Perhaps it is a sign that investors are favoring value stocks
over growth names. Or maybe it is indicative of investors getting
defensive in anticipation of a broader market pullback. Whatever
the reason may be, the consumer staples sector has recently
rewarded investors in handsome fashion.
Adding to the bull case for the sector, recent economic data
indicates the U.S. consumer is feeling a bit more confident and
there are signs consumer spending could pick up later this
"Since products such as soap, toothpaste, and bathroom tissue
remain staples of everyday life, household nondurable companies
are generally less sensitive to economic conditions in comparison
with other sectors," said S&P Capital IQ in a new research
note. "That said, a sluggish U.S. economy still presents a
challenging competitive environment for these companies, as they
battle for a share of the limited consumer spending. Fortunately,
signs of economic improvement have begun to appear, and we think
the outlook for the U.S. consumer will strengthen later in
Even with some favorable domestic factors, including the
housing recovery, S&P Capital IQ highlighted some staples
names with significant international exposure. For example, the
research firm has a three-star rating on Colgate-Palmolive (NYSE:
) and a four-star rating on Tupperware (NYSE:
"Despite an anticipated improvement domestically, developing
markets outside the U.S. continue to offer better growth
opportunities, in our view," according to S&P Capital IQ.
"Companies like Tupperware Brands and Colgate-Palmolive generate
a significant portion of their sales in faster-growing emerging
markets - 62% and 53%, respectively."
In a terms of more domestically focused play, S&P has a
four-star rating on Church & Dwight (NYSE:
), the maker of Arm & Hammer baking soda and Trojan condoms,
among other well-known products.
"Church & Dwight generates the majority of its sales in
the U.S., although with 40% of its sales from value-oriented
products, we expect it to gain market share while price-sensitive
consumers adjust to the higher payroll taxes," said S&P.
, S&P has an Overweight rating on the Consumer Staples Select
Sector SPDR (NYSE:
). With $6.19 billion in assets under management, XLP is the
largest staples ETF by that metric. Highlighting just how much
investors have embraced staples names this year, XLP has
outperformed the SPDR S&P 500 (NYSE:
) by nearly 300 basis points on a year-to-date basis.
Of the aforementioned trio of stocks, only Colgate-Palmolive
is a top-10 XLP holding. That stock is the ETF's eighth-largest
holding with a weight of 3.53 percent. Procter & Gamble
), Philip Morris (NYSE:
) and Coca-Cola (NYSE:
) combine for 34.4 percent of XLP's weight. XLP touched a new
52-week on high Monday.
S&P also has an Overweight rating on the $409.4 million
iShares Dow Jones U.S. Consumer Goods Sector Index Fund (NYSE:
). IYK also features Colgate-Palmolive among its top-10 holdings
while Church & Dwight and Tupperware are found further down
the ETF's roster. Investors should note IYK offers more of a
discretionary feel than XLP through holdings such as Ford (NYSE:
), Nike (NYSE:
) and Coach (NYSE:
Still, Procter & Gamble, Philip Morris and Coca-Cola
combine for almost 30 percent of the ETF's weight. Like XLP, IYK
also touched a new 52-week on Monday. The fund is up nearly 10
percent year-to-date, but its expense ratio of 0.46 percent is
noticeably higher than the 0.18 percent charged by XLP.
For more on ETFs, click
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