The rise in consumer spending has bolstered the consumer goods industry. Moreover, potential interest rate cuts in 2024 may stimulate consumer spending, enhancing consumer goods demand. Therefore, investors could consider buying fundamentally robust consumer good stocks Helen of Troy Limited (HELE), Virco Mfg. Corporation (VIRC), and Henkel AG & Co. KGaA (HENKY) that could boost their investment strategy.
The U.S. economy demonstrates robust growth, fueled by strong consumer spending and heightened business investment. Consumer spending, accounting for over two-thirds of U.S. economic activity, rose by 3.3%, adding 2.20 percentage points to GDP growth and surpassing forecasts.
Despite the Federal Reserve implementing interest rate hikes to combat inflation, consumer spending has shown remarkable resilience. The demand for consumer goods is poised for a significant growth as the Fed contemplates rate cuts later this year, spurred by factors such as a softening job market and easing inflation. Such cuts could invigorate the economy, potentially benefiting the sector.
The global consumer goods industry is anticipated to reach $224.33 billion by 2032, expanding at a 7.8% CAGR.
Furthermore, consumer goods' essential nature results in consistent product demand, regardless of fluctuating economic conditions. This consistency provides substantial stability for companies in this sector, positioning consumer goods stocks as potentially secure investment options.
Given the industry tailwinds, let’s examine the fundamentals of the three stocks to buy in the Consumer Goods industry, starting with the third in line.
Stock #3: Helen of Troy Limited (HELE)
HELE provides various consumer products in the U.S., Canada, Europe, the Middle East, Africa, the Asia Pacific, and Latin America and operates in Home & Outdoor and Beauty & Wellness segments.
HELE’s trailing-12-month cash from operations of $391.18 million is 38.5% higher than the industry average of $282.42 million. Its trailing-12-month net income and levered FCF margins of 8.10% and 15.86% are 71.8% and 185.8% higher than the industry averages of 4.72% and 5.55%, respectively.
For the fiscal third quarter that ended November 30, 2023, HELE’s net sales revenue and adjusted operating income stood at $549.62 million and $89.81 million, respectively. Moreover, its adjusted EBITDA stood at $97.82 million.
For the same quarter, its adjusted income increased marginally year-over-year to $66.39 million, while adjusted EPS increased 1.5% from the prior-year quarter to $2.79.
Street expects HELE’s revenue and EPS for the fiscal first quarter ending May 2024 to increase 1.6% and 7.6% year-over-year to $482.13 million and $2.09, respectively.
The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 16.3% over the past year to close the last trading session at $110.72. Over the past nine months, it has gained 2.5%.
HELE’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
HELE has a B grade for Growth, Value, and Quality. Within the B-rated Consumer Goods industry, it is ranked #11 out of 50 stocks.
To see additional POWR Ratings for Momentum, Stability, and Sentiment for HELE, click here.
Stock #2: Virco Mfg. Corporation (VIRC)
VIRC designs, produces, and distributes furniture in the U.S. The company manufactures an assortment of products, including mobile tables, mobile storage equipment, desks, technology tables, chairs, activity tables, folding chairs, and folding tables.
On February 27, VIRC declared a cash dividend of $0.02 per share of common stock for the first quarter of fiscal year 2025, payable to shareholders on April 10. Its annualized dividend of $0.04 per share translates to a dividend yield of 0.36% on the current share price.
In addition, the board authorized an open-market share repurchase program of up to $5 million. In combination with share price appreciation, these actions will re-establish the balanced portfolio of shareholder returns that allows individual shareholders to choose the return that allows shareholders to share in the benefits of current income plus capital appreciation.
VIRC’s trailing-12-month asset turnover ratio of 1.76x is 121.5% higher than the industry average of 0.80x. Its trailing-12-month gross profit and net income margins of 42.59% and 10.68% are 39.4% and 81.2% higher than the industry averages of 30.55% and 5.89%, respectively.
For the fiscal third quarter that ended October 31, 2023, VIRC’s net sales and gross profit increased 8.9% and 24.2% year-over-year to $84.25 million and $38.21 million, respectively.
For the same quarter, its net income and net income per common share stood at $10.16 million and $0.62, up 29% and 29.2% from the prior-year quarter, respectively. As of October 31, 2023, VIRC’s total current assets amounted to $98.84 million, compared to $89.55 million as of October 31, 2022.
Street expects VIRC’s revenue and EPS for the fiscal year ending January 2025 to increase 8.1% and 27.4% year-over-year to $289 million and $1.72, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 184.4% over the past year to close the last trading session at $11.26. Over the past nine months, it has gained 170%.
VIRC’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which indicates Buy in our proprietary rating system.
VIRC has an A grade for Sentiment and a B for Value, Momentum, and Quality. Within the same industry, it is ranked #10.
For VIRC’s other ratings (Growth and Stability), click here.
Stock #1: Henkel AG & Co. KGaA (HENKY)
Headquartered in Düsseldorf, Germany, HENKY engages in adhesive technologies and beauty care, and laundry and home care businesses worldwide. It operates in two segments: Adhesive Technologies and Consumer Brands.
On March 25, HENKY and Adobe expanded their partnership to advance HENKY’s content supply chain with the power of generative AI and deliver personalization at scale across the company’s global brand portfolio. For this purpose, the Adobe Firefly and Adobe Experience Cloud solutions will be used in HENKY's digital business platform, RAQN.
Its annualized dividend of $0.50 per share translates to a dividend yield of 2.77% on the current share price. Its four-year average yield is 2.70%. Over the past five years, HENKY’s dividend payments have grown at a 3.5% CAGR.
HENKY’s trailing-12-month cash from operations of $3.59 billion is 310.4% higher than the industry average of $875.53 million. Its trailing-12-month net income and levered FCF margins of 6.13% and 13.96% are 20.7% and 169.6% higher than the industry averages of 5.07% and 5.18%, respectively.
For the fiscal year that ended December 31, 2023, HENKY’s sales stood at €21.51 billion ($23.13 billion), while gross profit increased 3.1% year-over-year to €9.66 billion ($10.39 billion). Moreover, its free cash flow increased 298.6% from the previous year to €2.60 billion ($2.80 billion).
For the same year, its net income attributable to shareholders of HENKY and earnings per ordinary share stood at €1.32 billion ($1.42 billion) and €3.13, up 4.7% and 6.8% from the year-ago value, respectively.
Street expects HENKY’s revenue for the fiscal first quarter that ended March 2024 to be $5.67 billion. The company surpassed consensus revenue estimates in three of the trailing four quarters.
The stock has gained 14.8% over the past six months to close the last trading session at $18.03. Over the past month, it has gained 4.8%.
HENKY’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
HENKY has an A grade for Stability and a B for Growth, Value, and Quality. It is ranked #3 within the same industry.
Click here for the additional POWR Ratings for HENKY (Momentum and Sentiment).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HENKY shares were unchanged in premarket trading Wednesday. Year-to-date, HENKY has declined -0.11%, versus a 9.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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