Look To This Industry for Safe Stocks: Campbell Soup Company (CPB) and More

Prevalent Theme

Express Scripts trades with a similar valuation as Campbell’s but offers much better growth prospects in a cyclically defensive industry.  This is prevalent with other names in the health care supply chain as well.  Walgreen Company (NYSE:WAG) is another such company and has outperformed the S&P 500 by approximately 10% since I recommended it back in July.  The company reported dismal results in the last quarter as it recovers from the Express Scripts standoff.  Still, Walgreen is a solid defensive company with modest growth opportunities trading a depressed EV/Sales ratio of just 0.53x.  The Coca-Cola Company (NYSE:KO) on the other hand trades at 3.2x.  This is not a small gap!

WAG EV / Revenues TTM data by YCharts

The chart below depicts Coke’s price-to-earnings ratio relative to that of the S&P 500. It probably isn’t a coincidence that the stock has underperformed the market after the PE ratio approached an excessive 50% premium to the market during the last year.  There is still downside to this elevated ratio before investors should become constructive on the name.

Foolish Bottom Line

Attractively valued stocks are more abundant in the health care supply chain than the food and beverage industry.  Investors that need to maintain some defensive exposure should consider adding some cheap health care stocks and sell the richly priced consumer staples names.  This doesn’t mean that food and beverage stocks are going to see big declines, but they look poised to lag the performance of several leading health care companies.  Better fundamentals and growth tailwinds in the health care supply chain present more upside without having to take on additional risk.

The article Look To This Industry for Safe Stocks originally appeared on Fool.com and is written by Justin Carley.

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