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Appeal of Consumer Staples Securities

Consumer staples stocks, which generally sport above-average dividend yields and have consistent earnings records, have been a bright spot in the U.S. equity market the last two years. After rising 6.6% in 2015, the total return for the S&P 500 consumer staples sector was just -0.8% year to date through February 12 in contrast to the 8.5% decline for the broader index.

S&P Global Market Intelligence has stock recommendations on 60 U.S. consumer staples companies, 26 of which were buys or strong buys.

Packaged food & meats was the largest sub-industry (32% of assets) for FXG.
 Among sub-industries, packaged food & meat companies were one that was well represented; eight companies were buys or strong buys.

While Joseph Agnese, S&P Global Market Intelligence consumer staples equity analyst, sees some currency headwinds impacting revenues, cost savings should help boost 2016 earnings for some companies in the sub-industry.

For example, strong buy recommended Mondelez International (MDLZ) is targeting operating margins of 15%-16% in 2016, up from 14% in 2015 (excluding the impact of accounting change in its Venezuelan operations).  

Our stock recommendations on 60 U.S. consumer staples companies, 26 of which were buys or strong buys.
 Agnese expects supply chain and headcount cost cuts related to the company’s recent adoption of zero based budgeting, along with a more efficient use of media spending, to contribute to overall operating margin expansion over the next few years.

During January 2016, investors put $661 million net new money into consumer staples sector ETFs. The largest ETF, Consumer Staples Select Sector SPDR (XLP), pulled in $564 million. XLP recently had 17% of its assets in the packaged foods & meats sub-industry, making it the third largest behind household products and soft drinks.

While consumer staples sector ETFs had investor interest, First Trust Consumer Staples AlphaDex (FXG) had $181 million in outflows. This fundamentally weighted ETF selects consumer staples stocks within the Russell 1000 index that look favorable based on growth and/or  value factors such as one-year sales growth and return on assets.

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 At the end of 2015, packaged food & meats was the largest sub-industry (32% of assets) for FXG, while exposure to household products and soft drinks were much smaller.

S&P Global Market Intelligence has rankings and research on more than 800 equity ETFs

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