Investing in consumer companies that produce essential goods and services can significantly minimize your risks during economic downturns. These companies often have a stable demand for their products and services, making them more resilient to market volatility.
In this context, I have highlighted three fundamentally sound companies, Kimberly-Clark de México, S. A. B. de C. V. (KCDMY), Ennis, Inc. (EBF), and Mannatech, Incorporated (MTEX), with substantial profitability, which could be solid additions to your portfolio this month.
Despite the challenges of high inflation and the Fed’s hawkishness, the consumer goods sector has exhibited resilience. Even in the face of rising prices, consumers prioritize essential items and are often reluctant to forgo their usage, leading to consistent demand.
Therefore, companies operating in this sector tend to maintain steady performance, demonstrating their ability to withstand economic cycles. The projected value added in the Consumer Goods market is expected to reach approximately $3.08 trillion by 2023 and grow at a 3.3% CAGR over the next five years.
Further, in June, inflation experienced its slowest growth in over two years, which indicates that the Fed is progressing toward achieving its target benchmark rate of 2%. However, a robust economy and strong job market remain a concern for the Federal Reserve. As a result, most officials believe that additional rate hikes could be on the horizon.
As per ADP’s National Employment Report, the private sector added 497,000 jobs last month, surpassing the economists’ expectations for 228,000 jobs and ADP’s May total of 267,000 hires.
On the bright side, these figures bode well for the consumer goods sector, as they can lead to increased consumer spending and greater purchasing power. To that end, it could be wise for investors to consider adding stable consumer stocks, KCDMY, EBF, and MTEX, to their portfolios.
Let us dig deeper into the fundamentals of the aforementioned stocks in detail:
Kimberly-Clark de México, S. A. B. de C. V. (KCDMY)
Based in Mexico City, Mexico, KCDMY manufactures and distributes disposable and personal care products. Its product portfolio includes baby diapers, training pants, swim pants, wet wipes, shampoos, creams, bar soaps, feminine pads, menstrual cups, sprays, repellents, and more.
The stock’s trailing-12-month net income and levered FCF margins of 10.49% and 9.65% are 202.5% and 223.8% higher than the 3.47% and 2.98% industry averages, respectively. Likewise, its trailing-12-month ROTC of 18.70% is 197.2% higher than the industry average of 6.29%.
For the first quarter that ended March 31, 2023, KCDMY’s net sales increased 7.8% year-over-year to Mex$13.55 billion ($798.89 million), while its gross profit grew 24.9% from the year-ago value to Mex$4.92 billion ($290.08 million).
The company’s net income and operating profit amounted to Mex$1.61 billion ($94.92 million) and Mex$2.78 billion ($163.91 million), up 47.7% and 38.7% from the prior-year quarter, respectively. Also, its EBITDA rose 29.8% from the year-ago value to Mex$3.27 billion ($192.80 million).
Street expects KCDMY’s revenue for the fiscal second quarter (ended June 30, 2023) to increase 28.6% year-over-year to $802.05 million. Further, its revenue is projected to register a 16.5% year-over-year growth, reaching $3.13 billion in the fiscal year 2023.
Additionally, its revenue has grown at CAGRs of 5.6% and 6.2% over the past three and five years, respectively, while its total assets have increased at a CAGR of 3.9% over the past three years.
KCDMY’s shares have gained 84.4% over the past year and 78.9% over the past nine months to close the last trading session at $11.67.
KCDMY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Growth and Quality. In the 79-stock Consumer Goods industry, it is ranked #7. Click here to see KCDMY’s ratings for Value, Momentum, and Sentiment.
Ennis, Inc. (EBF)
EBF manufactures and sells business forms and other business products in the United States. The company offers snap sets, continuous forms, laser cut sheets, tags, labels, envelopes, integrated products, jumbo rolls, pressure-sensitive products, etc.
