Top 3 Consumer Staples Stocks Poised for Breakout Success

The swing will come in the next market cycle. While markets may have already priced in potential interest rate cuts by the Federal Reserve (Fed), some stocks have yet to reach their full potential.

Technology stocks have accounted for the lion’s share of the bullish momentum, with names like Nvidia Co. NASDAQ:NVDA making all-time highs. However, some in the consumer staples sector offer a much better risk/reward ratio.

Consumer discretionary firms would be the first to make a move on new interest rate pivots. However, traders continue to push their expectations on these cuts even further.

Once cuts are expected in March 2024, projections in the FedWatch tool offered by the CME Group Inc. NASDAQ: ECM show these trends through September 2024.

As long as the timing – and size – of these cuts remains speculative, stocks will please Freshpet Inc. NASDAQ:FRPT, Celsius Holdings Inc. NASDAQ:CELHand even Tyson Foods Inc. New York Stock Exchange: TSN they could be the ones that will offer investors some stability.

Because their products often remain in demand throughout the economic cycle, Wall Street analysts have spotted an opportunity to ease any market uncertainty.

Freshpet’s hidden moat

Like its competitor, Chewy Inc. NYSE: WH, Freshpet is supported by the naturally non-cyclical nature of pets’ needs. Whether the American economy is booming or slumping, pet owners will likely still find ways to budget monthly for their pets’ needs.

By combining technology with a wholesale/retail model, Freshpet offers investors the ability to squeeze out potential returns in the coming months.

This is one of the reasons why analysts Trustist Financial Co. New York Stock Exchange: TFC they raised their price targets to $135 per share. Freshpet shares would need to rise 18% to prove these projections correct.

Furthermore, overall earnings per share (EPS) expectations are set at a growth rate of 560% over the next 12 months. Willing to pay for a good stock, markets value Freshpet with a forward price-to-earnings (forward P/E) ratio of 176.8x.

This valuation places Freshpet at a 689% premium to the Consumer Staples sector, as its average valuation today stands at 22.4 times forward P/E.

The saying “It must be expensive for a reason” applies here, as Vanguard Group was also willing to purchase up to 0.7% more shares of its position, an increase of about $2.8 million.

Wall Street’s fad for Celsius drinks

Speaking of institutional purchases, how does an investment of $19.2 million fit in? The Goldman Sachs Group Inc. NYSE:GS How did you increase exposure by 80.8% last quarter? Vanguard also saw fit to increase its investments by 183%, an aggressive move by Wall Street.

However, The PNC Financial Services Group Inc. NYSE:PNC took the podium by increasing its position in the stock by 202% in the last quarter. In percentage terms, these allocation movements signify a newfound confidence in these institutions in the future of the stock.

Not known for its growth, the Consumer Staples sector is expected to post an EPS increase of 8% for the year. In comparison, Celsius analysts expect up to 40%. No wonder those at Maxim Group felt brave enough to raise their price targets to $110 per share, predicting an upside of 29% from today.

Celsius’ forward P/E of 55x still gives a 145% premium to the Consumer Staples sector. This is a sign that markets are accepting analysts’ projections and are willing to pay for this potential growth.

Tyson’s downside opportunity

Chicken costs rose throughout 2023 as feed and other factors increased, and companies like Tyson saw no other way forward than to report tighter gross margins on their financial statements. However, easing inflationary pressures have helped the chicken industry’s margins and outlook.

With the costs of soybean feed and other components falling, margins and prospects are now improving, according to Tyson management. The stock is trading 93% of its 52-week high, a sign of bullish momentum; however, it is nowhere near its 2022 peak price of $100.7 per share.

Knowing that Tyson might have some value to squeeze out, Fisher Asset Management bought Tyson shares worth up to $682,000. Likewise, analysts of Citigroup Inc. NYSE:C they raised their price targets on Tyson to $62 per share, a 5% higher valuation for this $21 billion giant.

Analysts believe Tyson’s EPS could grow 57% this year, pushing it much higher than its historical expectations. Another non-cyclical stock on this list will see above-average growth ahead of the Fed’s impending pivot.

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