2024 Russell Deletions: Consumer Staples
Taking a look at consumer staple stocks getting kicked out of the Russell indices
At the end of June, the Russell indices are reconstituting, meaning the low performing stocks are getting dropped and replaced by new stocks. Often when I stock gets removed from a major index, it gets sold off heavily since everyone who tracks that index is force selling the stock. This can create an opportunity where a decent stock that is somewhat cheap can get sold off to a real bargain price. In this post I looked through all the “consumer staples” stocks that are getting removed from the Russell 3000 and Russell Microcap indices. I plan on doing a couple of more posts focusing on other industries that I am interested in, such as industrials and financials.
I wanted to do a very quick check on these stocks to see if they are worth investigating further. Initially I tried to compile some basic statistics like price to book value, price to free cash flow, return on assets, but that turned out to be a waste of time. Most of these companies have been unprofitable for a while, so I found it easier to look at P/B first then filter for red flags. A list of the consumer staples stock are shown in the table below with their P/B ratios. Out of the 13 stocks, there is only one that seemed decent enough to be worthy of further investigation. Below is a quick summary of each company and why I disqualified it or thought it was interesting enough to pursue further.
AMCON Distributing DHT 0.00%↑ is probably the only company worth further research. The company is a wholesale distributer to grocery stores, gas stations, liquor stores, and others. Unlike the other stocks in the list, AMCON company has consistently positive operating profits. DIT has a long-term debt to equity ratio of 1.06 which isn’t too large. The company currently has a price to book of 0.86 which suggests it might be cheap, and if it sells off after the index deletion then it could get cheaper. I’ll add this to the list of stocks to look into deeper.
Petmed Express PETS 0.00%↑ is a company that I have already profiled a couple of months ago.
Splash Beverage SBEV 0.00%↑ has negative equity, so that probably will not work out.
MSS 0.00%↑ only had 3 years of financials so there is limited information, but they have had slim operating profit and a loss in 2022. The company is trading at a large premium to book value so it is probably not worth further investigation.
VWE 0.00%↑ is a winery that is trading at a deep discount to book value, but has had slim operating profits and a big restructuring charge last year. Vintage Wine Estates also has a debt to equity ratio of 2.0, which is quite high for a struggling business.
WVVI 0.00%↑ is another winery that is trading at a pretty large discount to book value. Willamette has generally had operating profits except for small losses the last two years. This stock may be trading below replacement value depending on how valuable the land is, so it could be worth a closer look.
I was hoping Rocky Mountain Chocolate RMCF 0.00%↑ would be a mini See’s Candies, but they have seen steady declines in revenue. The company has had operating profits until the last couple of years. RMCF is trading slightly above book value, so it does not appear to be too cheap. Most of the capital is tied up into building and machinery, which is not as ideal as if it were in current assets.
BHIL 0.00%↑ , ZVIA 0.00%↑ , COSM 0.00%↑ , PLBY 0.00%↑ , SANW 0.00%↑ , RGF 0.00%↑ all had massive operating losses that were nearly the size of their market caps. With this level of losses, the stocks are not even attractive to me on a liquidation basis.