Despite great anticipation around the release of “news” at the annual Consumer Analyst Group of New York (CAGNY) Conference last week, the sector (XLP) was flat on the week versus the S&P500 at +0.4%.
In fact, XLP is the worst performing sector year-to-date (down -3.6% vs the broader market +1.7%), despite the slow growth and yield chasing sector of Utilizes (XLU) the top performing sector. This underperformance has also been reflected in earnings season results. As the chart below shows, the Q4 2013 Earnings Scorecard shows Consumer Staples as the worst performing sector across sales, EPS, and operating margin growth versus the prior quarter!
The Hedgeye U.S. Consumption Model is flashing predominantly red, as only 4 of the 12 metrics are flashing green.
From a quantitative set-up the sector remains broken across the immediate term TRADE and intermediate term TREND durations, our language for a bearish medium term sector outlook.
We continue to believe that the sector is facing numerous headwinds, including:
- U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating
- 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 eroding real growth
- The sector is loaded with a premium valuation (P/E of 18.9x)
- Less sector Yield Chasing as Fed continues its tapering program
- The high frequency Bloomberg weekly U.S. Consumer Comfort Index has not seen any real improvement over the past 6 months, and expanded only 10bps higher week-over-week (-30.6 vs -30.7)
Matt Hedrick
Food, Beverage, Tobacco, and Alcohol
Howard Penney
Household Products
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Quantitative Setup
In the charts below 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).
Alcohol
BUD – low-volume beta bounce still hasn’t changed BUD’s developing bearish TREND – it would need to close back above $102.91 to go bullish on our model
DEO – uglier than BUD, but same setup – it had its low-volume beta bounce and failed to recapture TREND support up at $128.27
Beverage
KO – our risk management model saw this breakdown coming (see prior weeks’ notes); big time bearish TREND @Hedgeye with resistance firmly intact up at $39.56
PEP – just a nasty breakdown after our risk model signaled it was in motion; TREND resistance remains overhead up at $82.11
Food
GIS – one of the few names that deserves consideration for a bearish to bullish reversal; needs to hold $48.82 TREND support (which was resistance until the past few weeks), so let the market decide
MDLZ – Peltz’s love matters – a nice Valentine’s day v-bottom sees follow through here back above the TREND line of $32.89; if that holds, we’ll call this bullish
Household Products
KMB – nothing but love for this name remains – Bullish Formation @Hedgeye with TREND support of $104.21 intact
PG – next to KO and PEP, Procter gets the nod for the next worse looking setup in this risk management note; bearish TREND remains resistance up at $79.87
Tobacco
MO – these smokes stocks still have dog breath; bearish TREND resistance intact ($36.16 resistance)
PM – still one of the better looking shorts in all of big cap consumer; bearish TREND @Hedgeye = $83.19 resistance
