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Volatile Markets Pave the Way for an Investment in Consumer Staples Stocks

Dec 06, 2018

 

  • US consumer staples stocks are our focus today as we attempt to identify attractive buying opportunities for non-cyclical stocks amid volatile global markets.
     
  • Volatility persists in US markets as uncertainty surrounds the status of US-Sino trade relations following the arrest of Huawei CFO Meng Wanzhou. In intraday trading, the VIX Index touched a high of 25.30 as the S&P 500 is down nearly 2% in morning trading.  
     
  • US consumer staples stocks have underperformed the broader US market so far in CY2018 as the S&P 500 Consumer Staples ETF (XLP) is down 2.69% YTD and the S&P 500 Index is up 0.99% YTD, as of Tuesday’s close.  
     
  • Since October 10th, 2018, the VIX Index has not closed below 16.00. During that period, the S&P 500 Consumer Staples ETF is up 3.65% while the S&P 500 Index is down 3.07%, as of Tuesday’s close -- this is an outperformance of 6.72% by US consumer staples stocks!
     
  • Investors who believe that volatility will persist through the remainder of CY2018 and potentially spill into CY2019 should consider an investment in quality US consumer staples stocks. In the chart below, we compare forward price multiples (NTM P/E) with trailing return on equity (LTM ROE) of constituents in the S&P 500 Consumer Staples ETF to identify ‘cheap’ consumer staples stocks that our AI Quant Models like going into year-end.

 

Source: Capital IQ
 

  • Tyson Foods, Inc. (TSN), General Mills (GIS), The Kroger Co. (KR), Kellogg Company (K), and Altria Group, Inc. (MO) all appear to be ‘cheap’ stocks with attractive LTM ROEs and forward trading multiples below 15x. Of these five stocks, three are “Top Buys” in our AI Quant Models:
     
  • General Mills appears to be the most attractive consumer staples investment opportunity as it is rated “Top Buy” in our US Consumer Staples Global Top Stock Ideas and “Top Buy” in our US Large-Cap Global Top Stock Ideas. 
     
  • Altria Group is also attractive, rated “Top Buy” in our US Consumer Staples Global Top Stock Ideas and “Attractive” in our US Large-Cap Global Top Stock Ideas. 
     
  • Tyson Foods, meanwhile, is rated “Top Buy” in our US Consumer Staples Global Top Stock Ideas and “Neutral” in our US Large-Cap Global Top Stock Ideas.