Bearish sentiments in the stock market are surging, driven by concerns over the multi-decade high inflation, geopolitical unrest, and the Federal Reserve’s hawkish tilt. These factors have fueled investors’ fears of a potential recession, causing a rush to the exits. The stocks closed their worst first half in more than 50 years, with S&P 500 declining 20.6% during the first six months of 2022.

Consumer staples stocks are considered defensive safe-havens amid market pullbacks due to their non-cyclical nature. Companies in this sector enjoy stable demand irrespective of booms and busts, and their stocks tend to pay attractive dividends, marking them among the best stocks to help soften the blow of a market downturn.

However, Wall Street analysts expect consumer staples stocks Japan Tobacco Inc. (JAPAY), National Beverage Corp. (FIZZ), Grocery Outlet Holding Corp. (GO), and Rite Aid Corporation (RAD) to decline more than 10% in the near term. So, these stocks are best avoided now.

Japan Tobacco Inc. (JAPAY)

Headquartered in Tokyo, Japan, JAPAY is a tobacco company that manufactures and sells tobacco products, prescription drugs, and staple food products in Japan and internationally. The company operates through four segments: Domestic Tobacco; International Tobacco; Pharmaceutical; and Processed Food.

JAPAY has decided not to revise the full-year fiscal 2022 guidance due to several uncertainties, such as the changing operating environment in Russia, the rapidly evolving operational costs, and volatile inflation.

In the fiscal 2022 first quarter ended March 31, 2022, JAPAY’s capital expenditures amounted to JPY14.60 billion ($107.26 million). The company’s cash outflows from investing activities and financing activities came in at JPY22.70 billion ($166.77 million) and JPY116.80 billion ($858.07 million), respectively.

Analysts expect JAPAY’s revenue for the fiscal 2022 second quarter (ending June 2022) to come in at $4.60 billion, representing a 15.5% decline from the prior-year period. Also, the consensus revenue estimate of $4.77 billion for the third quarter, ending September 2022, indicates a decrease of 13.9% year-over-year.

The stock has declined 14.6% over the past six months and 14.8% year-to-date to close the last trading session at $8.61. The only price target of $7.50 set by a Wall Street analyst indicates a 12.9% downside.

National Beverage Corp. (FIZZ)

FIZZ develops, produces, markets, and sells a distinctive portfolio of sparkling waters, juices, energy drinks, and carbonated soft drinks in the United States and Canada. The company offers beverages under the LaCroix, LaCroix Cúrate, Clear Fruit, Rip It, Everfresh, Everfresh Premier Varietals, Faygo, and Mr. Pure brands.

FIZZ serves retailers and various smaller up-and-down-the-street accounts through the take-home, convenience, and food-service distribution channels.

FIZZ’s gross profit decreased marginally year-over-year to $417.80 million for the fiscal year 2022 ended April 30, 2022. Its operating income declined 8.8% from the previous year to $207.90 million. Furthermore, the company’s net income and earnings per share came in at $158.51 million and $1.69, registering decreases of 9% and 9.1%, respectively, year-over-year.

The consensus revenue estimate for the fiscal 2023 first quarter (ending July 2022) represents a decline of 7.1% from the same period in 2021. The company has missed the consensus EPS estimates in three of the trailing four quarters.

FIZZ’s shares have slumped 6.8% over the past nine months to close the previous trading session at $48.94. Also, the Wall Street analyst that rated the stock rated it a Sell. The 12-month median price target of $42.00 indicates a 14.2% downside.

Grocery Outlet Holding Corp. (GO)

GO owns and operates a network of independent stores in the United States. The company’s stores provide products in various categories, including dairy and deli, produce, fresh meat and seafood, grocery, general merchandise, beer and wine, and health and beauty care. 

It operates more than 420 stores in California, Pennsylvania, Washington, Oregon, Idaho, Nevada, and New Jersey.

In the fiscal 2021 first quarter ended April 2, 2022, GO’s operating expenses increased 11.2% year-over-year to $231.46 million. The company’s income from operations decreased 18.5% from the prior-year value to $19.43 million. Its net income and comprehensive income declined 38.7% year-over-year to $11.57 million. Also, its EPS stood at $0.12, down 36.8% year-over-year.

The stock has gained 29.1% over the past three months to close the last trading session at $42.63. However, the 12-month median price target of $38.16 indicates a 10.5% downside. The price targets range from a low of $38.16 to a high of $48.00.

Rite Aid Corporation (RAD)

RAD operates a chain of retail drugstores in the United States. The company operates through two segments: Retail Pharmacy; and Pharmacy Services. The Retail Pharmacy segment provides prescription drugs and various other pharmacy services. Also, this segment offers healthcare coaching and disease management services.

The Pharmacy segment offers an integrated suite of pharmacy benefit management (PBM) offerings. It serves health plans, commercial employers, and state and local governments. The company operates more than 2,450 retail pharmacy locations in 17 states.

The company has been incurring huge losses lately due to increased impairment charges for closed stores and increased interest expenses due to recent and anticipated interest rate hikes throughout the year. 

For fiscal 2023, RAD’s net loss is expected to be between $246.30 million and $203.30 million, and its adjusted net loss per share is forecasted between $1.19 and $0.66.

RAD’s revenues decreased 2.4% year-over-year to $6.01 billion in the fiscal 2022 first quarter ended May 28, 2022. The company’s adjusted EBITDA declined 22.4% year-over-year to $73.68 million. 

Its adjusted net loss and adjusted net loss per share came in at $32.83 million and $0.60, widening 256.8% and 257.9%, respectively, from the prior-year period.

Analysts expect RAD’s revenue to decline 3.7% from the prior-year period to $23.66 billion for the fiscal year 2023 ending February 2023. The stock has plunged 54.1% year-to-date and 58.7% over the past year. It closed the last trading session at $6.74.

Each of the three Wall Street analysts that rated RAD rated it a Sell. The 12-month median price target of $5.33 indicates a 20.9% downside. The price targets range from a low of $4.00 to a high of $8.00.

JAPAY shares were trading at $8.53 per share on Friday morning, down $0.08 (-0.93%). Year-to-date, JAPAY has declined -15.54%, versus a -20.69% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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