The food stocks now all trade at steep discounts to both the broad market and their own history, based on current forecast profits – which, admittedly, have come down and mighty continue falling. The forward price/earnings ratios of Campbell, General Mills and Kellogg relative to the S&P 500 have not been as low as they are today for 15 to 18 years. P&G, Colgate and Clorox were last this cheap on a relative basis seven to nine years ago.
And while their dividend streams might no longer be the only game in town for income and will not do much to buffer further share-price declines, several of these stocks yield above 4 percent, on par with high-grade corporate bonds.
One reason investors seem so certain of the hopelessness of the staples’ business prospects is how wretched their stock performance has been over the past two years: Campbell cut in half, General Mills down 42 percent since the spring of 2016, in a market that’s up 30 percent.
Back then, of course, the market pushed these stocks to historically overvalued levels, in love with what they thought were their stable, defensive businesses, low volatility and reliable yields.
There is no saying the pantry-and-medicine-cabinet companies are cheap enough yet, even at half their P/Es of two years ago. But at some point and some price, they will require merely “less bad” news or one deal announcement or a sufficiently urgent strategic restructuring or a hint of stabilizing sales trends to start a recovery.
Probably the last group that was considered similarly uninvestable was the brick-and-mortar retailers last year, after Amazon’s purchase of Whole Foods.
The stocks went down relentlessly for months and seemed like perpetual value traps, before staging a fierce rebound — though not close to full recoveries of all losses.
And perhaps we’re seeing something similar now with General Electric — the poor corporate performance and ugly stock action came in so many waves and went so much further than most thought possible, that the negative case for the stock came to seem irresistible. GE shares are up 20 percent several weeks – but are still down by half since a year ago.
Is that a comfort to the would-be contrarians in consumer-staples stocks — or a dire warning?