Despite high interest rates, consumer spending has remained resilient, indicating a strong demand for goods and services. Additionally, central banks worldwide are expected to cut interest rates this year, which could further stimulate consumer spending and boost the demand for consumer goods.
Amid this favorable backdrop, it could be wise to consider buying fundamentally strong consumer goods stocks such as Unicharm Corporation (UNICY), Colgate-Palmolive Company (CL), and Acme United Corporation (ACU).
Before delving deeper into their fundamentals, let’s take a closer look at why the consumer goods industry is worth looking at now.
Consumer spending rose 0.8% in February, the largest gain since January 2023. When adjusted for inflation, consumer spending rebounded 0.4% after dropping 0.2% in January. In March, the Consumer Confidence Index held steady at 104.7, nearly unchanged from the revised February figure of 104.8, indicating stable consumer sentiment.
The demand for consumer goods is likely to get a boost as the Federal Reserve is expected to consider cutting rates three times by the end of the year, driven by a slowly weakening jobs market and easing inflation. The rate cuts could stimulate economic activity, thereby benefiting the sector.
Moreover, consumers feel confident that inflation will ease and reduce the burden on their pockets. This was evidenced by the US Consumer Sentiment Index rising to its highest level in nearly three years. The University of Michigan’s benchmark Consumer Sentiment Index rose to a final reading of 79.4 in March.
Furthermore, the consumer goods sector could be a relatively safe investment choice. Companies in this space typically see steady product demand, allowing them to maintain their margins regardless of economic conditions. The global consumer goods industry is projected to reach $224.33 billion by 2032, growing at a CAGR of 7.8%.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Consumer Goods picks, beginning with the third choice.
Unicharm Corporation (UNICY)
Headquartered in Tokyo, Japan, UNICY manufactures and sells wellness, feminine, baby and children, kirei, and pet care products internationally. The company offers baby and child care products, including disposable diapers and wipes, feminine care products, napkins, and wellness care products.
In terms of the trailing-12-month Capex / Sales, UNICY’s 4.08% is 26.1% higher than the 3.24% industry average. Likewise, its 0.86x trailing-12-month asset turnover ratio is 4.3% higher than the industry average of 0.83x. Also, its 9.14% trailing-12-month net income margin is 80.1% higher than the industry average of 5.07%.
UNICY’s net sales for the fiscal year ended December 31, 2023, increased 4.9% year-over-year to ¥9.42 billion ($62.18 million). The company’s EBITDA rose 10.9% year-over-year to ¥1.79 billion ($11.82 million).
Also, its profit attributable to owners of the parent company and EPS grew 27.3% and 28% over the prior year’s quarter to ¥861 million ($5.68 million) and ¥145.42, respectively.
Analysts expect UNICY’s revenue for the quarter ending June 30, 2024, to increase 2.5% year-over-year to $1.68 billion. Over the past month, the stock has declined 3.9% to close the last trading session at $6.38.
UNICY’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #12 out of 49 stocks in the B-rated Consumer Goods industry. It has a B grade for Stability and Quality. To access UNICY’s grades for Growth, Value, Momentum, and Sentiment, click here.
Colgate-Palmolive Company (CL)
CL and its subsidiaries manufacture and sell consumer products internationally. The company offers a wide range of oral, personal, home care, and pet nutrition products under various well-known brands worldwide. It operates through two segments: Oral, Personal, and Home Care; and Pet Nutrition.
In terms of the trailing-12-month gross profit margin, CL’s 58.22% is 69.9% higher than the 34.27% industry average. Its 14.03% trailing-12-month Return on Total Assets is 183.1% higher than the 4.96% industry average. Additionally, its 455.45% trailing-12-month Return on Common Equity is considerably higher than the 11.46% industry average.
CL’s net sales for the fourth quarter ended December 31, 2023, increased 6.9% year-over-year to $4.95 billion. The company’s non-GAAP operating profit increased 14.1% year-over-year to $1.07 billion. Its adjusted net income attributable to CL rose 12.3% year-over-year to $720 million. Additionally, its non-GAAP earnings per share came in at $0.87, representing a 13% increase over the prior-year quarter.
For the quarter ended March 31, 2024, CL’s EPS and revenue are expected to increase 11.6% and 3.9% year-over-year to $0.81 and $4.96 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 25.2% to close the last trading session at $89.06.
CL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability. It is ranked #10 in the same industry. To see CL’s Growth, Value, Momentum, and Sentiment ratings, click here.
Acme United Corporation (ACU)
ACU supplies cutting, measuring, first aid, and sharpening products internationally to markets, including schools, homes, offices, hardware, sporting goods, and industrial sectors. The company offers various crafting tools under Westcott and cutting tools under the Clauss brand, including scissors, knives, rulers, etc.
In terms of the trailing-12-month net income margin, ACU’s 9.29% is 57.7% higher than the 5.89% industry average. Likewise, its 12.82% trailing-12-month levered FCF margin is 98.2% higher than the 6.47% industry average. Furthermore, the stock’s 20.11% trailing-12-month Return on Common Equity is 68.9% higher than the 11.91% industry average.
ACU’s net sales for the fourth quarter ended December 31, 2023, amounted to $41.94 million. Its gross profit rose 16.5% year-over-year to $16.40 million. In addition, the company’s adjusted net income and EPS stood at $11.21 million and $0.43, compared to an adjusted net loss and adjusted loss per share of $597 million and $0.17 in the year-ago quarter, respectively.
For fiscal 2024, ACU’s revenue is expected to increase 6.9% year-over-year to $204.68 million. Its EPS for the quarter ended March 31, 2024, is expected to increase 110.7% year-over-year to $0.59. Over the past year, the stock has gained 104.2% to close the last trading session at $46.96.
ACU’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. It is ranked #4 in the Consumer Goods industry. In total, we rate ACU on eight different levels. Beyond what we stated above, we also have given ACU grades for Momentum, Stability, and Sentiment. Get all the ACU’s ratings here.
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CL shares were trading at $89.06 per share on Tuesday morning, down $0.00 (0.00%). Year-to-date, CL has gained 12.40%, versus a 9.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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