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Forget Archer Daniels, Buy These 3 Consumer Staples Stocks

Zacks Equity Research

The Consumer Staples sector, which is considered to be defensive even in the times of economic disruptions, has been benefiting from the uptick in the U.S. economy. The sector looks well placed buoyed by rising consumer confidence, modest consumer spending and accelerating labor market. Also, the sector has a Zacks Sector Rank of #5 (out of 16).

Despite the prospering Consumer Staples sector, Archer Daniels Midland Company ADM is one stock that has been losing luster due to its dismal surprise history. The company’s sales lagged the Zacks Consensus Estimate for more than three years now, alongside delivering negative earnings surprise in eight of the last 10 quarters. As a result, the stock has declined 6.5% in a year’s time against the sector’s 14.7% growth.

What’s Troubling Archer Daniels?

Archer Daniels is experiencing the jolts of the tough operating environment in the Agricultural industry owing to fluctuating commodity prices and oversupply. This, in turn, has been largely weighing upon the company’s top and bottom lines while keeping margins strained. In third-quarter 2017, top line declined across all of the company’s segments while strained margins at the Agricultural Services and Oilseeds Processing segments hurt the bottom line.

Agricultural Services segment was hurt by soft merchandising and handling results for North America Grain due to lack of competitiveness of U.S. corn and soybeans in global markets. Further, lower crushing margins as well as lower South American origination margins resulted in reduced margins at the Oilseeds Processing segment.

Consumer Staples Space Still Has Some Solid Picks

Though Archer Daniels looks troubled, the Consumer Staples sector still has stocks that are doing well and promise solid growth in the future. Here, we have handpicked stocks that carry Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

3 Solid Bets

The Estee Lauder Companies Inc. EL has been gaining from consumers’ improved spending on beauty and personal care products, strategic acquisitions and expansion of online sales channels. The company’s shares have skyrocketed 64.6% in a year, far better than the industry's 35.5% rally. Notably, this leading cosmetic company marked its 13th and 3rd straight earnings and sales beat, respectively, in first-quarter fiscal 2018.

Moreover, the company’s strong fundamentals have led management to provide an optimistic view for the year. This Zacks Rank #2 stock has a long-term earnings growth rate of 12.5%, which remains impressive.

The Clorox Company CLX has been performing well on the back of its brand-management initiatives, focus on e-commerce model and 2020 Strategy. Also, the company’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters by an average of 2.4%. Notably, this Zacks Rank #2 company’s shares have rallied 20.9% in the past year, outpacing the industry’s gain of 16.9%. Also, it has a long-term earnings growth rate of 6.7%.

Sysco Corporation SYY looks promising on the back of its robust business portfolio, cost-saving and revenue-management efforts, and 2020 Strategy. The company recently outlined its key growth strategies, wherein it also highlighted its three-year financial goals. Sysco’s four core strategies include enhancing consumers’ experience, optimizing business, stimulating power of its people and achieving operational efficacy.

These endeavors, along with constant focus on buyouts have helped the company’s shares to move up 14.5% in a year against the industry’s decline of 2.2%. Also, Sysco’s earnings have outpaced the estimates in seven of the past eight quarters, with a trailing four-quarter average beat of 2.6%. Moreover, this Zacks Rank #2 stock has a long-term earnings growth rate of 9%.

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Estee Lauder Companies, Inc. (The) (EL) : Free Stock Analysis Report
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Archer-Daniels-Midland Company (ADM) : Free Stock Analysis Report
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