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Broadly speaking, consumer stocks are in poor shape as they’re inextricably linked to the broader economy, which is likely heading for a severe contraction. However, if you do a deeper dive into the sector, you’ll be able to find a few undervalued consumer stocks to pick from.
For example, if you follow a basic relative valuation approach, you’d be able to find a number of consumer discretionary stocks that are still trading below their intrinsic value. Alternatively, a statistical market segmentation approach identifies numerous consumer staple stocks that are underpriced and set to perform cohesively with a risk-off market.
As such, it’s not all doom and gloom out there; here are three undervalued consumer stocks to consider.
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| Ticker | Company | Current Price |
| The Home Depot, Inc. | $299.83 | |
| The Coca-Cola Company | $62.53 | |
| Nike, Inc. | $109.19 |
Undervalued Consumer Stocks: Home Depot (HD)
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Home Depot’s (NYSE:HD) dramatic 27% year-to-date drop is an overreaction by investors, which stemmed from investors fearing rising input costs. However, at a Beta coefficient of 1.0, it’s trivial that this stock has crashed beyond what’s statistically acceptable. Moreover, with rising interest rates, much of Home Depot’s wage cost issues could be resolved amid an easing in the labor market.
HD stock is undervalued on a normalized basis, with its price-earnings ratio at a 20.1% discount. Additionally, the firm’s 33.6% gross profit margin implies that it has plenty of pricing power over its competitors. As such, it could dodge most of the current economic headwinds.
Coca-Cola (KO)
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Second-quarter sales data convey that soda and energy drink sales are holding up well and outperforming alcohol sales. For example, as per sample, Coca-Cola’s (NYSE:KO) sales have risen by approximately 9.4% year-over-year, showing no signs of slowing down. The company’s first-quarter earnings report revealed exemplary organic growth with a 22% increase in Europe, the Middle East and Africa sales and an astounding 39% increase in Latin American sales.
Furthermore, Morgan Stanley analyst Dara Mohsenian recently opined that Coca-Cola could sustain its earnings momentum into late 2022 and 2023. According to Dara Mohsenian: “Coke still has room for relative multiple expansion, with Coke’s 2023 P/E multiple essentially in-line with mega-cap CPG peers PG/CL/PEP vs. a 6% premium in the beginning of 2020 pre-COVID.”