Consumer defensive stocks have struggled this year, as investors have opted for mega-cap technology titans instead.
The Morningstar US Consumer Defensive index has produced a total return of negative 3.42% year to date, compared to positive 15.05% for the S&P 500.
That may have created some buying opportunities among consumer defensive stocks. With this in mind, Morningstar put together a list of the seven most undervalued stocks (as of Oct. 23) among the 39 that it covers in the sector. Undervaluation is based on Morningstar fair value estimates.
These are the sterling seven, starting with the most undervalued as of Nov. 3.
1. Tyson Foods TSN, the giant meat producer
Morningstar moat (durable competitive advantage): none. Morningstar fair value estimate: $85. Friday’s closing price: $47.05.
Despite the company’s recent struggles, “we don’t see any structural changes to its end markets that would alter our long-term outlook for low-single-digit percentage annual revenue growth and a return to mid- to high-single-digit adjusted operating margins,” wrote Morningstar analyst Kristoffer Inton.
2. Estee Lauder EL, the beauty products company
Morningstar moat: wide. Morningstar fair value estimate: $200. Friday’s closing price: $110.95.
Estee Lauder has suffered recently from weak demand in Asia. But, for fiscal 2025 onward, Morningstar analyst Dan Su still expects Estee to grow revenue at high-single-digit percentage rates on strong brands and premiumization trends. She sees operating margins rising to 18% by 2033, though that’s down from her prior estimate of 22%.
3. Kraft Heinz KHC, the food producer
Morningstar moat: none. Morningstar fair value estimate: $53. Friday’s closing price: $33.27.
“Since mid-2019, Kraft Heinz has prioritized:
- the pursuit of efficiencies that prove lasting,
- brand spending elevation (marketing and product innovation),
- the enhancement of capabilities (category management and e-commerce), and
- scale-leverage to more nimbly respond to changing market conditions,” said Morningstar analyst Erin Lash.
She views that strategy as “prudent.”
4. Campbell Soup CPB, the soup maker
Morningstar moat: wide. Morningstar fair value estimate: $61. Friday’s closing price: $41.
5. Kellanova K, the non-cereal side of what was formerly Kellogg
Morningstar moat: narrow. Morningstar fair value estimate: $75. Friday’s closing price: $52.05.
6. Conagra Brands CAG, a food producer, including Birds Eye
Morningstar moat: none. Morningstar fair value estimate: $33. Friday’s closing price: $27.80.
Inton cut his fair value estimate last month from $46.50, mostly due to a 150-basis-point reduction in his operating margin forecast, as he expects competition to erode recent expansion.
But investors are “overweighting Conagra’s near-term volume challenges,” he said. As price increases slow, “consumers will return to more normalized buying patterns.”
7. Dollar General DG, the discount retailer
Morningstar moat: narrow. Morningstar fair value estimate: $140. Friday’s closing price: $119.25.
The author of this story owns shares of Kraft Heinz.
