Consumer stocks have taken a hit. Why Monster Beverage, Carvana, and 3 others are bargains.

  • By Teresa Rivas,
  • Barron's
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Consumer stocks have had a difficult few weeks. Worries about inflation, labor costs, and how much of the recovery is priced into the market have weighed on the sector. Yet that selloff has created a buying opportunity for some of the strongest names, argues Wells Fargo (WFC).

In the food space, analyst Ed Kelly highlights Performance Food Group (PFGC). The restaurant supplier fell after announcing its deal to buy convenience store distributor Core-Mark (CORE) earlier this month, and while the acquisition wasn’t his first choice, Kelly thinks it will be a good transaction for the company. Convenience stores are a growing sector of food retail, and the company’s respected management team deserves the benefit of the doubt, he argues. The stock is up 4.2% this year.

Analyst Zack Fadem likes Carvana (CVNA) in the broad retail category for durable goods. The shares have slumped recently, creating an “attractive entry point for a clear market leader in a large…and highly fragmented industry on the cusp of accelerating online adoption.” Shares are up 8.5% this year.

Demand for online car buying is robust, and the company has made key moves to reduce bottlenecks in its supply. Its wide assortment of inventory and customer service should continue to pull market share from traditional dealers, he writes.

In specialty retail and apparel, analyst Ike Boruchow says VF shares (VFC) have become too cheap. The stock was sold off following fiscal fourth-quarter earnings last week, and is down 8.5% this year. He argues that the company is making important strides. While in the past it depended largely on the Vans brand, today VF’s growth and margins are becoming more evenly balanced thanks to improvements at other brands like The North Face and Timberland. He also thinks full-year guidance looks conservative.

Analyst Chris Carey likes Monster Beverage (MNST) among household and personal-care product companies. It too hasn’t performed well in the weeks since its first-quarter earnings. The stock is up less than 1% this year.

He thinks investors are underestimating organic sales growth, which could meaningfully surprise on the upside in the current quarter, and the company’s ability to grow margins. He’s also encouraged by recent news that Coca-Cola (KO) is discontinuing its energy line. That move shows how strongly Monster and Red Bull dominate the category and could lead to renewed hopes of a Coke-Monster tie-up that could bolster the stock.

Wingstop (WING) is analyst Jon Tower’s pick in restaurants. The company was a winner during the pandemic, although more recently investors have worried about how it will face difficult year-ago comparisons at a time when chicken prices are high. The stock is up 7.5% this year.

“However, we see this pullback as a great opportunity for investors to build positions in a highly cash-generative business model with an understated domestic unit growth potential,” as well as international potential, he says.

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