3 Volatile Consumer Staples Stocks for the Risk Taker (WFM, SFM, WMT)
Due to its noncyclical nature, the consumer staples sector has shown strength against the U.S. equity market in 2016 and 2015, despite many global macroeconomic conflicts. The S&P 500 Consumer Staples Index fared well against the market turbulence and ended the year up 6.6% in 2015, while the S&P 500 Index was down 0.73%. As of Feb. 25, 2016, the S&P 500 Consumer Staples Index is up 2.38% year to date (YTD), whereas the S&P 500 Index is down nearly 5% over the same period.
Although the consumer staples sector has experienced a low degree of volatility as a whole, some consumer staples stocks have sold off and experienced high volatility. Risk-taking investors may want to consider satellite holdings in these consumer staples stocks.
Whole Foods Market
Whole Foods Market Inc. (NASDAQ: WFM) is a natural and organic food market and offers dairy, meat, coffee, beer, wine, vitamins and many other products. Its stock price has experienced a high degree of volatility. Whole Foods finished 2015 down 32.53% and underperformed the grocery store industry by 38.96%. As of Feb. 25, 2016, the stock is down 7.48% and is only underperforming the industry by 2.72%.
Despite its stable earnings per share (EPS) in 2015, Whole Foods has a price-earnings (P/E) ratio of 20.8, while the industry average is 24.5. Additionally, it has a price-to-book (P/B) ratio of 2.8, while the industry has a P/B ratio of 3.7. Whole Foods reported its first quarter 2016 results and saw its revenue grow to a record $4.8 billion. The company expects to open 30 new stores and have an earnings before interest taxes, depreciation and amortization (EBITDA) margin of 8.5% during the 2016 fiscal year. Additionally, it expects its sales to grow by 3 to 5% and EPS to be $1.53 or higher in 2016. With this positive news and attractive valuation, risk-taking investors may want to consider an investment in this beaten-down stock.
Sprouts Farmers Market
Sprouts Farmers Market Inc. (NASDAQ: SFM) is a competitor to Whole Foods Market, and it offers fresh and organic food to U.S. consumers. Sprouts Farmers Market has experienced a high degree of volatility similar to its competitors. The company underperformed the grocery stores industry by 28.18% in 2015. However, as of Feb. 25, 2016, its stock price has outperformed the industry by 7.91% and is up 3.16% YTD.
Although Sprouts Farmers Market’s P/E ratio and P/B ratio are above the industry average, its strong full-year 2015 results and earnings forecast indicate that the company is poised to grow, potentially driving its stock price higher. In 2015, the company increased its net sales by 21% over its figure in 2014. Additionally, it increased its diluted EPS by 19% over its 2014 EPS. During the 2016 fiscal year, Sprout Farmers Market is expected to grow its earnings by 11.43% over its 2015 EPS. In 2017, it is expected to grow its EPS by 18.49% over its 2016 forecast. With Sprouts Farmers Market’s growth potential, risk-seeking investors may want to consider this stock.
Wal-Mart Stores Inc. (NYSE: WMT) is a discount retail stores company that operates in three segments: Wal-Mart U.S., Sam’s Club and Wal-Mart International. Wal-Mart Stores underperformed its industry of discount stores by 12.19% and ended down 26.34% in 2015. However, it is regaining some of its losses and is up 11% YTD as of Feb. 25, 2016.
Wal-Mart reported its full-year 2015 results on Feb. 18, 2016, and increased its total revenue by 2.8% on a constant currency basis. Its e-commerce sales increased by 12% on a constant currency basis from 2014. However, its adjusted EPS contracted by 9.47% from its 2015 adjusted EPS. Its contraction in its adjusted EPS could be explained by the dilutive effect of closing 269 stores globally. The board of directors also approved a dividend raise to $2 per share in 2017, which marked its 43rd consecutive annual dividend raise.
As of Feb. 25, 2016, Wal-Mart has an attractive P/E ratio of 14.6, while the discount store industry has a P/E ratio of 28.9. Additionally, it has a P/B ratio of 2.7 and a price-to-sales (P/S) ratio of 0.5, which are below the industry averages of 3.3 and 1.1, respectively. Although Wal-Mart’s earnings are expected to decline by 9.73% for the fiscal year ending in January 2017 over its results for the fiscal year ending on Jan. 31, 2016, the company’s valuations are very attractive and its earnings are expected to rise by 5.71% during the fiscal year ending in January 2018. However, macroeconomic trends may affect Wal-Mart in the short term and should be left for risk-seeking investors.