Q3 Sentiment for Consumer Products: General Mills Leads, Coke Gains Ground

The 3^rd calendar quarter ended last Wednesday September 30, 2009. As many people analyze the performance of securities for the quarter, I’d like to look at sentiment and change in sentiment within the consumer products sector.

Sentiment is a measure of how people feel a stock will perform and is captured by a voting mechanism that indicates a strong buy, buy, neutral, sell, and strong sell. The value of sentiment is based on the ‘Wisdom of Crowds’ where the many will in most cases make better decisions than the individual. Higher sentiment stocks are considered higher quality stocks, while lower sentiment stocks are considered lower quality stocks.

Voting Mechanism for Capturing Sentiment

While overall sentiment is effective in defining the quality of a stock, change in sentiment provides a timing mechanism to understand underlying changes in a security potentially ahead of a price move. For example, a large increase in sentiment should be seen as positive even though the underlying stock has a low absolute sentiment.

For this analysis, we will use sentiment generated by the web application, Piqqem. Piqqem captures, processes, and displays sentiment results by allowing its users to vote on the price direction of a stock and then applies its own propriety factors to calculate sentiment for a security. In their model, 0 is the lowest and 4 is the highest sentiment.

Q3 Sentiment for Consumer Products

The above chart shows General Mills’ current sentiment leading the group as of 9/30/09 at 2.71 with Best Buy’s sentiment at 2.40 and bringing up the rear. Coke (KO), Procter & Gamble (PG), Colgate Palmolive (CL), McDonald's (MCD), and Wal-Mart (WMT) all came in with respectable sentiment results above 2.5. But how did sentiment change for this group?

Q3 Change in Sentiment – Coke Is the Winner, Wal-Mart Is the Loser

Source: Piqqem

The change in Q3 sentiment for these seven securities shows a strong downward bias for Wal-Mart, McDonald's, Procter & Gamble, Best Buy (BBY) and General Mills (GIS), while only Coke and Colgate-Palmolive were able to generate gains. Changes in sentiment can be an early warning system for the underlying security.

Overall this group under performed for the quarter. Sentiment for the S&P 500 was up over 40%, while this group lost on average 4% in sentiment.

We will publish updates on each of these securities shortly before their next earnings release.

Disclosure: No positions

Comments

[GregT:]

Without knowing much about "sentiment", I would have to say that I'm skeptical of using it. It seems like a way to invest "with the herd" and probably would encourage buying a stock too late and selling at the worst time.

The end of the article said: "Overall this group [consumer products] under performed for the quarter. Sentiment for the S&P 500 was up over 40%, while this group lost on average 4% in sentiment."

It does not take a rocket scientist to figure out that the S&P was lead by cyclical and financial shares - the same shares that had the biggest drops when things started to go south a year ago. Now that the cyclical/financial stocks have reached more typical valuations, it would not be surprising to see traditional "growth" stocks lead the market. In fact, that has been happening recently as companies like PEP and PG are gaining on analyst's comments that they are very inexpensive by a number of measures.

Oct 06 07:10 AM