StockStory flags Cal-Maine, Hormel, and United Natural Foods as consumer staples to avoid

StockStory identifies Cal-Maine Foods, Hormel Foods, and United Natural Foods as consumer staple stocks that investors should consider avoiding. The analysis highlights that while the sector is often viewed as a safe haven due to inelastic demand, it has underperformed the broader market recently, with the industry recording a flat return over the past six months while the S&P 500 rose 9.1%. StockStory argues that low switching costs for everyday products mean not all businesses within the sector are equally resilient.

Cal-Maine Foods, which produces and distributes eggs under brands like Egg-Land's Best and Land O' Lakes, has a market capitalization of $2.83 billion. The company’s sales have declined by 5% annually over the last three years, a trend StockStory attributes to shifting consumer preferences. Profitability has eroded more sharply than revenue, with earnings per share dropping by 54.9% annually over the same period. Additionally, capital intensity has increased, as evidenced by a 28.9 percentage point decrease in free cash flow margin over the last year. Cal-Maine shares trade at $63.04, valuing the company at 1.2x forward price-to-sales.

Hormel Foods, known for its SPAM brand and other packaged meat and shelf-stable foods, has a market capitalization of $11.76 billion. StockStory notes that Hormel’s unit sales have declined over the past two years, forcing the company to rely on price increases to maintain revenue. The company faces stiff competition from easily substituted products, resulting in an inferior gross margin of 16.1%. Earnings per share have contracted by 5.8% annually over the last three years. Hormel shares are trading at $21.33, representing a 13.4x forward P/E multiple.

United Natural Foods, North America’s largest grocery wholesaler, operates 55 distribution centers across approximately 30 million square feet and serves over 30,000 retail locations in the US and Canada. The company has a market capitalization of $2.85 billion. StockStock points to stagnating sales over the last three years as a sign that new growth strategies are needed. Its gross margin of 13.4% lags behind competitors, limiting funds available for marketing and production facilities. A return on capital of 2.7% suggests management is struggling to find profitable growth opportunities, with falling returns indicating earlier profit pools are drying up. United Natural Foods stock is priced at $47, implying a 13.9x forward P/E valuation.