Jim Cramer, the host of Mad Money, recently took a deep dive into the challenges facing the consumer packaged goods sector, offering his perspective on the factors driving the decline of these stocks.
“The recent decline in the consumer packaged goods stocks, I find it breathtaking… Why is this happening? The truth is, there are a host of reasons, and every time you think that things have gotten better, they seem to have gotten worse, much worse than you’ve imagined.”
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Cramer noted that many companies within the sector seem to believe that younger consumers will settle for smaller portions of food and that this might mitigate some of the challenges. While Cramer acknowledged that this shift in consumer behavior is part of the equation, he argued that many companies are overlooking the significant impact of GLP-1 weight loss drugs. These medications, which curb cravings for junk food, pose a serious threat, as Cramer sees them as something that could be widely adopted in the United States. He then added:
“Oh, and let’s not forget about the problem of tariffs. You’re getting some sudden price increases for many goods. Someone has to pay for the tariffs. These companies hope it will be you because if it’s not you, it’s them.”
Another significant challenge for companies in the packaged goods space is the difficulty of raising prices. Cramer explained that while many companies try to increase prices, they often face fierce competition from major retailers and online marketplaces, which offer private-label products that consumers increasingly recognize as being just as good as the branded alternatives.
While private labels are not seeing explosive growth at the moment, Cramer pointed out that they are exerting pressure on all prices, including those of established brands. Furthermore, Cramer observed that the price hikes implemented during the COVID-19 pandemic have led to consumer fatigue, with many shoppers now seeking better value.
“I don’t know what turns around the consumer packaged goods stocks, mergers would make sense. This new antitrust department probably blessed the concentration. Maybe the companies that slash prices the deepest ultimately win. No matter, this moment is untenable. The stocks can’t find their footing, just too many forces against them. These used to be safety stocks for heaven’s sake, but they’re safe no more.”
Jim Cramer on These 8 Stocks and the Packaged Goods Playbook
Our Methodology
For this article, we compiled a list of 8 stocks that were discussed by Jim Cramer during the episode of Mad Money on February 5. We listed the stocks in the order that Cramer mentioned them. We also provided hedge fund sentiment for each stock as of the third quarter of 2024, which was taken from Insider Monkey’s database of 900 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Jim Cramer’s Thoughts On These 8 Stocks and the Packaged Goods Playbook
8. Chewy, Inc. (NYSE:CHWY)
Number of Hedge Fund Holders: 45
Cramer noted that Chewy, Inc.’s (NYSE:CHWY) private label products stand a good chance against brands by big names like Clorox because of their price points.
“Hey, you go to Chewy for cat litter and you find Fresh Step, that’s the Clorox brand. Then you see Frisco, the Chewy brand, and if the Clorox stuff gets too expensive, well, you might just easily go to Frisco. How much are you really gonna pay up for kitty litter?”
Chewy (NYSE:CHWY) is an e-commerce company that offers a wide range of pet products, including food, treats, supplies, medications, and services for various animals such as dogs, cats, and reptiles. Over the past year, the company stock went up over 110%.
Cramer has been a fan of Chewy (NYSE:CHWY), evident by his recent comment in January:
“Look, I like Chewy. I know that’s a pedestrian way to look at things, but I think that Chewy is the better bet for this group.”
7. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 88
Commenting on Walmart Inc. (NYSE:WMT), Cramer said:
“Walmart has private brands under this great value name that compete in the paper goods, pantry, staples, and cleaning supplies… And there’s a reason why Walmart and Costco keep hitting new highs. They put a ceiling on so many products, both by forcing the suppliers to keep prices down or by blitzing them with house brands that seem just as good at a lower price.”
Walmart (NYSE:WMT) is a leading retailer offering a wide assortment of products, such as groceries, health supplies, electronics, clothing, and store-branded items. It is worth noting that the stock gained more than 78% over the past year.
Additionally, as of November 2024, for FY 2025, Walmart (NYSE:WMT) expects net sales to increase by 4.8% to 5.1%, up from the projected increase of 3.75% to 4.75% on August 15, 2024, and a prior forecast of 3.0% to 4.0% as of February 20, 2024. Adjusted operating income is also expected to rise by 8.5% to 9.25%, compared to earlier projections of 6.5% to 8.0% in August and 4.0% to 6.0% in February.
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