On June 2, EBF acquired the operational assets of UMC Print located in Overland Park, Kansas. As one of the major sheet-fed commercial printers in the region, UMC Print offers a diverse range of capabilities that cater to distributors and trade sales organizations across the Midwest and other areas. This acquisition reflects the EBF’s dedication to enhancing growth with their distributor partners.
On May 23, EBF announced the acquisition of the real estate and operational assets of Stylecraft Printing Company located in Canton, Michigan, which focuses on providing business forms, integrated products, and commercial printing services.
Commenting on this, Keith Walters, Chairman, President & CEO of EBF, said, “The addition of Stylecraft expands our product lines and geographical footprint, as well as adds a well-known brand that has been serving the distributor channel for more than 50 years. The acquisition of Stylecraft continues our strategy of adding quality companies to serve our customers and create return for our shareholders.”
EBF’s trailing-12-month net income and levered FCF margins of 10.86% and 8.99% are 71.2% and 71.5% higher than the 6.35% and 5.24% industry averages, respectively. Likewise, its trailing-12-month ROTA of 11.95% is 132.3% higher than the industry average of 5.14%.
EBF’s net sales for the first quarter (ended May 31, 2023) increased 3.4% year-over-year to $111.29 million, while its gross profit improved marginally from the year-ago value to $34.04 million.
During the same period, the company’s net earnings amounted to $11.64 million and $0.45 per share. In addition, its total current liabilities stood at $38.38 million, declining 6.9% compared to $41.25 million as of February 28, 2022.
The consensus revenue estimate of $431.97 million for the fiscal year 2024 (ending February 2024) represents a marginal increase year-over-year. The consensus EPS estimate of $1.72 for the current year indicates a 4.2% improvement year-over-year. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Also, its EBIT and net income have grown at CAGRs of 11.3% and 12.9% over the past three years, respectively. Likewise, its EBITDA and EPS have improved at 7.8% and 13% CAGRs over the same period, respectively.
The stock has gained marginally over the past five days to close the last trading session at $20.23.
EBF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability and Sentiment. Within the same industry, it is ranked first. Click here to see the other ratings of EBF for Growth, Value, and Momentum.
Mannatech, Incorporated (MTEX)
MTEX operates as a health and wellness company worldwide. It develops, markets, and sells nutritional supplements; topical and skin care, anti-aging products; weight management, and fitness products.
On June 29, MTEX paid its shareholders a dividend of $0.20 per share, reflecting its aims to reward its shareholders and encourage long-term investment in its common stock.
The company’s annual dividend of $0.80 translates to a 6.77% yield on the prevailing prices, while its four-year average dividend yield is 6.49%. Its dividend payouts have grown at CAGRs of 16.9% and 5.1% over the past three and five years, respectively.
On April 18, MTEX revealed the establishment of a new wholly-owned subsidiary, which will function as an innovation hub for the company. Following thorough research and investigation, this subsidiary, Trulu, is set to enter the gig economy. Both entities will engage in collaborative efforts to drive progress.
MTEX’s trailing-12-month gross profit margin of 75.97% is 142.6% higher than the industry average of 31.32%. Likewise, its trailing-12-month asset turnover ratio of 2.48x is 181.1% higher than the industry average of 0.88x.
In the first quarter that ended March 31, 2023, MTEX’s net sales increased 5.3% year-over-year to $34.11 million, while its gross profit grew 5.6% from the year-ago value to $26.70 million.
The company’s net income increased 350.7% and 433.3% from the prior-year quarter to $604 thousand and $0.32 per share, respectively. Also, its income from operations rose significantly from the year-ago value to $713 thousand.
MTEX’s EPS is expected to improve by 17.5% per annum over the next five years. The stock has gained 3% over the past five days to close the last trading session at $11.81.
It’s no surprise that MTEX has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Quality and a B for Sentiment. Out of 79 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have MTEX’s ratings for Growth, Momentum, and Stability. Get all MTEX ratings here.
What To Do Next?
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KCDMY shares were trading at $11.84 per share on Thursday afternoon, up $0.17 (+1.46%). Year-to-date, KCDMY has gained 43.37%, versus a 18.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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