Valuation Dashboard: Consumer Staples - Update

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About: Consumer Staples Select Sector SPDR ETF (XLP), Includes: ADM, COST, DAR, DF, ENR, HRL, KHC, MDLZ, SENEA, SPTN, SPY, SVU, TSN, UNFI
by: Fred Piard
Summary

Valuation metrics in consumer staples.

Evolution since last month.

A list of stocks looking cheap in their industries.

This article series provides a monthly dashboard of industries in each sector of the GICS classification. It compares valuation and quality factors relative to their historical averages in each industry, and gives a list of 10 stocks. I update every month 8 lists like this one covering all sectors (some sectors are grouped). The 8 lists together have returned about 25% in 2016. If you want to stay informed of updates, click "Follow" at the top of this page. My Marketplace Subscribers have an early access to the stock lists before they are published in free-access articles.

Executive summary

All industries in Consumer Staples look overvalued. Staples Retail and Food are less overpriced than other groups. Household Products are far above their historical average in return-on-equity (ROE), which may partly justify overpricing in this industry. Beverages are the less attractive group, overpriced for 2 major valuation factors (P/E and P/FCF), and significantly below its baseline in quality (ROE).

Since last month:

  • P/E is stable for Food, Tobacco, Household products and has deteriorated for Personal Products and Staples Retail.
  • P/S has improved for Tobacco and deteriorated elsewhere.
  • P/FCF has deteriorated in all groups.
  • ROE has improved in Personal Products, deteriorated in Beverages and is stable elsewhere.
  • The Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) equals the return of SPY in 1 month (about 0.9%).
  • The five S&P 500 Consumer Staples stocks with the best momentum in 1 month are Costco Wholesale Corp (NASDAQ:COST), Hormel Foods Corp (NYSE:HRL), Kraft Heinz Co (NASDAQ:KHC), Mondelez International Inc (NASDAQ:MDLZ), Tyson Foods Inc.(NYSE:TSN).

Some cheap stocks in their industries

The stocks listed below 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. Past performance is not a guarantee of future results. This is not investment advice. Do your own research before buying.

ADM

Archer-Daniels-Midland Co

FOOD

DAR

Darling Ingredients Inc

FOOD

DF

Dean Foods Co

FOOD

ENR

Energizer Holdings Inc

PRODHOUSE

SENEA

Seneca Foods Corp.

FOOD

SPTN

SpartanNash Co

STAPLERETAIL

SVU

SUPERVALU INC.

STAPLERETAIL

Tyson Foods Inc.

FOOD

UNFI

United Natural Foods Inc

STAPLERETAIL

Detail of Valuation and Quality indicators in Consumer Staples on 1/9/2017

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).

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

25.47

19.16

-32.93%

0.4

0.34

-17.65%

33.58

33.01

-1.73%

10.21

9.78

0.43

Beverages

31.1

22.05

-41.04%

2.25

1.34

-67.91%

49.23

29.6

-66.32%

-5.48

7.06

-12.54

Food

22.92

20.25

-13.19%

1.3

0.91

-42.86%

34.45

27.51

-25.23%

9.37

8.43

0.94

Tobacco*

16.88

14.83

-13.82%

3.57

2.13

-67.61%

N/A

N/A

N/A

N/A

N/A

N/A

Household Products

26.13

21.4

-22.10%

2.17

1.3

-66.92%

36.88

30.55

-20.72%

50.14

17.18

32.96

Personal Products

25.15

18.05

-39.34%

2.94

1.51

-94.70%

26

20.7

-25.60%

4.95

2.1

2.85

* P/FCF and ROE are currently outliers in Tobacco

The following charts give an idea of the current status of 3 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.

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 XLP with SPY in 1 month.

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Data provided by portfolio123 (this is a partner link giving you an extended period of free trial. I may receive a fee if you buy later a paid subscription, at no additional cost to you).

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