In this article, we discuss 10 best buy-the-dip consumer stocks to consider.
Consumer stocks have lost about $1.8 trillion in market value so far in 2022, according to a recent Bloomberg report. This comes in light of heightened inflation and surplus inventories that are damaging company profits. The S&P 500 Consumer Discretionary Index dropped 33% in the first six months of 2022, owing to cost pressure and rising rates. Consumer stocks suffered the biggest losses, with recession fears weighing on purchasing power. US household spending in May also declined, indicating a softer economy.
While companies and consumers both grapple to deal with rising costs, many prominent market leaders recently cut profit forecasts for the rest of the year, including Walmart and Target. US stocks have posted their worst first half in over 50 years amid the Fed’s attempt to control the rampant inflation. The stock market selloff has erased over $9 trillion in market value since the conclusion of 2021, as per Bloomberg data.
However, many investors and market experts are loading up on stocks with cheaper valuations and strong earnings potential. Some of the best buy-the-dip consumer stocks to consider include Etsy, Inc. (NASDAQ:ETSY), Target Corporation (NYSE:TGT), and The Estée Lauder Companies Inc. (NYSE:EL).
Photo by Fikri Rasyid on Unsplash
Our Methodology
We selected consumer stocks that have strong market presence, solid business fundamentals, and are market leaders in their respective categories. The share prices of these companies have declined over 20% year to date as of July 1. However, analysts believe that sooner or later things will begin to get back to normal and US consumers will increase their spending. Based on this long-term expectation, we picked some consumer stocks that are best-positioned to rebound. These companies have recently received positive analyst ratings, which were an important classifier in selecting these stocks. The hedge fund sentiment around the holdings was determined from the Q1 2022 database of 900+ elite funds tracked by Insider Monkey.
Best Buy-The-Dip Consumer Stocks to Consider
10. B&G Foods, Inc. (NYSE:BGS)
Number of Hedge Fund Holders: 11
YTD Share Price Decline as of July 1: 22.76%
B&G Foods, Inc. (NYSE:BGS) is a New Jersey-based branded foods company that sells frozen and non-perishable food items in the United States, Canada, and Puerto Rico. B&G Foods, Inc. (NYSE:BGS) stock has declined about 22.76% year to date as of July 1. Piper Sandler analyst Michael Lavery on June 13 upgraded B&G Foods, Inc. (NYSE:BGS) to Neutral from Underweight, but lowered the price target to $23 from $25. The analyst believes the “worst” of the risk may be over and future downside potential now seems more modest than before as the current pricing is likely enough to generate margin recovery. He told investors that although inflation still poses risks, he now projects year-over-year margin increases beginning in the fourth quarter of 2022.
Among the hedge funds tracked by Insider Monkey, 11 funds reported owning stakes in B&G Foods, Inc. (NYSE:BGS) at the end of Q1 2022, compared to 10 funds in the earlier quarter. Billionaire Israel Englander’s Millennium Management is the biggest position holder in the company, with 757,498 shares worth $20.4 million.
In addition to Etsy, Inc. (NASDAQ:ETSY), Target Corporation (NYSE:TGT), and The Estée Lauder Companies Inc. (NYSE:EL), elite hedge funds are monitoring B&G Foods, Inc. (NYSE:BGS).
9. Nomad Foods Limited (NYSE:NOMD)
Number of Hedge Fund Holders: 20
YTD Share Price Decline as of July 1: 22.05%
Nomad Foods Limited (NYSE:NOMD) is a British-American frozen foods company with operations in the UK, Italy, Germany, France, and Sweden. Nomad Foods Limited (NYSE:NOMD) stock has stumbled over 22% year to date as of July 1. BTIG analyst Peter Saleh on May 13 reiterated a Buy rating on Nomad Foods Limited (NYSE:NOMD) but lowered the price target on the stock to $25 from $32. According to the analyst, Nomad Foods Limited (NYSE:NOMD)’s Q1 results were “soft”, primarily due to increasing pressures on the European consumer and slowed organic growth. However, the company expects to turn optimistic results over the rest of the financial year.
Among the hedge funds tracked by Insider Monkey, 20 funds reported owning stakes in Nomad Foods Limited (NYSE:NOMD) at the end of Q1 2022, valued at $318.72 million. Jim Simons’ Renaissance Technologies held the leading position in the company, comprising 4.3 million shares worth about $99 million.
Here is what FAM Funds has to say about Nomad Foods Limited (NYSE:NOMD) in its Q4 2020 investor letter:
“The proceeds(from a sold equity) were primarily invested into a new idea — Nomad Foods (NOMD), a producer of branded frozen food products in Europe. Product categories include fish, vegetables, and meat substitutes. Management’s plan is to continually improve the brands they control while seeking opportunities to buy and upgrade similar companies. In the past, key members of senior management pursued this strategy at other businesses and created significant returns for shareholders. As COVID-19 rolled across Europe, Nomad became one of the few beneficiaries of the pandemic as consumers stopped visiting restaurants and increasingly ate at home.”
