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5 Consumer Defensive Stocks That Beat the Market in 2018

As a volatile 2018 comes to a close, investors are cautiously approaching the New Year. As a result, value opportunities may be found among companies that outperformed the Standard & Poor’s 500 Index over the course of the year. As of Dec. 28, the GuruFocus All-in-One Screener found several stocks that have a market cap over $5 billion and had a higher return relative to the index for the period. It also looked for stocks trading below Peter Lynch value.

The screener found value opportunities among companies in the consumer defensive industry. Stocks in this industry are typically good investments because the products these companies produce are always in demand, regardless of the state of the economy. According to the industry overview pages, the consumer defensive industry is composed of the following sectors:

Based on these criteria, consumer defensive stocks that outperformed the S&P 500 over the last 12 months are Post Holdings Inc. (NYSE:POST), Archer-Daniels Midland Co. (NYSE:ADM), Target Corp. (NYSE:TGT), The Kroger Co. (NYSE:KR) and US Foods Holding Corp. (NYSE:USFD). The S&P 500 index has posted a return of roughly -7.02% for the year so far.

Post Holdings

With a gain of 12% year to date, Post Holdings has a $5.87 billion market cap; its shares were trading around $88 on Friday with a price-earnings ratio of 14.56, a price-book ratio of 1.91 and a price-sales ratio of 1.03.

The Peter Lynch chart shows the stock is trading near its fair value.

The Missouri-based company, which makes popular cereals like Raisin Bran and Pebbles, has a GuruFocus financial strength rating of 5 out of 10. Weighed down by new long-term debt and a low interest coverage ratio, the Altman Z-Score of 1.13 suggests the company is at risk of going bankrupt. The company’s profitability and growth fared better, scoring an 8 out of 10 rating as a result of operating margin expansion, good returns and a stable Piotroski F-Score of 5.

With 2.35% of outstanding shares, Diamond Hill Capital is the company’s largest guru shareholder. Other top guru investors include Jim Simons’ Renaissance Technologies, Mario Gabelli, First Eagle Investment, Ken Fisher, Arnold Van Den Berg, Lee Ainslie, Paul Tudor Jones, Pioneer Investments, and Joel Greenblatt.

Archer-Daniels Midland

Having climbed 3% year to date, Archer-Daniels Midland has a market cap of $23.19 billion; its shares were trading around $41.37 on Friday morning with a price-earnings ratio of 10.29, a price-book ratio of 1.23 and a price-sales ratio of 0.36.

According to the Peter Lynch chart, the stock is undervalued.

Headquartered in Chicago, the food processing company’s financial strength was rated 6 out of 10 by GuruFocus. Although the company has issued roughly $1 billion in new long-term debt over the last three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 3.4 also indicates the company is in good fiscal standing despite seeing a decline in revenue per share over the last five years.

The company’s profitability and growth scored a 5 out of 10 rating. While the operating margin is expanding, it still underperforms 66% of industry peers. It also has moderate returns, a high Piotroski F-Score of 7, implying operations are strong, and a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 1.1% per year.

The T Rowe Price Equity Income Fund is Archer-Daniels Midland’s largest guru shareholder with 0.46% of outstanding shares. Tom Gayner, Pioneer, Greenblatt, Simons’ firm, George Soros, Gabelli, Jeremy Grantham, Steven Cohen, John Buckingham, and David Dreman also have positions in the stock.

Target

Flat year to date, Target has a $33.89 billion market cap; its shares were trading around $64.73 on Friday with a price-earnings ratio of 10.81, a price-book ratio of 3.06 and a price-sales ratio of 0.47.

Based on the Peter Lynch chart, the stock appears to be undervalued.

The Minneapolis-based retailer has a GuruFocus financial strength rating of 6 out of 10. While the company has sufficient interest coverage, its Altman Z-Score of 2.76 indicates it is under some financial pressure. Target’s profitability and growth scored a 7 out of 10 rating, boosted by strong returns, a high Piotroski F-Score of 7 and a three-star business predictability rank. In addition to having consistent revenue and earnings growth, GuruFocus says companies with this rank typically see their stock prices gain an average of 8.2% per year.

Of the gurus invested in Target, Dodge & Cox has the largest position with 1.68% of outstanding shares. Pioneer, Smead Capital Management, Inc., Mairs and Power, Lee Ainslie, Jones, Greenblatt, Buckingham, Ray Dalio, John Hussman, Dreman and Barrow, Hanley, Mewhinney & Strauss are also shareholders.

Kroger

Up 1% year to date, Kroger has a market cap of $22.01 billion; its shares were trading around $27.59 on Friday with a price-earnings ratio of 6.39, a price-book ratio of 2.87 and a price-sales ratio of 0.18.

The Peter Lynch chart shows the stock is undervalued.

The grocery store chain, which is based in Cincinnati, has a GuruFocus financial strength rating of 6 out of 10. Despite issuing new long-term debt over the last several years, the Altman Z-Score of 4.64 indicates the company is in good financial standing. Kroger’s profitability and growth scored an 8 out of 10 rating, boosted by a high Piotroski F-Score of 7, consistent earnings and revenue growth and a perfect, five-star business predictability rank. According to GuruFocus, companies with this rank typically see their stock prices gain an average of 12.1% per year.

Pioneer has the largest stake in Kroger with 0.39% of outstanding shares. Smead Capital, Greenblatt, Jeff Auxier, Ainslie, Fisher, Hussman, Buckingham, Dreman and Jones also have positions in the stock.

US Foods

Down 3% year to date, US Foods has a $6.7 billion market cap; its shares were trading around $30.83 with a price-earnings ratio of 12.10, a price-book ratio of 2.15 and a price-sales ratio of 0.27.

According to the Peter Lynch chart, the stock is undervalued.

GuruFocus rated the Illinois-based food distribution company’s financial strength 6 out of 10. Despite having weak interest coverage and seeing a decline in revenue per share over the last several years, the Altman Z-Score of 3.65 suggests the company is in good financial health. US Foods’ profitability and growth scored a 5 out of 10 rating, driven by an expanding operating margin and a high Piotroski F-Score of 7.

With 0.68% of outstanding shares, Mario Cibelli is the company’s largest guru shareholder. Other guru investors are Simons’ firm, Grantham, Cohen and Greenblatt.

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