Consumer staples are considered safe havens in turbulent markets due to their inelastic demand profiles. The flip side is that they frequently fall behind growth industries when times are good. This trade-off has yet to emerge as the sector has posted a 10.3% return over the past six months, almost identical to the S&P 500.

Although these companies have produced results lately, only a few will shine over the long term because basic goods like paper towels have low switching costs, leading to fierce competition. With that said, here are three consumer staples stocks we’re swiping left on.

Medifast (MED)

Market Cap: $198 million

Industry Segment: Personal Care

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE:MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Why Are We Out on MED?

1. Products have few die-hard fans as its sales declined by 21.9% annually over the last three years
2. Operating profits fell over the last year as its sales dropped and it struggled to adjust its fixed costs
3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable

Medifast’s stock price of $18.59 implies a valuation ratio of 37.6x forward price-to-earnings. To fully understand why you should be careful with MED, check out our full research report (it’s free).

MGP Ingredients (MGPI)

Market Cap: $935.2 million

Industry Segment: Beverages, Alcohol, and Tobacco

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ:MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

Why Does MGPI Give Us Pause?

1. Subscale operations are evident in its revenue base of $737.7 million, meaning it has less negotiating power than its larger rivals
2. Sales are projected to tank by 5.8% over the next 12 months as demand evaporates
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $42.01 per share, MGP Ingredients trades at 7.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than MGPI.

SunOpta (STKL)

Market Cap: $888.9 million

Industry Segment: Shelf-Stable Food

Committed to clean-label foods, SunOpta (NASDAQ:STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.

Why Are We Cautious About STKL?

1. Sales tumbled by 4.4% annually over the last three years, showing consumer trends are working against its favor
2. Smaller revenue base of $711.7 million gives it less operating leverage when demand is strong
3. Easily substituted products result in an inferior gross margin of 16.6% that must be offset through higher volumes

SunOpta is trading at $7.51 per share, or 37x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than STKL.

Stocks We Like More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,704% between September 2019 and September 2024) as well as under-the-radar businesses like Axon (+604% five-year return). Find your next big winner with StockStory today for free.