8. Coty Inc. (NYSE:COTY)
Number of Hedge Fund Holders: 30
YTD Share Price Decline as of July 1: 27.11%
Coty Inc. (NYSE:COTY) is a New York-based multinational beauty company that distributes fragrances, cosmetics, skincare, and hair care products. The company owns brands including Bourjois, Clairol, CoverGirl, Kylie Cosmetics, Max Factor, OPI, Rimmel, Sally Hansen, and Wella. The stock has dropped about 27% year to date as of July 1. The company reaffirmed its sales and profit guidance for fiscal 2022 on June 13. Its Q3 results exceeded both top and bottom lines, and Coty Inc. (NYSE:COTY) lifted its EPS guidance.
On June 24, Citi analyst Wendy Nicholson assigned a Buy rating to Coty Inc. (NYSE:COTY) with a $15 price target. According to the analyst, the company management was “highly confident” in its ability to sustain the “virtuous cycle” it has experienced in recent quarters, which includes increased sales, higher profitability, and greater reinvestment and deleverage. The analyst believes Coty Inc. (NYSE:COTY)’s momentous transformation will create significant whitespace opportunities in the future. She observed that Coty Inc. (NYSE:COTY)’s price target suggests a doubling of the stock from present levels.
Among the hedge funds tracked by Insider Monkey, 30 funds reported owning stakes in Coty Inc. (NYSE:COTY) at the conclusion of Q1 2022, compared to 36 funds in the preceding quarter. Gabriel Plotkin’s Melvin Capital Management is the biggest shareholder of the company, with 29.40 million shares worth $264.3 million.
Here is what ClearBridge Investments Value Equity Strategy has to say about Coty Inc. (NYSE:COTY) in its Q3 2021 investor letter:
“Coty is a global beauty company primarily made up of its market leading prestige fragrance business and a mass cosmetic business acquired from P&G that includes brands such as Covergirl. It is a turnaround story catalyzed by the new CEO, Sue Nabi, an experienced beauty expert who previously worked at L’Oreal and successfully executed turnarounds and the relaunch of its Lancome and L’Oreal Paris brands. Early signs are supportive of improving performance in Coty’s cosmetics business. The company should also benefit from an accelerating growth trend in its prestige fragrance business driven by purchases shifting online and the category’s emerging popularity.”
7. Carnival Corporation & plc (NYSE:CCL)
Number of Hedge Fund Holders: 32
YTD Share Price Decline as of July 1: 58.80%
Carnival Corporation & plc (NYSE:CCL) is a Florida-based leisure travel company. Carnival Corporation & plc (NYSE:CCL) offers cruise ships, hotels, lodges, and motor coaches. The stock has declined about 59% year to date as of July 1. Barclays analyst Brandt Montour on June 28 initiated coverage of Carnival Corporation & plc (NYSE:CCL) with an Overweight rating and a $14 price target. The company posted strong results in June, with robust booking trends for 2023 as consumers plan for trips without worrying about travel restrictions.
Among the hedge funds tracked by Insider Monkey, 32 funds were bullish on Carnival Corporation & plc (NYSE:CCL) at the end of March 2022, compared to 33 funds in the earlier quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a prominent stakeholder of the company, with 3.4 million shares worth $69.2 million.
Like Etsy, Inc. (NASDAQ:ETSY), Target Corporation (NYSE:TGT), and The Estée Lauder Companies Inc. (NYSE:EL), Carnival Corporation & plc (NYSE:CCL) is a notable stock to buy on the dip.
Here is what ClearBridge Investments has to say about Carnival Corporation & plc (NYSE:CCL) in its Q1 2021 investor letter:
“Several of our better performers in the first quarter were purchased while their business models were under stress from COVID restrictions or the macro environment the pandemic created. What gave us confidence in purchasing Carnival was the actions the company took to extend out their balance sheets until travel resumed. Both should benefit as a broader vaccination rollout prompts cruise lines to resume operations and consumers to start traveling again and are positioned to deliver better margins and gain pricing power as the economy normalizes due to the cost controls implemented during the downturn.”
6. Etsy, Inc. (NASDAQ:ETSY)
Number of Hedge Fund Holders: 43
YTD Share Price Decline as of July 1: 61.98%
Etsy, Inc. (NASDAQ:ETSY) is a New York-based company that operates digital marketplaces to connect buyers and sellers in the United States, the United Kingdom, Germany, Canada, Australia, France, and India. As of July 1, the stock has dropped about 62% year to date. In Q1 2022, Etsy, Inc. (NASDAQ:ETSY) was part of 43 public hedge fund portfolios, compared to 47 funds in the preceding quarter. Goodnow Investment Group is one of the leading shareholders of the company, with 753,482 shares worth $93.6 million.
