ASX consumer stocks are popular among Australian investors.
They include many brands that investors know and recognise. In the consumer staples space, this includes supermarket giants Coles Ltd (ASX: COL) and Woolworths Ltd (ASX: WOW). In the consumer discretionary space, this covers popular brands like Harvey Norman Holdings Ltd (ASX: HVN) and Wesfarmers Ltd (ASX: WES).
With earnings season kicking off this week, ASX investors may be wondering whether to make any portfolio adjustments.
Earnings season can be more volatile than other months of the year. When companies release their results, share prices can move significantly depending on whether those results exceed or miss expectations.
While it can be stressful to see an existing investment's share price decline, this can create a buying opportunity for new investors.
Investors may be looking to deploy extra cash in their share portfolio in earnings season to seize opportunities that arise.
What should they buy?
With several companies reporting every day, it's important to have a watchlist of companies prepared to remain focused.
Buying the dip
When a company's share price plummets, investors may be tempted to buy those shares in the dip, hoping for a rebound.
However, not every 'dip' is created equal. Investors should thoroughly understand whether the company has been oversold, or if there has been a deterioration in fundamentals. In the case of the latter, further downside is likely to come.
2 ASX consumer stocks to buy in the dip
In its 21 July Australian Consumer report, broker Macquarie recommended two ASX consumer stocks to buy in the event of a 'pullback'.
These were JB Hi-Fi Ltd (ASX: JBH) and Metcash Ltd (ASX: MTS).
The broker recently lowered its investment recommendation on these two ASX consumer stocks from 'outperform' to 'neutral' on valuation grounds.
Macquarie has a price target of $112 on JB Hi-Fi shares. Meanwhile, its price target on Metcash shares is $4.
At the time of writing, both share prices are just below these targets. This suggests both companies will remain relatively flat over the next year if invested in today.
However, the broker considers both companies to be top quality, and suggested taking advantage of any share price weakness that may arise.
The broker summarised its view on JB Hi-Fi:
JBH's exposure to growing categories which are becoming less discretionary, strong cost discipline, pristine balance sheet, and management quality makes it an attractive proposition. We however, see valuation as full, relative to our DCF-based valuation of $112. JBH is trading at a ~50% premium to its 5-yr average.
Macquarie also gave its view on Metcash:
The Food & Liquor segments have proven resilient as the group continues to introduce new revenue streams aside from traditional wholesale. With these to remain a ballast in the portfolio, a cyclical recovery in Hardware is key. We see risks as more balanced with the stock having recovered ~30%+ from its lows earlier this year.
With earnings season on the horizon, any volatility could be a chance to buy these high-quality ASX consumer stocks on sale.
