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Consumer Staples underperformed the broader market last week, falling -0.2% versus the S&P500 at +1.4%. XLP is down -1.1% year-to-date vs the SPX at +1.8%.

For a third straight week, the XLP is bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up. This is a material shift as the sector traded bearish TRADE and TREND for the majority of the year-to-date.

Just Charts: Icahn & HLF Bounce - 1

The Hedgeye U.S. Consumption Model is also showing improvement, with 7 of the 12 metrics flashing green.

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Despite an improved outlook for the sector, we continue to believe that the group 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 19.3x)
  • 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 fell to -29.0 versus -27.6 in the prior week

Just Charts: Icahn & HLF Bounce - 3

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Top 5 Week-over-Week Divergent Performances:

Positive Divergence:  FLO 7.3%; NUS 4.3%; POST 3.5%; ENR 3.3%; BF/B 3.0%

Negative Divergence:  HLF -14.6%; MNST -1.8%; PG -1.4%; EL -1.3%; HSY -1.3%

Last Week’s Research Notes

Recent News Flow

HLF – Herbalife announced it is adding 3 additional Carl Icahn designees, totaling 5 on their board (trading +7% intraday). This comes on the heel of Ackman’s presentation on 3/11 claiming that HLF’s China business is a pyramid scheme and the FTC announcing on the following day that they’ll take a look at the company.  As a side note, Nu Skin China was fined $524,000 over the weekend for the sale of certain products by individual direct sellers (trading +27% intraday).

We continue to assert that while a government agency may require HLF to alter its language and some of its business processes, its U.S. business is not going away.

CAG – ConAgra reported Q3 earnings on 3/20, beating consensus estimates of $0.60 by 2 cents, and top-line missed consensus of $4.43B at $4.39B.

GIS – General Mills reported Q3 earnings on 3/19, missing consensus estimates of $0.64 by 2 cents, and top-line missed consensus of $4.41B at $4.38B.

LO – Goldman Sachs upgraded LO to buy from neutral on 3/16.  We presented LO as a Best Idea Long on March 4th. Please email me at if you’d like a copy of the deck and replay of the call.

Events This Week (in EST):

Tuesday (3/25): MKC 8am

Thursday, 11am (3/27): Hedgeye’s Electronic Cigarette Speaker Series with Logic President Miguel Martin. Logic has #2 national brand in unit and dollar share for C-Stores in the United States, according to Nielsen data.


Matt Hedrick

Food, Beverage, Tobacco, and Alcohol

Howard Penney

Household Products


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).

BUD – up weeks for the stock market still aren’t getting BUD back above its TREND resistance line of $103.28

Just Charts: Icahn & HLF Bounce - 6

DEO – still bearish TREND for Diageo with TREND resistance firmly intact up at $124.81

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KO – trying real hard to become market beta, but not convincing our signal which remains bearish TREND resistance of $39.66

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PEP – barely recovering TREND support of $81.91 this wk – which is better than what we can say about KO; let’s see if it holds

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GIS – 3 weeks of confirmation on the bearish to bullish TREND reversal; TREND support is now $49.91

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MDLZ – still holding on to TREND support of 33.84; 3 straight weeks of bullish TREND, after head-faking bearish in JAN

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KMB – still the best looking setup on this screen of stocks; bullish TREND support of $106.17 firmly intact

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PG – bearish TREND for all of 2014, so nothing new here seeing the stock go down in an up tape last wk; TREND resistance = 80.18

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MO – second straight week of holding onto its reversal from bearish to bullish TREND (support = $35.89)

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PM – still the ugliest stock on the list; TREND resistance = $83.97

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