The K-shaped economy. Inflation. High gas prices. Interest rates. The U.S. consumer is seemingly under intense pressure, and even the upper end of the K is showing signs of weakness. The prevailing narrative of consumer weakness is not unfounded, but neither is it universally true.

In a similar vein, the small-cap market often paints with a broad brush—and that creates idiosyncratic opportunities for patient, long-term investors like us. Consumer stocks have made frequent appearances in our quality value screens for years. The recurrence of one area, and often of the same stocks, suggests that value traps are abundant—which is why active management and prudent stock selection are so critical. More recently, however, and perhaps because of these well documented concerns, we have identified a growing number of consumer stocks with attributes that should enable them to succeed in the current difficult backdrop.

These are companies with some combination of the following attributes: unique growth drivers; growing industries that serve as tailwinds; limited economic sensitivity; a compelling value proposition for the consumer; and company-specific drivers that can improve business fundamentals, and thus returns, without depending on a recovery in consumer spending. Notably, we are finding opportunities across both Consumer Staples, traditionally viewed as defensive and less cyclical, and Consumer Discretionary, which is typically more economically sensitive.

Here are three consumer stocks that have our long-term confidence.

A recent IPO, Yesway Cl. A (Nasdaq: YSWY) is a scaled convenience-store platform with roughly 450 stores built for the parts of the country most operators overlook — rural and suburban communities across the Southwest and Midwest, where a Yesway or Allsup’s store is frequently the primary retail destination in town rather than just another fuel stop. The differentiation is authentic and hard to copy: Allsup’s (which Yesway bought in 2019) has a beloved proprietary foodservice program anchored by its iconic deep-fried burrito (more than 24 million sold each year), a deliberately diesel-heavy fuel mix that captures commercial and fleet traffic while driving higher fuel margins, lean single-operator store economics (roughly 2.6 employees per store on average), and deep real-estate expertise inherited from its founders that shows up in siting, ownership of much of its property base, and the design of larger, higher-throughput new stores. Yesway also discounts common grocery staples such as milk and eggs, allowing it to offer attractive value to cash-strapped consumers.

We think the convenience store, or “c-store,” industry is an attractive one, characterized by steady growth—with the exception of 2002, industry sales have grown every year since 1980—and limited economic sensitivity. Consolidation is a net positive for scaled players like Yesway: consumers are showing a preference for cleaner in-store formats offering food and beverages at affordable prices, which requires investment that smaller operators cannot or will not make. Consolidation also continues to put upward pressure on fuel margins, a long-term secular tailwind. While there is some debate about the long-term impact of EVs on the c-store industry, Yesway looks well insulated given its predominantly rural footprint anchored in Texas and New Mexico, with a growing presence in Arizona.

Yesway also has multiple ways to grow revenue and improve margins. Attractive unit economics support the opening of an additional 130 stores in the years ahead, which would meaningfully grow revenue and earnings. Yesway is also likely to be an industry consolidator, with M&A supplementing already attractive top-line growth potential. We expect same-store sales to grow 2-3% per annum through a cycle. Yesway could conservatively grow sales at 10% or better for years to come. The margin opportunity is equally important: the primary levers are improving inside-store margins, in part through more private-label product, and increasing the mix of higher-margin diesel fuel.

At less than 8x our out-year EBITDA (earnings before interest, taxes, depreciation & amortization) estimate, we think the shares offer compelling value. The business reminds us of Casey’s General Stores (Nasdaq: CASY), which shares many similarities with Yesway, including a rural and suburban focus and a strong food offering (Casey’s customers love its pizza, for example). Casey’s has been an exceptional stock over time, compounding at more than 20% per year for a decade, and trades at more than 15x EBITDA. We do not need Yesway to garner a Casey’s-level multiple to do well, but the comparison highlights the value-creation opportunity ahead for Yesway.

Yesway Cl. A (Nasdaq: YSWY)
4/21/26-9/11/26

Source: FactSet.
Past performance is no guarantee of future results.

Staying in the Consumer Staples sector, we like Natural Grocers by Vitamin Cottage (NYSE: NGVC). Natural Grocers is the kind of durable, founder-led franchise we gravitate toward: a specialty retailer of natural and organic groceries and supplements that has quietly out-executed far larger rivals for decades, including 22 consecutive years of positive same-store sales, one of the longest streaks in all of retail. In a category where mainstream grocers, mass merchants, and warehouse clubs have flooded the shelves with an assortment of organic foods, the company competes not on breadth but on conviction—strict product standards, an everyday “Always Affordable” value model rather than a promotional treadmill, and a genuinely engaged customer base cultivated through its loyalty program and in-store nutrition education.

The natural and organic food space has secular tailwinds at its back and is forecast to grow more than twice as fast as the traditional grocery and food industry. Consumers are increasingly focused on healthy eating, while the rise of GLP-1 drugs is—perhaps counterintuitively—a net positive for the category. These tailwinds will attract competition from traditional grocers and the mass channel (Costco, for example) adding more natural and organic product. Even so, we believe Natural Grocers’ niche focus on smaller markets, everyday value pricing (often 15-20% below larger chains), a strong loyalty program with 84% of customers enrolled, and strict product standards will enable it to capture its fair share of the growth.

