The use of the word “staples” is intentional in that the companies that produce products in this sector are considered staples for consumption purposes. Think of those things that you probably can’t live without and it’s probably a staple.
The consumer staples sector is broken into four major categories or industries. The industry groups are as follows: food, beverage, and tobacco; household and personal products; and food and staples retailers. With nearly 70% of GDP made up of personal consumption expenditures, it makes sense that these goods producing companies and retailers represent a significant portion of that. Although, consumer staples only have a 7% weighting in the S&P 500 today.
When you think of staples, it doesn’t necessarily conjure up images of high growth companies. After all, what kind of margins does toilet paper really have? The realities are that this is a diverse group and contains a mixture of higher growth companies and income companies.
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One of the features of consumer staples is that they typically outperform during market corrections. They will also frequently begin to outperform before a correction occurs. The opportunity for reasonable growth, income and outperformance during bearish periods makes this sector a major part of most investors portfolios.
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The following three consumer staples companies have strong balance sheets and are exhibiting significant price momentum.
Consumer Staples Stock #1: Celsius Holdings, Inc (NASDAQ: CELH)
Celsius produces and distributes calorie-burning fitness drinks. It is a growth opportunity despite being in a defensive sector. The company has little debt and a lot of cash. While they have struggled to be profitable, they have seen a surge in sales as revenue increased 95% year-over-year and posted a profit for the quarter.
Current analyst estimates are projecting a 55% increase in revenue for 2020 and a 26.4% increase in revenue for 2021. Over the past 90 days, the EPS estimates for 2020 and 2021 have been steady with a 275% increase in EPS for 2021 compared to 2020.
The company has appreciated from $4 to over $12 since March and closed at a new 52-week high on significant volume on Wednesday. A potential near-term target for CELH is $18 in the coming weeks.
Consumer Staples Stock #2: National Beverage Corp (NASDAQ: FIZZ)
National Beverage is a company that manufactures and distributes sparkling waters, juices, energy drinks and soft drinks in the U.S. and Canada. Similar to CELH, they have little debt and a lot of cash. There is also high short interest on this company with 55.57% of the float currently shorted and a short ratio of 25.36 days. The short ratio takes the number of shares short and divides that by the average volume. This is an indicator of the likelihood of a short squeeze, which in this case could be incredibly significant.
The company has beaten analyst estimates in the previous three quarters by increasing margins and has seen sharp upward revisions to 2021 and 2021 EPS in the past 30 days. Analysts are currently projecting a 25.56% 5-year EPS growth rate.
The share price has risen from $37 to $68 since the March lows and has a near-term potential price target for $76.
Consumer Staples Stock #3: Monster Beverage Corp (NASDAQ: MNST)
Monster Beverage manufactures and distributes energy drink beverages and concentrates globally. The company has no debt and significant levels of cash. The company has generated over 14% annualized revenue growth and 19.5% EPS growth over the past 3 years. Using trailing twelve-month earnings, they have return on equity of 28.26% and net margins of 26.06%. The stock is trading at relatively high valuations compared to its history but is trading like it has more upside remaining.
Analyst estimates for EPS have remained stable over the past 90 days for 2020 and 2021. The company has a 5-year projected EPS growth rate of 11.5%.
Since the March low, MNST has rallied from $50 to $73.50 and is currently testing that area of resistance. A breakout above $73.50 would indicate a potential move to $85.