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.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).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.
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