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The recent jobs report was not only worse than economist forecasts, but also echoed fears of a double dip. While the Fed has indicated that it does not see a return to a recession, it has been bearish on growth over the next year-and-a-half. If the economy fares better than the shorts will have you believe, investors can earn higher risk-adjusted returns from backing consumer goods stocks now.

In my view, Mattel, Inc. (MAT) and Activision Blizzard, Inc (ATVI) are undervalued stocks that target niche markets in toys and video games, respectively. Avon Products (AVP) similarly has room to appreciate after rejecting the $10B buyout offer from Coty; but, in my view, the discount to intrinsic value isn't meaningful right now. Below, I review the fundamentals of each consumer goods company.

Mattel

Barbie-maker Mattel not only has a leading brand, but a leading dividend yield of 3.5%. Mattel currently trades at a respective 15.8x and 13.1x past and forward earnings and is rated a "buy" according to FINVIZ.com. ROA, ROE, and ROI are all in the high double-digits, while EPS is forecasted to grow 8.4% annually over the next five years. This means 2016 EPS of around $3.44, which, at a 15x multiple, translates to a future stock value of $51.60. With a beta of 0.92, Mattel is also a very safe stock.

The toy industry has been surprisingly resistant against the recession and, fortunately, Mattel has been gaining US retail share in it. During the second quarter, gross margins grew by nearly 350 bps y-o-y, while POS and retail inventory became better aligned. Revenue was flat, but still beat expectations. Moreover, sales in Barbie rose 5%+ y-o-y; Hot Wheels, 11% +; American Girl, 3%+. Key licenses with Nickelodeon, Disney/Pixar and distributional partnerships, like Wal-Mart, Toys R Us, and Target, make the company the most powerful brand in the industry.

Going forward, the company's momentum across the board will lead to retailers stocking up on inventories. Global channel inventories have fallen y-o-y, but global POS is improving y-o-y. As retailers become more cautious on inventories, they are likely to preferentially choose Mattel's leading brand. Key film releases also pave the way for attractive sales in Batman and Brave, for example.

Activision Blizzard

The Street is currently very bullish on Activison - rating the stock a 1.8 out of 5, where 1 is a "buy". And for good reason. The stock trades attractively at a respective 14.4x and 11.1x past and forward earnings, despite a forecast for 11.1% annual EPS growth over the next 5 years. Moreover, the stock is also a safe investment with nearly half the volatility of the broader market.

With $3.5B in cash and no debt on the balance sheet, Activision is also well positioned to increase promotional spending as the economy recovers. What attracts me to the company is that it has been successful in releasing new launches. When investors were weary about churn in the company's flagship franchise, World of Warcraft, the company delivered a string of solid titles that went on to becoming best sellers, like Skylanders.

With US retail sales in the video game industry falling 29% in June to $700M, many investors are still opting for the sidelines. Management will release second quarter results on August 2nd, and there are several things investors should look for. While some of the execution in this year's quarter may have been disappointing, the success of Diablo III will help to overwhelm the report. I also anticipate the company to announce online efforts, which have been area of noteworthy past success. For example, the partnership with Tencent in developing Call of Duty Online and greater clarification over penetration in mobile gaming should further boost upside.

In terms of upside, the firm also has more catalysts than headwinds. While demand for consumer goods may be more reserved than what we hoped for a few months ago, Activision continues to deliver impressive sales in good times and bad. Call of Duty: Black Ops, Skylanders 2.0, World of Warcraft, WOW: Mists of Pandaria, COD Elite 2.0, Diblia III are all games that National Alliance Capital Markets Group has indicated could drive near-term growth. The expansion pack of Mists of Pandoria will also help to get subscribers back to WOW, which will stabilize Activision's leading brand and encourage back frightened investors.

Avon Products

Beauty supplier Avon has been mired with a series of corporate scandals from bribery charges to poor execution. While the dividend yield stands attractively at 5.7%, there are still questions over how sustainable this capital allocation plan. Annual growth is only forecast for 3.3% over the next five years - marginally better than over the past 5 years. Part of the reason has to do with the lack of shareholder confidence in Chairman Andrea Jung.

FX headwinds and a byzantine cost structure will limit any bottom-line momentum. Over recent years, Avon's organic growth has decelerated, while overhead margin leverage has been impaired. With management cuts in overhead costs and increased demand in emerging markets, such as Brazil, the company could actually justify rejecting Coty's $10B takeover bid. But, for now, it is uncertain how long it will take Avon to reach that value by itself. Greater promotional campaigns achieved through cutting out the excess will help raise growth forecasts, which are currently quite low.

At a respective 18x and 13.8x past and forward earrings, Avon isn't exactly cheap. Moreover, the company is rated closer to a "sell" than a "buy" according to data sourced from FINVIZ.com. The debt-to-equity ratio stands at 2.1, which indicates liquidity concerns. If management fails to increase sales abroad, it may have to trim the dividend distribution, which will send more shareholders rushing for the exit.

Source: 2 Consumer Goods Stocks To Buy, 1 To Sell

Additional disclosure: We seek IR business from all of the firms in our coverage, but research covered in this note is independent and for prospective clients. The distributor of this research report, Gould Partners, manages Takeover Analyst and is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence.