Market Capitalization: $3.10 billion

WD-40 Company (NASDAQ:WDFC), named for its "Water Displacement perfected on the 40th try," is a well-known American brand, famous for its versatile WD-40 Multi-Use Product.

What Makes WDFC Stand Out?

• Its products command premium pricing, resulting in an impressive gross margin of 54.5%.
• A strong free cash flow margin of 12.6% provides flexibility for strategic investments.
• With a return on capital of 26.2%, management has demonstrated an ability to identify and capitalize on high-return opportunities, with returns continuing to improve.

WD-40 shares are currently valued at $229.96, reflecting a forward P/E of 38.1. Considering an investment?

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