Consumer Staples Dashboard- Update

| About: Consumer Staples (XLP)

Summary

4 key factors are reported across industries in Consumer Staples.

They give a valuation status relative to history.

They give a reference for picking stocks in each industry.

This monthly series of articles provides a valuation dashboard in sectors and industries. I follow up a certain number of fundamental factors and compare them to historical averages. This article covers Consumer Staples. The choice of the fundamental ratios used in this study has been justified here and here. You can find in this article numbers that may be useful in a top-down approach. There is no analysis of individual stocks. A list of stocks to consider is provided in the conclusion.

Methodology

  • Four industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE).
  • They are compared with their own historical averages "Avg". The difference is measured in percentage for valuation ratios and in absolute for ROE, and named "D-xxx" if xxx is the factor's name. For example, D-P/E = (AvgP/E - P/E)/AvgP/E. It can be interpreted as a percentage in under-pricing relative to a historical baseline: the higher, the better. It points to over-pricing when negative. ROE is already a percentage. That's why we take the simple difference: D-ROE = ROE - AvgROE.

The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and limiting the influence of the largest companies. These factors are not representative of capital-weighted indices. They are useful as reference values for picking stocks in an industry, not for ETF investors.

Industry valuation table on 1/26/2015

The next table reports the 4 industry factors. For each factor, the next "Avg" column gives its average between January 1999 and October 2015, taken as an arbitrary reference of fair valuation. The next "D-xxx" column is the difference as explained above. So there are 3 columns for each ratio.

P/E

Avg

D- P/E

P/S

Avg

D- P/S

P/FCF

Avg

D- P/FCF

ROE

Avg

D-ROE

Food&Staples Retail

18.98

19.16

0.94%

0.36

0.34

-5.88%

39.44

33.01

-19.48%

11.69

9.78

1.91

Beverages

32.1

22.05

-45.58%

2.33

1.34

-73.88%

43.41

29.6

-46.66%

5.08

7.06

-1.98

Food

21.9

20.25

-8.15%

1.28

0.91

-40.66%

27.35

27.51

0.58%

7.33

8.43

-1.1

Tobacco*

23.05

14.83

-55.43%

3.71

2.13

-74.18%

N/A

N/A

N/A

N/A

N/A

N/A

Household Products

25.24

21.4

-17.94%

1.91

1.3

-46.92%

33.43

30.55

-9.43%

40.26

17.18

23.08

Personal Products

16.64

18.05

7.81%

1.59

1.51

-5.30%

15.46

20.7

25.31%

-9.17

2.1

-11.27

Click to enlarge

* P/FCF and ROE are currently outliers in Tobacco

Valuation

The following charts give an idea of the current status of industries relative to their historical average. In all cases, the higher the better.

Price/Earnings:

Price/Sales:

Price/Free Cash Flow:

Quality (ROE):

Relative Momentum

The next chart compares the price action of the SPDR Select Sector ETF (XLP) with SPY (chart from freestockcharts.com).

Click to enlarge

Conclusion

The Consumer Staples sector has outperformed the broad market by about 7% in 3 months. The five S&P 500 Consumer Staples stocks with the best momentum in this period are Campbell Soup Co (NYSE:CPB), Keurig Green Mountain (NASDAQ:GMCR), Hormel Foods Corp (NYSE:HRL), Constellation Brands Inc (NYSE:STZ), Tyson Foods Inc. (NYSE:TSN). CPB and STZ hit an all-time high in January, HRL and TSN in December.

Valuation factors have improved with prices going down since last month, except for Beverages and Tobacco (with stable valuation factors). The Household Products ROE has improved in such a magnitude that we may suspect an outlier effect. In fact, it was pushed up by 3 companies showing a 3-digit ROE: Colgate-Palmolive Co (NYSE:CL), Clorox Co (NYSE:CLX) and Kimberly-Clark Corp (NYSE:KMB). But no industry looks attractive simultaneously for valuation and quality. The worst group might be Beverages, with all metrics in negative territory.

There may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. The next table shows a list of stocks in the Consumer Staples sector. They are all cheaper than their respective industry for the 3 valuation factors simultaneously: Price/Earnings, Price/Sales, Price/Free Cash Flow. Then they are selected for their higher Return on Equity.

This screen updated and rebalanced monthly has an annualized return of 13.46% and a drawdown about -33% for a 17-year backtest. The sector ETF XLP has an annualized return of 6% on the same period. Past performance, real or simulated, is not a guarantee of future return. This list may be considered an entry point for further due diligence, or as a portfolio after adding a few trading rules and market timing. This is not investment advice. Do your own research before buying.

CALM

Cal Maine Foods Inc

FOOD

CCE

Coca-Cola Enterprises Inc

BEVERAGE

HAIN

Hain Celestial Group Inc (The)

FOOD

INGR

Ingredion Inc

FOOD

PEP

PepsiCo Inc

BEVERAGE

SAFM

Sanderson Farms Inc

FOOD

SAM

Boston Beer Co Inc. (The)

BEVERAGE

SPTN

SpartanNash Co

STAPLERETAIL

TSN

Tyson Foods Inc.

FOOD

UVV

Universal Corp

TOBACCO

Click to enlarge

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Disclosure: I am/we are long CCE,TSN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.