Regarded as defensive investments, consumer staples stocks are generally safe bets in choppy markets. The flip side is that they frequently fall behind growth industries when times are good, and this was the reality over the past six months as the sector’s flat performance trailed the S&P 500’s 7.7% gain.

Given the low switching costs of basic goods like paper towels, many companies will continue generating poor results while only a handful will shine. Taking that into account, here are three consumer stocks we’re passing on.

Church & Dwight (CHD)

Market Cap: $24.82 billion

Best known for its Arm & Hammer baking soda, Church & Dwight (NYSE: CHD) is a household and personal care products company with a vast portfolio that spans laundry detergent to toothbrushes to hair removal creams.

Why Are We Cautious About CHD?

1. Muted 4.9% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
2. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
3. Projected sales are flat for the next 12 months, implying demand will slow from its three-year trend

Church & Dwight is trading at $104.50 per share, or 27.5x forward P/E. To fully understand why you should be careful with CHD, check out our full research report (it’s free).

Campbell's (CPB)

Market Cap: $8.03 billion

With its iconic canned soup as its cornerstone product, Campbell's (NASDAQ: CPB) is a packaged food company with an illustrious portfolio of brands.

Why Do We Steer Clear of CPB?

1. Flat unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Forecasted revenue decline of 2.4% for the upcoming 12 months implies demand will fall off a cliff
3. Incremental sales over the last three years were much less profitable as its earnings per share fell by 1.3% annually while its revenue grew

At $26.97 per share, Campbell's trades at 11x forward P/E. If you’re considering CPB for your portfolio, see our FREE research report to learn more.

United Natural Foods (UNFI)

Market Cap: $2.33 billion

With a vast network of 55 distribution centers spanning approximately 30 million square feet of warehouse space, United Natural Foods (NYSE: UNFI) is North America's premier grocery wholesaler distributing natural, organic, and conventional products to over 30,000 retail locations across the US and Canada.

Why Is UNFI Risky?

1. Annual sales growth of 2.5% over the last three years lagged behind its consumer staples peers as its large revenue base made it difficult to generate incremental demand
2. Earnings per share fell by 37.9% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

United Natural Foods’s stock price of $38.26 implies a valuation ratio of 17.5x forward P/E. Dive into our free research report to see why there are better opportunities than UNFI.

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