Being in the middle of the fourth-quarter earnings season as we are, it’s possible to identify some broad trends. Of the 300 S&P 500 stocks that have reported this quarter, 71.0% have topped earnings estimates while 69.0% beat revenue estimates. And while total earnings are down 6.7% from the same period last year, total revenues have increased 5.7% on average. This seems to indicate that estimates have come down to a reasonable level and that revenues, while not growing at exciting levels, are still far from declining.

But since the Fed is not done tightening and the results of its actions are delayed, we appear to be heading toward further softness as we move through the year. Therefore, estimates may need to come down further. And as we have seen historically, whenever estimates come down, share prices follow suit. That’s why it becomes a tough market for stocks.

That is, unless you are a value investor on the prowl for capturing big names at reasonable prices that you intend to hold onto for the long term. And if you’re a growth investor, it could also pay to choose your growth stocks wisely, because there looks to be a considerable amount of turbulence in store.

For those with a shorter investing horizon, it would make much more sense to invest in the more mature companies that handle this kind of turmoil better. These would be the ones that sell essentials like food, beverages, various consumer products, FMCG products, cleaning materials, cosmetics, etc., on which demand is relatively inelastic.

Today, I’ve picked a couple of these safer stocks. I like them because they appear to be bucking negative trends right now. Analysts have pitched their opinions on them after the latest results, and they’ve taken their estimates up.

e.l.f. Beauty, Inc. (ELF Quick QuoteELF - Free Report)

Oakland, CA-based e.l.f. Beauty, Inc., together with its subsidiaries, provides cosmetic and skin care products under the e.l.f. Cosmetics, e.l.f. Skin, Well People, and Keys Soulcare brand names worldwide. The company offers eye, lip, face and skin care products. It sells its products through national and international retailers and direct-to-consumer channels, including e-commerce platforms.

e.l.f has captured the imagination of the progressive segment of the mass market with its focus on cruelty free, vegan, clean and fair trade certifications and DEI compliance. Its brands are also seeing some of the strongest growth in the market because of its focus on providing a certain quality at a very affordable price, which makes them particularly attractive in a deteriorating macro environment.

At times, e.l.f. brands have expanded the market, at others they have taken market share, with the greatest success in primers and concealers. e.l.f. also has a solid innovation engine, which has allowed it to continually improve its products and launch new ones, building category leadership over time. And finally, it has a solid marketing and distribution strategy, which includes direct-to-consumer, in Target and other such retail stores, drug stores and the ecommerce channel. So the products are accessible in more ways than one.

e.l.f.’s revenues have grown 79% and earnings 76% in the last five years. At the same time, its debt-cap ratio has gone from 44.6% to 15%. Cash on hand has increased 770%.

Analysts are understandably enthusiastic about this stock. They’ve taken their 2023 (ending March) estimates up 24 cents (21.4%) and 2024 estimates up 27 cents (21.8%) in the last 30 days. They now expect e.l.f. to grow its revenue 39.1% in 2023 and 14.0% in 2024. Earnings are expected to grow a respective 61.9% and 11.1%.

The shares aren’t cheap, but given the growth prospects, this Zacks Rank #1 (Strong Buy) stock is a good bet.

Post Holdings, Inc. (POST Quick QuotePOST - Free Report)

Headquartered in St Louis, MO, Post Holdings is a consumer packaged goods holding company with four segments: Post Consumer Brands, Weetabix, Foodservice and Refrigerated Retail. It sells branded and private label cereals, hot cereals, nut butters, breakfast drinks and other items under the first two segments; egg and potato products under Foodservice; and side dishes, eggs and egg products, sausages, cheese and other dairy and refrigerated products under Refrigerated Retail.

Like most other players in this space, Post Holdings is seeing some of the same supply chain issues that have been the bane in 2022. Although conditions continue to improve, they are not yet back to normal, which means higher input costs, higher transportation costs, higher manufacturing costs and consequently, margin pressure. Sub-optimal order fulfillment at customers is also contributing.

There’s also an increasing propensity to choose private labels over brands, as consumers continue to absorb steadily rising prices. However, Post Holdings is seeing particularly strong demand in several categories (some of which are supply constrained), which is allowing it to raise prices. This, in turn, is offsetting these margin pressures. It is currently seeing exceptional strength in foodservice, which it expects will continue right through the year, as food-away-from-home picks up. This is leading to the robust outlook.

For the current year ending in September, analysts have raised their estimates by 71 cents (24.9%). For the following year, their estimates are up 51 cents (13.3%). They now expect that 2023 earnings will grow 111.9% on revenue growth of 1.8%. Although 2024 is harder to predict at this time, analysts expect earnings growth of 21.8% on flattish revenue (close to 1% growth).

Zacks #2 (Buy)-ranked POST shares are not too expensive. At 23.8X earnings, they’re trading at a 27.4% discount to their median level over the past year. They are, however, trading at a significant premium to the industry and also the S&P 500.

One-Month Price Performance

Image Source: Zacks Investment Research