11 Investable Consumer Non-Durables: Finding Value In Food, Footwear, Apparel, Alcohol And Tobacco

My primary objective with this series of articles (identifying attractively valued stocks in different sectors) is to provide the reader with a clear perspective of just how different individual stocks are and how different companies operating in different sectors are. It is my opinion and experience that investors worry far too much about what the general market may or may not do, and far too little about the specifics of the individual stocks that they actually own.

The old saying that “knowledge is power” really comes to mind. When dealing with my own portfolio, or portfolios that I manage for others, my primary goal is to evaluate, assess and establish as clear as I possibly can an understanding of what each business in the portfolio is intrinsically worth based on fundamentals. This can be – and often is – in stark contrast to how the market may be valuing a given business in the short run. Stocks (and markets for that matter) do become overvalued, undervalued and fairly valued from time to time.

However, when you know what your businesses are truly worth you are empowered and protected from making impulsive mistakes. This simply means that you are not foolish enough to sell a valuable asset for less than it’s worth. Conversely, nor are you foolish enough to hold onto an asset that is dangerously overvalued. In other words, when you know the value of your individual businesses, you are empowered towards making sound and prudent long-term investing decisions.

Now there is a point of clarification that should be made here. Knowing the precise value of a business is not a practical notion. Instead, all that you can do is have a general but learned idea of what a business is worth. Stated differently, every investor can calculate their businesses’ worth within a reasonable range of prudence and understanding.  The central idea here is that you understand your value well enough that you never sell a dollars’ worth of assets for $0.50 or vice versa.

A Sector By Sector Review

This is part 4 of a series where I have conducted a simple screening looking for value over the overall market based on industry classifications and subindustry classifications reported by FactSet Research Systems, Inc. In part 1 found here, I covered the Consumer Services Sector. In part 2 found here, I covered the Communication Sector. In part 3 found here, I covered the Consumer Durables Sector and its many diverse subsectors.

In each article in this series, I will be providing a listing of screened research candidates from each of the following industry sectors, the sector I’m covering in this article is marked in green:

(Click on image to enlarge)

A Simple Valuation and Quality Screening Process

With this series of articles, I will be presenting a screening of companies that have become attractively valued primarily as a result of the bearish market activities experienced in 2018 from each of the above sectors. I will be applying a rather simple valuation and quality-oriented screen across each of the sectors. First, I have screened for investment-grade S&P credit ratings of BBB- or above. Next, I have screened for low valuations based on P/E ratios between 2 and 17. Finally, I have screened for long-term debt to capital no greater than 70%.

By keeping my screen simple, and at the same time rather broad, I will be able to identify attractively valued research candidates that I might have overlooked through a more rigorous screening process. In other words, I’m looking for fresh ideas that I might have previously been overlooking. Furthermore, I want to be clear that I do not consider every candidate that I have discovered as suitable for every investor. However, I do consider them all to be attractively valued. Additionally, I also believe that every investor will be able to find companies to research that meet their own goals, objectives and risk tolerances as this series unfolds.

In this, part 4, I have found 11 research candidates from the Consumer Non-Durables Sector:

Sector 4: Consumer Non-Durables

Food: Major Diversified

Food: Specialty/Candy

Food: Meat/Fish/Dairy

Beverages: Non-Alcoholic

Beverages: Alcoholic

Tobacco

Household/Personal Care

Apparel/Footwear

Consumer Sundries

In contrast to the Consumer Durables Sector, the consumer Non-Durables Sector is comprised of companies with more consistent operating histories and more consistent records of dividend increases. Moreover, consumer non-durables are generally lower growth businesses with above-average dividend yields. Consequently, even though there are many well-known brands comprising this sector, very few produce long-term returns that are greater than the S&P 500 average long-term total returns.

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Disclosure: Long MO, PM, KHC, GIS.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell ...

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