On July 1, Evercore ISI analyst Shweta Khajuria reiterated an Outperform rating on Etsy, Inc. (NASDAQ:ETSY) but slashed the price target on the stock to $95 from $130 after lowering FY23 GMS and EBITDA estimates by 7% to reflect the company’s U.S. online shopping survey results, negative intra-quarter data, and concerning macro trends that reflect weak retail demand. However, the analyst still sees Etsy, Inc. (NASDAQ:ETSY) as “a high-quality asset” with strong EBITDA margins, attractive free cash flow yield, and a differentiated value proposition.
Here is what Polen US SMID Company Growth Fund has to say about Etsy, Inc. (NASDAQ:ETSY) in its Q1 2022 investor letter:
“E-commerce company Etsy has experienced challenges from the return to “normal” after the pandemic. Management made a point of lowering expectations for 2022, sounding more cautious in areas like home furnishings. We appreciate that there will be reopening headwinds for businesses like Etsy that create noise in the numbers, but this does not change our view on the long-term potential for the business. We are encouraged by Etsy’s performance retaining new customers added during the pandemic and driving repeat purchases within this customer segment. This is, in our opinion, a healthy sign that these customers have staying power.”
5. The Estée Lauder Companies Inc. (NYSE:EL)
Number of Hedge Fund Holders: 46
YTD Share Price Decline as of July 1: 30.72%
The Estée Lauder Companies Inc. (NYSE:EL) manufactures and markets skincare, makeup, fragrance, and hair care products worldwide. The company offers its products under the Estée Lauder, Clinique, M·A·C, Bobbi Brown, La Mer, Jo Malone London, Smashbox, GLAMGLOW, BECCA, Too Faced, Dr. Jart+, and The Ordinary brands. As of July 1, shares of The Estée Lauder Companies Inc. (NYSE:EL) have declined about 31% year to date.
On May 31, after China’s COVID-19 situation improved and restrictions were loosened in Shanghai and Beijing, Oppenheimer analyst Rupesh Parikh reinstated The Estée Lauder Companies Inc. (NYSE:EL) as his top pick. As he looks ahead to fiscal 2023, the analyst believes pricing benefits and a China and travel recovery could lead to approximately 10% constant currency sales growth. Moreover, the analyst thinks the August earnings could drive positive catalysts for shares. He maintained an Outperform rating and a $300 price target on the stock.
According to Insider Monkey’s Q1 data, 46 hedge funds were bullish on The Estée Lauder Companies Inc. (NYSE:EL), with combined stakes worth over $3 billion. Terry Smith’s Fundsmith LLP is the leading position holder in the company, with roughly 5.8 million shares valued at $1.5 billion.
Here is what Harding Loevner Global Equity Fund has to say about The Estée Lauder Companies Inc. (NYSE:EL) in its Q3 2021 investor letter:
“We sold cosmetic producer Estée Lauder, which we bought last March. At the time, the market reflected a dire outlook for retail demand, especially tourist-related; however, we found its Chinese business attractive and admired its agility across social media and other digital channels. As the stock has appreciated, the resulting valuation now leaves no room for error, such as a potential shift of Chinese consumers’ tastes away from US brands.”
4. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 50
YTD Share Price Decline as of July 1: 38.62%
Target Corporation (NYSE:TGT) is one of the leading American retailers. 2022 marks the 51st consecutive year in which Target Corporation (NYSE:TGT) has raised its annual dividend. The shares have dropped about 39% year to date, which makes Target Corporation (NYSE:TGT) an attractive stock for dividend hunters. On June 10, Credit Suisse analyst Robert Moskow maintained an Outperform rating and a $180 price target on Target Corporation (NYSE:TGT), but lowered his FY22 EPS estimates to $8.59 from $13.56 after the company slashed its FY22 profit expectations.
Among the hedge funds tracked by Insider Monkey, 50 funds reported owning stakes in Target Corporation (NYSE:TGT) at the end of the first quarter of 2022, up from 49 funds in the preceding quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the leading shareholder of the company, with 2.50 million shares worth $530.5 million.
Here is what Nelson Capital Management has to say about Target Corporation (NYSE:TGT) in its Q2 2021 investor letter:
“We added Target (tkr: TGT) to our consumer staples sector. Target Corporation (NYSE:TGT) offers a broad array of products in owned and known brand items at affordable prices. Its omni-channel fulfillment centers allow customers to receive their items via in-store pickup, curbside pickup, same-day shipping and regular shipping while simultaneously reducing operating costs. With a significantly lower valuation than peers and a unique operating strategy, Target is an attractive holding.”