Natural Grocers also has unique growth drivers of its own. As with Yesway, the unit growth runway is long and supported by attractive economics: new stores typically generate cash-on-cash returns of 25-30% by year five. With only 172 stores, concentrated in four states west of the Mississippi, Natural Grocers is targeting 4-5% unit growth per year. Added to 2-3% same-store sales, we believe the company can grow its top line at a high-single-digit rate for the foreseeable future. E-commerce—a current weakness—also creates an additional avenue for growth: recent disclosures peg e-commerce at roughly 2% of sales, well below many larger peers in the 10-20% range. The partnership with DoorDash announced in early September is a meaningful step toward closing that gap.

Since posting two extraordinary years of growth, the stock has fallen more than 50% from its May 2025 high, though comparisons should begin to ease over the next couple of quarters. Despite operating in an attractive niche area of the grocery market and having well above-average unit growth potential, Natural Grocers trades roughly in line with larger, mature, broad-based grocers such as Kroger (NYSE: KR), at approximately 6x EBITDA. We believe the company warrants a premium given the attributes described above, which create a highly asymmetric risk/reward. In the interim, we collect a growing 2% dividend and the occasional special dividend.

Natural Grocers by Vitamin Cottage (NYSE: NGVC)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

Bath & Body Works (NYSE: BBWI) falls more into the idiosyncratic camp, though it too operates in an attractive industry growing by mid-single-digits and sits at the value end of the spectrum. We view it as a genuinely high-quality brand trading at a discounted valuation, with a new leadership team executing a credible self-help plan. We also see the company as a fragrance-first franchise with real structural advantages: Category leadership in body care, home fragrance, and soaps; proprietary scent “franchises” expressed across a dozen product forms; a largely U.S.-based, vertically integrated supply chain; and a rapid newness cadence that keeps customers coming back.

Underpinning it all is an enormous, highly engaged, loyal membership that drives the overwhelming majority of domestic sales, plus an asset-light international royalty model. These are the high-margin, capital-light, repeat-purchase economics we associate with durable quality, and they are evident in Bath & Body Works’ above-peer operating margins and attractive returns on invested capital.

Importantly, all of the company’s categories are growing, which we view as increasing the odds of a successful turnaround. The company is also positioned as an affordable luxury that offers real value: the average customer spends $125 a year across three visits, or roughly $42 per visit, with average selling prices of about $6 per item. Because the products are consumable, those low-ticket purchases repeat.

Despite operating in a growing industry, Bath & Body Works is currently seeing sales declines. The reasons are myriad, but under prior management they included a lack of focus on the core franchises, stale packaging formats, over-reliance on promotions, and weak digital capabilities—the last of these critically important as consumer preferences shift online. The good news is that these issues are fixable, the industry is growing, and the new leadership team has the right background to implement its “Consumer First” strategy. CEO Daniel Heaf comes from Nike, where he led the company’s successful digital initiative. He knows digital, he knows how to build and leverage brand equity, and he has surrounded himself with impressive talent from across the industry.

We think the company is in the very early innings of a turnaround, with green shoots beginning to appear. The digital business, for example, has returned to growth, an early milestone in an area of emphasis. The company has introduced new products with revamped packaging and celebrity endorsements and has moved into new distribution channels such as Amazon and Ulta Beauty. Our channel checks suggest these moves are working, resonating with the company’s existing, loyal customer base while also attracting younger customers with a higher propensity to spend on beauty and personal care.

For now, given its scale, with more than $7 billion in annual sales, Bath & Body Works is only slowing the declines. But easier comparisons, continued product innovation, and improved marketing open the door to a return to top-line growth in 2027. We do not believe Bath & Body Works needs a robust consumer spending environment to execute its turnaround, though an improvement would obviously increase the probability of success and accelerate the timing.

The market is skeptical, as evidenced by its valuation: the stock has been trading for 6x earnings and an 18% free cash flow yield that easily covers the company’s healthy 4.6% dividend. The market appears convinced that the turnaround strategy will fail, and that outcome looks largely priced in, which means it will not take much good news to drive a sharp re-rating. Analyst revisions appear to have bottomed and moved modestly higher, suggesting the worst of the near-term fundamentals are in the rear view mirror. The turnaround will take time and will not be linear, but we are happy to collect the dividend while we wait for further evidence that the strategy is gaining more traction. We also believe a resumption of share repurchases is close at hand, as Bath & Body Works is poised to generate $650 million of free cash flow this year—and at 6x earnings, buybacks are highly accretive to shareholders.

Bath & Body Works (NYSE: BBWI)
12/31/25-8/31/26

Source: FactSet.
Past performance is no guarantee of future results.

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