Consumer stocks with strong sales are emerging as stable Wall Street pillars in today’s uncertain economic climate. Despite persistent inflation and shifting consumer shopping habits, the retail sector is expected to exhibit resilience throughout the rest of 2024. The National Retail Federation forecasts retail sales to grow between 2.5% and 3.5% this year, reaching an estimated range of $5.23 trillion to $5.28 trillion.
Year-to-date (YTD), the benchmark S&P 500 index has surged over 15%. In contrast, the Consumer Staples Select Sector SPDR Fund ETF (NYSEARCA:XLP) gained only around 6%. This performance gap indicates growth opportunities in consumer stocks, particularly when compared to the tech-driven rally of the ‘Magnificent Seven.’
Nevertheless, challenges persist with sticky inflation levels influencing consumer behavior. The Federal Reserve’s cautious stance on interest rates adds to the complexity. Despite these factors, three top consumer stocks with strong sales continue to thrive amid market volatility.
Archer-Daniels-Midland (ADM)
The first name in our lineup of consumer stocks with strong sales is Archer-Daniels-Midland (NYSE:ADM). The global commodity giant is one of the largest agricultural processors and food ingredient providers. Its extensive global network and strong market position give it a competitive edge in sourcing, processing and distributing agricultural products. Meanwhile, ADM has a remarkable track record, paying uninterrupted dividends since 1931 and increasing its annual dividend for over 40 consecutive years.
Many on Wall Street concur that ADM is well-positioned to benefit from long-term trends. With the world’s population growing, the demand for food and agricultural products is expected to increase. According to research by HSBC (NYSE:HSBC), global food consumption levels could increase by more than 50%, possibly by 70%, by 2050.
However, ADM has faced headwinds recently due to declining commodity prices. Total revenues dropped 9% year-over-year (YOY) to $21.8 billion in the first quarter of 2024. Profits also hit, with adjusted EPS falling 30% to $1.46 due to lower pricing and execution margins.
In addition, an accounting scandal and investigations by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have impacted the stock price. However, ADM has been responding with enhanced controls and transparent financial practices.
Despite a 14% YTD decline, ADM stock currently offers a 3.3% dividend yield. The stock also appears undervalued when trading at 11.5 times forward earnings and 0.4 times sales. Moreover, analysts’ 12-month median target of $63.20 suggests a potential 4% upside from current levels.
Dollar General (DG)
Next up on our list of consumer stocks with strong sales is Dollar General (NYSE:DG). The company is well-known for offering household essentials to budget-conscious consumers.
In the first quarter of 2024, Dollar General defied economic uncertainties with a robust 6.1% YOY increase in net sales, totaling $9.9 billion. This growth stemmed from new store openings and a 2.4% rise in same-store sales. The consumables category thrived with a 4% boost in customer traffic despite a slight dip in the average transaction value. However, diluted EPS plummeted 29.5% to $1.65, influenced by inflation, high interest rates and rising shrinkage — inventory lost primarily through theft, defects or damage.
Dollar General has implemented measures to trim inventory, remove high-shrink products and restrict self-checkout options to tackle these challenges. These measures are expected to decrease shrinkage by late 2024, with more substantial improvements in 2025. The company also benefits from the growing demand for value-oriented branded and private-label products priced at or below $1.
Despite a nearly 5% decline since January, DG stock maintains a 1.8% dividend yield. Dollar General shares are currently trading at relatively affordable valuations, with a forward price-to-earnings (P/E) ratio of 18.1x and a price-to-sales (P/S) ratio of 0.7x. In addition, Wall Street’s 12-month median forecast of $149.25 signals a 15% upside potential.
Mondelez International (MDLZ)
Global food and beverage company Mondelez International (NASDAQ:MDLZ) concludes today’s discussion on consumer stocks with strong sales. Known for brands like Oreo and Cadbury, its loyal customer base ensures steady sales amid economic uncertainties. Holding top positions in global biscuits and second in chocolate, Mondelez also has a geographically diversified business.
For the first quarter of 2024, Mondelez reported a 1.4% YOY revenue increase to $9.3 billion. Adjusted EPS was 95 cents, up 16.3% on a constant currency basis. Notably, cash flow from operating activities also saw a significant boost. Free cash flow reached $1.0 billion, an increase of $0.1 billion from the previous year.
Mondelez remains proactive in innovation, investing in initiatives like the $5 million Biscuit and Baked Snacks Lab to drive product development. Collaborations, such as expanding the Biscoff® brand in India and creating co-branded chocolate innovations, underscore management’s commitment to growth and market leadership.
Despite a 9% decline in MDLZ stock in 2024, investors now benefit from a 2.6% dividend yield. Meanwhile, Mondelez shares are trading at 18.7 times forward earnings and 2.5 times sales. Finally, analysts are optimistic, setting a median 12-month price target of $80.00 with a potential 20% upside.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.