3. Bath & Body Works, Inc. (NYSE:BBWI)
Number of Hedge Fund Holders: 57
YTD Share Price Decline as of July 1: 59.95%
Bath & Body Works, Inc. (NYSE:BBWI) was founded in 1963 and is headquartered in Columbus, Ohio. The company markets and sells home fragrance, body care, soaps, and sanitizer products. The stock has dropped about 60% year to date as of July 1. Although the shares have crashed, the company enjoys solid customer loyalty and brand recognition.
On June 30, Piper Sandler analyst Korinne Wolfmeyer initiated coverage of Bath & Body Works, Inc. (NYSE:BBWI) with an Overweight rating and a $58 price target. The analyst observed that Bath & Body Works, Inc. (NYSE:BBWI) has a “repeat business model” in a category that proved to be robust during and after the pandemic. The analyst likes the “stickiness” within the home and bath segment, which accounts for more than 50% of Bath & Body Works, Inc. (NYSE:BBWI)’s sales. The company also wants to expand into hair and skin care this fall, two core categories within beauty that are seeing strong demand, added the analyst.
In the first quarter of 2022, 57 hedge funds reported long positions in Bath & Body Works, Inc. (NYSE:BBWI), compared to 62 funds in the last quarter.
2. RH (NYSE:RH)
Number of Hedge Fund Holders: 63
YTD Share Price Decline as of July 1: 59%
RH (NYSE:RH) operates as a California-based home furnishings retailer. As of July 1, the stock has declined 59% year to date. Citi analyst Steven Zaccone pointed towards key investor concerns after RH (NYSE:RH)’s second guidance cut in a month. The analyst cited short-term concerns, but believes “a lot of damage is already priced in”. The stock now trades at nine-times his slashed fiscal 2023 earnings estimates, which he views “as the most extreme bear case”. According to the analyst, RH (NYSE:RH)’s risk/reward “skews to significantly more upside than downside at current valuation” and he kept a Buy rating on the stock with a $338 price target on July 1.
Among the hedge funds tracked by Insider Monkey, 63 funds disclosed long positions in RH (NYSE:RH) at the end of Q1 2022, up from 58 funds in the earlier quarter. Warren Buffett’s Berkshire Hathaway is the leading stakeholder of the company, with 2.17 million shares worth $707.6 million.
Here is what Polen US SMID Company Growth Fund has to say about RH (NYSE:RH) in its Q1 2022 investor letter:
“RH is a furniture store company with brand recognition and a unique business model. The company’s stock price fell sharply over the first three months of 2022 despite solid operating results, which resulted in what we believed to be an attractive opportunity to add to our position in the company. We are mindful that, on the margin, the company is certainly experiencing some early impact from record inflation and rising interest rates, and we feel comfortable in both the management team’s ability to navigate these challenges and the power of the company’s brand and its long-term potential.”
1. Caesars Entertainment, Inc. (NASDAQ:CZR)
Number of Hedge Fund Holders: 73
YTD Share Price Decline as of July 1: 58.78%
Caesars Entertainment, Inc. (NASDAQ:CZR) is based in Reno, Nevada, operating as a gaming and hospitality company in the United States. The stock has suffered a year to date decline of about 59%. On June 28, B. Riley analyst David Bain maintained a Buy recommendation on Caesars Entertainment, Inc. (NASDAQ:CZR) but lowered the price target on the shares to $128 from $149. The analyst slashed gaming stock price targets to “better encapsulate macro risks/market conditions”. However, the resultant valuations “still leave significant share price upside”, the analyst told investors. Amid past economic softness, many gaming stocks were oversold, added the analyst.
According to Insider Monkey’s Q1 data, 73 hedge funds were bullish on Caesars Entertainment, Inc. (NASDAQ:CZR), up from 72 funds in the earlier quarter.
Here is what Carillon Eagle Mid Cap Growth Fund has to say about Caesars Entertainment, Inc. (NASDAQ:CZR) in its Q4 2021 investor letter:
“Caesars Entertainment, a diversified casino-entertainment and resort company, underperformed in the period as its quarterly earnings update was viewed as disappointing by investors. The firm highlighted a number of one-time headwinds that ultimately weighed on margins, as well as some negative impacts brought on by the surge in COVID cases. Despite this, we believe that the sizable overall margin improvements Caesars has realized coming out of the pandemic will ultimately prove sustainable in the long run.”
You can also take a look at 10 Mid-Cap Stocks Hedge Funds Are Talking About and 10 Best Roth IRA Stocks To Buy in 2022.
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Disclosure: None. 10 Best Buy-The-Dip Consumer Stocks to Consider is originally published on Insider Monkey.
