Valuation Dashboard: Consumer Staples - Update

| About: Consumer Staples (XLP)

Summary

4 key fundamental factors across industries in Consumer Staples.

A valuation status relative to history.

A reference for picking stocks in each industry.

This series provides a valuation dashboard using the GICS classification. Each sector is covered once a month. This issue covers Consumer Staples. It aims at giving reference values for a top-down approach across industries. A list of stocks to consider is offered in the conclusion without detailed analysis.

Methodology

I take 4 aggregate industry factors provided by portfolio123: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). My choice has been justified here and here. Their calculation aims at limiting the influence of outliers and large caps. They are reference values for stock picking, not for capital-weighted indices.

For each factor I calculate the difference with its own historical average: to the average for valuation ratios, from the average for ROE, so that the higher is always the better. The difference is measured in percentage for valuation ratios, not for ROE (already in percentage).

Industry valuation table on 4/11/2016

The next table reports the 4 industry factors. There are 3 columns for each factor: the current value, the average ("Avg") between January 1999 and October 2015 taken as an arbitrary reference of fair valuation, and the difference explained above ("D-xxx").

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

22.56

19.16

-17.75%

0.38

0.34

-11.76%

44.86

33.01

-35.90%

11.69

9.78

1.91

Beverages

33.97

22.05

-54.06%

2.3

1.34

-71.64%

40.17

29.6

-35.71%

6.61

7.06

-0.45

Food

24.75

20.25

-22.22%

1.29

0.91

-41.76%

31.04

27.51

-12.83%

8.39

8.43

-0.04

Tobacco*

25.67

14.83

-73.10%

3.54

2.13

-66.20%

N/A

N/A

N/A

N/A

N/A

N/A

Household Products

33.18

21.4

-55.05%

2.12

1.3

-63.08%

36.18

30.55

-18.43%

42.95

17.18

25.77

Personal Products

17.65

18.05

2.22%

2.05

1.51

-35.76%

19.62

20.7

5.22%

-6.15

2.1

-8.25

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. The higher is 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 4% in 3 months. The five S&P 500 Consumer Staples stocks with the best momentum in this period are Campbell Soup Co(NYSE:CPB), McCormick & Co Inc (NYSE:MKC), Philip Morris International Inc (NYSE:PM), Sysco Corp (NYSE:SYY), Tyson Foods Inc. (TSN). All of them have hit an all-time high in April.

Since last month, P/E has worsened for Food and Household Products, so has P/S for Personal products. P/FCF has improved for Beverages Household Products and deteriorated for Food.

No industry is really attractive in the sector. The Household Products group has a quality factor far above the baseline, which tempers overpricing. Personal Products look the less overpriced, with 2 valuation factors out of 3 above the baseline. However, its ROE factor is below the historical average.

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 3 of the most relevant 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

CENTA

Central Garden & Pet Co

PRODHOUSE

KR

Kroger Co. (The)

STAPLERETAIL

SENEA

Seneca Foods Corp.

FOOD

SPTN

SpartanNash Co

STAPLERETAIL

SVU

SUPERVALU INC.

STAPLERETAIL

TSN

Tyson Foods Inc.

FOOD

UNFI

United Natural Foods Inc

STAPLERETAIL

UVV

Universal Corp

TOBACCO

Click to enlarge

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Data provided by portfolio123.

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.