Just Charts: Slow Growth Yield Chasing Remains The Rage

The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

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Consumer Staples mildly underperformed the broader market last week, falling -0.52% versus the S&P500 at -0.03%. XLP is up 3.0% year-to-date vs the SPX at 1.6%.

Earnings Calls (in EST):

Monday (5/19):  CPB (8:30am)

Wednesday (5/21):  HRL (9am)

BMO Capital Markets Farm To Market Conference (in EST):

Wednesday (5/21):  TSN (8am); SAFM (9am); HAIN (11am); SMG (1:30pm); HRL (4pm)

For the last 2+ months, XLP is bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.

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The Hedgeye U.S. Consumption Model has shown steady improvement over the past three weeks, with 5 of the 12 metrics flashing green.

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Despite the bullish quantitative set-up 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, and Q2 2014 theme of #ConsumerSlowing
  • 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 19.6x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (recently rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, and fell to 34.9 versus 37.1 in the prior week

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Top 5 Week-over-Week Divergent Performances:

Positive Divergence:  DF 5.8%; MNST 5.3%; STZ 4.6%; DEO 4.5%; BNNY 4.0%

Negative Divergence:  RDEN -26.8%; PG -2.5%; POST -2.2%; LNCE -1.9%; ENR -1.8%

Last Week’s Research Notes

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 – remains bullish TREND as it carried most of the slow-growth-big-cap-low-beta style factors the market is chasing right now; TREND support = $106.65

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DEO  - finally joins the slow-growth-low-beta party, breaking out above TREND line resistance of $125.93

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KO – same as BUD – the market’s style factor appetite for an equity with these characteristics changed in April; TREND bullish, $34.79 support

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PEP – looks just like KO right now; bullish intermediate-term TREND with $83.71 TREND support

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GIS  - still one of the best looking names on this list; TREND support = $51.44

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MDLZ – big TREND breakout on big volume in the early part of May #confirmed; TREND support building a big base at $35.59

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KMB – if I had to buy one name on this sector on the open this week, it would probably be KMB; TREND support = $108.65

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PG – doesn’t look as solid as BUD, KO, and PEP (as it broke its immediate-term TRADE line last week); TREND support of $80.0

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MO  - slow-growth-yield-chasing remains the rage; bullish intermediate-term TREND breakout from March intact, support = $37.92

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PM – no change as the bearish to bullish TREND reversal of the last 6 weeks is confirmed; TREND support = $83.91

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Howard Penney

Managing Director

Matt Hedrick

Associate

Fred Masotta

Analyst