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Consumer Staples (XLP)

Consumer Staples (XLP). Jace Hochwalt Mallary Dana Eric Klaasen. Background.

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Consumer Staples (XLP)

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  1. Consumer Staples(XLP) Jace Hochwalt Mallary Dana Eric Klaasen

  2. Background • The companies in this sector are primarily involved in the development and production of consumer products that cover food and drug retailing, beverages, food products, tobacco, household products, and personal products (sectorspdr.com). • Consumer staples are goods that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Also, people tend to demand consumer staples at a relatively constant level, regardless of their price (investopedia.com).

  3. State of the Sector • Business conditions for companies in the consumer staples sector continue to be relatively stable. This is typical for the sector, which is composed largely of industries that historically have delivered steady, consistent earnings growth (fidelity.com). • Most consumer staples products are less sensitive to the ups and downs of the global economy than are products and services sold in other sectors. • Consumer staples stocks are considered non-cyclical, and always in demand, no matter how well the economy is performing.

  4. Performance Consumers Staples seems to have similar movements with the S&P 500, but is down over 2% in comparison to the S&P since we started last semester.

  5. U.S. Food and Gas Prices • Food and Gas prices have fallen the past 3 months • Sign of lower inflation • Even with decreasing prices, consumers are expected to spend less because if increased taxes

  6. Fiscal Cliff • Unexpected decline in consumer sentiment in January • Increased taxes • Individuals making $400,000 or more • Couples making $450,000 or more • S.S. tax back to 6.2% • Decrease in discretionary income causing consumers to spend less

  7. Relevant Valuation Matrices • Price to Cash Flow • 12.4 • Relatively low, as it would show that the sector is generating more than enough cash flows that are not currently considered in the current stock price. • Price to equity • 16.4 • Investors should expect a good amount of growth within the sector

  8. Top 10 Holdings and the Breakdown 11.11% of the overall S&P 500 Over 7000 companies within the CNS http://www.sectorspdr.com/shared/pdf/sectorResearch/xlpaltavista.pdf

  9. Key Drivers • Expansion to emerging markets • Rising commodity prices • Brand Loyalty • Moderately the same demand • Low beta • Competition http://www.forbes.com/sites/alphaprofit/2012/09/17/why-consumer-staples-investments-make-sense/

  10. Stock Outlook • Defensive attributes • From ability to resist sluggish economic growth • Showed/showing growth in Europe • Demand stays regular due to essentials of everyday life • Food, drink, Hygiene, etc. • Ever-growing Innovations • Healthier product • Ex: Pepsi Next

  11. Recommended stocks • Coca-Cola (KO) Up 1.7% since recommended • Wal-Mart (WMT) Down 3.59% • Pepsi (PEP) Up 3.33% • CVS Caremark (CVS) Up 12.23% since recommended • Colgate- Palmololive (CL) Up .39% since recommended • Dr. Pepper Snapple (DPS) Up 2.42% since recommended • Kimberly-Clark (KMB) Down 1% since recommended • General Mills (GIS) Up 3.93% • Molson-Coors (TAP) Up 1.2% since recommended • Phillip Morris (PM) Up 6.6% since recommended

  12. Current Recommendations • PepsiCo (PEP)- Drop target to $74 and raise stop loss to $66 • General Mills (GIS)- Leave target price at $44 and raise stop loss price to $36 • Wal-Mart (WMT)- Leave target at $77 and leave stop loss price at $60

  13. References • http://www.sectorspdr.com/eqsnaps/?do=snapshot&symbol=xlp • http://finance.yahoo.com/q?s=xlp&ql=1 • https://www.fidelity.com/viewpoints/investing-ideas/state-of-sector-consumer-staples • http://news.morningstar.com/pdfs/dry-cswp-0309.pdf • http://www.sectorspdr.com/shared/pdf/sectorResearch/xlpaltavista.pdf • http://www.sectorspdr.com/shared/pdf/sectorResearch/xlpaltavista.pdf • http://www.advisorsquare.com/new/LPL_Library/Sector_Strategy_Nov_2011.pdf?advisorid=3007635 • http://finance.yahoo.com/news/consumer-staples-stock-outlook-july-182441642.html

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