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Nasdaq – As the Nasdaq Composite and the S&P 500 fall into correction territory, many investors are looking for safer investments, with consumer staples stocks being a popular choice. These stocks, often seen as defensive, tend to perform better during market downturns because they involve products people buy regularly—necessities like food, beverages, and toiletries. However, not all consumer staples stocks are created equal. In this article, we’ll explore three consumer staples stocks you might want to avoid, despite their tempting yields.

What Makes Consumer Staples Stocks Defensive?

Consumer staples companies sell products that are consistently in demand, regardless of economic conditions. When markets get volatile, people may cut back on discretionary spending like cars or electronics, but they’re unlikely to stop buying food or hygiene products. Historically, this makes consumer staples stocks more resilient during corrections and recessions. For example, while the S&P 500 and the Nasdaq Composite have both posted significant drops recently, consumer staples stocks have shown more stability.

However, not all consumer staples stocks are immune to market trends. In fact, some of these companies are struggling with weak fundamentals, and their stocks may not be as safe as they seem.

Why Are Consumer Staples Stocks Still Vulnerable?

While many believe that consumer staples are a safe bet during turbulent times, some companies are facing significant challenges. PepsiCo (NASDAQ: PEP), for example, has posted solid performance despite market conditions, with a 2.6% increase over the past month, outperforming the broader sector. But others like Kraft Heinz (NASDAQ: KHC), Conagra Foods (NYSE: CAG), and B&G Foods (NYSE: BGS) have shown signs of trouble.

Kraft Heinz: Struggling with Declining Sales

Kraft Heinz (KHC), one of the biggest names in the consumer staples space, has been struggling with stagnating sales in its key brands. The company had hoped to refocus on its strongest products, but its “accelerate” segment has been underperforming. In Q1 of 2024, organic sales for its key brands rose just 0.5%, and by Q4, this number had dropped to -5.2%. This consistent decline suggests that Kraft Heinz is struggling, despite a 5.3% dividend yield. Investors may want to be cautious, as the stock’s recent gains may be short-lived if the company fails to reverse its sales slump.

Conagra Foods: Second-Tier Brands and Mediocre Performance

Like Kraft Heinz, Conagra Foods (CAG) has also faced difficulties, especially with its portfolio of second-tier food brands. In Q2 of Fiscal 2025, Conagra posted a 0.3% increase in organic sales, but adjusted earnings fell 1.3% due to restructuring costs and write-downs of underperforming brands. Given Conagra’s focus on less prominent brands, investors may question why they would choose this stock when there are better-positioned companies in the space. Despite a 5.4% dividend yield, Conagra’s weak performance makes it a risky choice for investors seeking stability in this market correction.

B&G Foods: The Risk of a High Dividend Yield

Perhaps the most tempting stock in the consumer staples sector right now is B&G Foods (BGS), which offers a 10%-plus dividend yield. This high yield alone could lure many investors. However, the company’s business model is increasingly risky. B&G Foods has long relied on acquiring struggling brands, and while this strategy has sometimes worked, it has left the company with a significant debt burden. In fact, despite the high yield, B&G Foods’ debt load is becoming difficult to manage, and the company has already cut its dividend by more than 50% in 2022. If you’re seeking stability, B&G Foods may not be the safe haven it appears to be.

A Word of Caution: Don’t Just Follow the Yield

Many investors in today’s market are rushing to buy consumer staples stocks with high yields, without fully considering the underlying business fundamentals. This can be a dangerous strategy. As demonstrated by the struggles of Kraft Heinz, Conagra, and B&G Foods, a high dividend yield does not always equate to a stable investment. Well-managed companies like PepsiCo, which have strong industry-leading brands, may offer better long-term safety despite lower yields.

Should You Invest in Kraft Heinz or Other Struggling Stocks?

Before making any investment decision, it’s important to carefully evaluate a company’s financial health and market position. Kraft Heinz, despite its high dividend yield, is struggling with declining sales and may not be the best choice during this market correction. Consider diversifying your portfolio and looking at companies with stronger fundamentals and less risk of continued underperformance.

Conclusion: Proceed with Caution in Consumer Staples

While consumer staples stocks are often seen as a safe investment during market corrections, not all of them are worth buying. Companies like Kraft Heinz, Conagra Foods, and B&G Foods may seem attractive due to their high dividend yields, but their weak fundamentals suggest they could underperform in the long run. If you’re looking for safety in this market correction, it may be worth focusing on better-positioned companies with strong brands, like PepsiCo, that offer a combination of value, yield, and relative stability.

Always remember to do thorough research and ensure that the underlying business is sound before making any investment decision.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Cryptocurrencies and stocks, particularly in micro-cap companies, are subject to significant volatility and risk. Please conduct thorough research before making any investment decisions.