Just Charts: XLP Broken

In this note, we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).


Consumer Staples stocks are off to a tough start in 2014. Based on Friday’s close, the sector is down -3.7% year-to-date vs the S&P500 at -3.1%. From a quant setup the sector is broken across the immediate term TRADE and intermediate TERM trend durations, our language for a bearish medium term sector outlook. You’ll see a similar bearish setup for most of the largest names in Consumer Staples (see charts below). 


We generally believe that the group is way over-owned and loaded with premium valuations. Headwinds we see for the group include:

  • U.S. consumption growth is slowing, and dragging global growth lower 
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 (a Hedgeye Q1 2014 Macro Theme) eroding real growth
  • Less sector Yield Chasing as Fed continues its tapering program
  • In the U.S.,the most recent data on Disposable Income per capita is making new lows, and
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months and was flat week to week


Top 5 Week-over-Week Divergent Performances:

Negative Divergence: HLF -16.2%; TUP -10.5%; NUS -9.3%; AVP -7.5%; BNNY -7.4%

Positive Divergence: SAFM +2.0%; THS +1.8%; KMB +1.3%; RAI +0.8%; DPS +0.3%



Reported Companies Last Week:

  • KMG  – reported 5% (high-end of targeted range) organic sales growth and 11% EPS growth in 4Q13.  The sequential incremental growth QtoQ was driven from international growth (KCI is 39% of total sales).  The company continues to make good progress on spinning out its health care business.  Management 2014 guidance was consistent with long-term objectives and slightly better that street expectations.  The strength in the KMB story is consistent with our quant factors.
  • PG – The PG quarter was in-line and un-inspiring consistent with the bearish quant set-up. 


The “Newsy” News Flow:

HLF and NUS: the underperformance of HLF was driven by a letter penned last Thursday from Massachusetts Senator Ed Markey (D) to the FTC, SEC, and HLF requesting more information about the company’s business practices and suggesting the company is running a pyramid scheme. Of note is that Markey has also been active and public against the marketing of Energy Drinks to youth (including MNST) and was a leading voice in the investigation into the BP oil spill.


Two weeks ago Bill Ackman of Pershing Square (and author of a 343 page PowerPoint issued in DEC 2012 on why Herbalife is a pyramid scheme) announced that he intends to issue a new report next month on how HLF operates illegally in China. This came on the heels of Chinese regulators announcing they’d investigate Nu Skin on charges it was running a pyramid scheme in the country.


The drastic stock movement on newsy events that we saw last week is nothing new to these two stocks. In short, we wouldn’t be surprised to see Ackman roll out the kitchen sink and utilize his rolodex to see his Big Short idea get going in the right direction (his price target is zero), however we cannot underscore enough how committed a community of activists (Icahn and Loeb to name a couple) are to bury Ackman on the long side and how unwilling a Federal agency (SEC, FDA, FTC, or IRS) currently is to open Pandora’s box on the multi-level-marketing business and decide whether HLF (or NUS for that matter) is a pyramid scheme.


We will opportunistically take advantage of these price swings on fear, however do not claim to know definitively if HLF is or is not a pyramid scheme. (For more following last Thursday’s announcements see our note).  



Earnings Calls This Week (all times EST):


Wednesday (1/29): TUP 8:30am; ENR 10am; SPB 10am

Thursday (1/30): HSY 8:30am; MO 9am; HSH 10:30am; CL 11am; LVMH 12pm

Friday (1/31): TSN 9am; MJN 9:30am; DEO 3pm



Howard Penney

Household Products


Matt Hedrick

Food, Beverage, Tobacco, and Alcohol






Just Charts: XLP Broken - 111


Just Charts: XLP Broken - 22


Just Charts: XLP Broken - 3


Just Charts: XLP Broken - 4





DEO – testing a TREND line breakdown (that would be new); TREND = $128.21

Just Charts: XLP Broken - 55


BUD – broke its TREND line and volume ripped on that last week; TREND resistance = $102.36

Just Charts: XLP Broken - 6




KO – broke its TREND line last week; that’s now resistance at 39.83

Just Charts: XLP Broken - 7


PEP – looks just like KO; recently broken TREND line of 82.59

Just Charts: XLP Broken - 8





MDLZ – broke its TRADE line on big volume last week; TREND support of $33.53 now tested

Just Charts: XLP Broken - 9


GIS – still one of the ugliest on the list; bearish TREND resistance = 49.36

Just Charts: XLP Broken - 10





KMB – best looking long on the list; bullish TREND support = 103.64

Just Charts: XLP Broken - 11


PG – ugly with bearish TREND confirmed at 80.65

Just Charts: XLP Broken - 12





MO – still holding its bullish TREND line of 36.81 support (looks nothing like PM)

Just Charts: XLP Broken - 13


PM – nasty bearish TREND = 86.34 resistance

Just Charts: XLP Broken - 14


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more