If you're looking for value (or overvalued) stocks among the most hated names in all of Consumer Staples, we've got two names for you.
The chart above shows the 83 stocks in Consumer Staples ranked by the most heavily shorted in the industry. At one extreme of the bar chart, you've got Anheuser Busch Inbev (BUD), among the best loved (i.e. low short interest). On the other end, you've got Sanderson Farms (SAFM) which has almost 30% of shares outstanding sold short.
Two names stand out for us in the list.
"I think people are too bearish on Whole Foods. Where they’re not bearish enough is Hain," says Hedgeye Consumer Staples analyst Howard Penney in a recent edition of Sector Spotlight.
In case you're wondering, Whole Foods Market (WFM) is the 20th most heavily shorted. Hain Celestial (HAIN) ranks 29th.
HAIN CELESTIAL (HAIN)
We have had a long standing view that Hain is one of the lowest quality publicly traded Branded Food manufacturers.
Needless to say, in mid-August, we were not surprised when HAIN delayed the release of its fourth-quarter and full-year financial results and said it did not expect to achieve its previously-announced guidance for fiscal 2016 after identifying issues with distributor payments and revenue recognition practices. We would be shorting HAIN for the following reasons:
- Management has ZERO credibility
- Seven months ago the company missed numbers and has not provided guidance since
- Over the last seven months industry trends have slowed
- HAIN UK should trade at a discount to HAIN USA
- Consensus estimates of 3% EPS growth in 4Q16 (June) and 6.4% in FY17 do not reflect the BAD news
- The roll-up business model is broken
- The company will not be an acquisition candidate
- FY17 EPS needs to come down by 20-30%
WHOLE FOODS (WFM)
For a number of quarters now, Whole Foods Market has been plagued by negative same-store sales, driven by three reasons:
- A weighing scandal that gained national attention which they lapped in week 11 of Q3;
- Increase in competition in the space; and
- The negativity around their high prices.
For these three reasons, we believe Whole Foods' time to thrive again is coming sooner rather than later.
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WFM has been implementing their 9-point recovery plan to better their business and provide a better product to their customers.
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WFM has also begun to implement inventory and labor management systems.
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The reflation trade is well underway, with the latest CPI data showing continued acceleration. (The latest data showed CPI – Food at Home improving 20bps to -2.0%.)
Want More Consumer Staples-related ideas from Penney?
Watch the most recent edition of Sector Spotlight below, in which Penney and Consumer Staples analyst Shayne Laidlaw discuss their best ideas along with the top three themes the industry faces.
