Valuation Dashboard: Consumer Staples - Update

| About: Consumer Staples (XLP)

Summary

Four key fundamental factors across industries in Consumer Staples.

A valuation status relative to history.

A reference for picking stocks in each industry.

This article series provides a dashboard of industries in each sector of the GICS classification. It starts with a visual status of valuation and quality factors relative to their historical averages. Then, it gives a list of stocks among the best of their industries according to the same factors. The methodology and all the numbers are given at the end of the article. Click "Follow" at the top of this page if you want to be notified of monthly updates.

Valuation and Quality indicators in Consumer Staples on 7/7/2016

The following charts give an idea of the current status of three valuation factors (P/E, P/S, P/FCF) and a quality factor (ROE) relative to their historical average in each industry. For all factors the difference to average is calculated in the direction where positive is good. For valuation ratios lower is better, for ROE higher is better. On the charts below higher is always better. Refer to the appendix for the detailed data and methodology.

Price/Earnings relative to historical average:

Price/Sales relative to historical average:

Price/Free Cash Flow relative to historical average:

ROE relative to historical average:

Momentum

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

Click to enlarge

Interpretation

The Consumer Staples sector has outperformed the broad market by about 1.3% in three months. The five S&P 500 Consumer Staples stocks with the best momentum in this period are Archer-Daniels-Midland (NYSE:ADM), Hershey (NYSE:HSY), Kraft Heinz (NASDAQ:KHC), Monster Beverage Corp (NASDAQ:MNST), and J.M. Smucker (NYSE:SJM). All of them except ADM have hit an all-time high in the last few weeks.

Since last month:

  • P/E has deteriorated in all industries except Tobacco (improved) and Personal Products (stable).
  • P/S has deteriorated in all industries except Personal Products (improved) and Food&Staples Retail (stable).
  • P/FCF has improved in Food and Staples Retail, Household Products and deteriorated elsewhere.
  • ROE has improved in Personal Products, deteriorated in Household Products and is stable elsewhere.

All groups are overpriced, Personal Products and Food and Staples a bit less than the rest. The worst consumer staples industries for valuation metrics are Household Products and Beverages. It may be partly compensated for the former by a ROE far above the baseline.

List of stocks to consider

(see methodology in the appendix)

CALM

Cal Maine Foods Inc

FOOD

CENTA

Central Garden & Pet Co

PRODHOUSE

DF

Dean Foods Co

FOOD

KR

Kroger Co. (The)

STAPLERETAIL

SAFM

Sanderson Farms Inc

FOOD

SENEA

Seneca Foods Corp.

FOOD

SPTN

SpartanNash Co

STAPLERETAIL

TSN

Tyson Foods Inc.

FOOD

UNFI

United Natural Foods Inc

STAPLERETAIL

UVV

Universal Corp

TOBACCO

Click to enlarge

Appendix

Dashboard methodology:

I take four 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).

The next table reports the four industry factors. There are three 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

24.49

19.16

-27.82%

0.36

0.34

-5.88%

31.59

33.01

4.30%

9.7

9.78

-0.08

Beverages

31.8

22.05

-44.22%

2.18

1.34

-62.69%

49.8

29.6

-68.24%

1.13

7.06

-5.93

Food

25.86

20.25

-27.70%

1.34

0.91

-47.25%

31.21

27.51

-13.45%

9

8.43

0.57

Tobacco*

23.19

14.83

-56.37%

3.09

2.13

-45.07%

N/A

N/A

N/A

N/A

N/A

N/A

Household Products

31.96

21.4

-49.35%

2.29

1.3

-76.15%

37.15

30.55

-21.60%

38.35

17.18

21.17

Personal Products

16.59

18.05

8.09%

1.67

1.51

-10.60%

24.06

20.7

-16.23%

-6.67

2.1

-8.77

Click to enlarge

* P/FCF and ROE are currently outliers in Tobacco

Stock list methodology:

The stocks listed above are in the S&P 1500 index, cheaper than their respective industry factor for price/earnings, price/sales and price/free cash flow. The 10 companies with the highest return on equity are kept in the final selection.

This strategy 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.

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Data provided by portfolio123.

Disclosure: I am/we are long ADM,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.