Shares of Dow component Procter & Gamble (NYSE:
), the world's largest consumer products company, are plunging by
more than 4.5 percent Wednesday after the company forecast fiscal
fourth-quarter earnings of 69 to 77 cents a share, below the 82
cents analysts are expecting.
Emerging markets weakness is one reason for the disappointing
outlook and while P&G's third-quarter results beat Wall
Street estimates, revenue was light at $20.598 billion. Analysts
expected $20.73 billion and the EPS beat appears attributable to
cost savings more than other factors.
P&G's Wednesday woes have trickled over to rivals such as
), Kimberly-Clark (NYSE:
) and Clorox (NYSE:
). Shares of Colgate-Palmolive are lower by more than two percent
while Kimberly-Clark is off 1.2 percent. Clorox is down nearly
Predictably, those glum performances are weighing on consumer
a group of funds that have been market leaders
for not just this year
, but three years.
The Consumer Staples Select SPDR (NYSE:
) is down nearly 1.1 percent Wednesday, not surprising given that
the ETF allocates 13.9 percent of its weight to P&G.
Colgate-Palmolive is also a top-10 XLP holding with a weight of
3.4 percent. Kimberly-Clark and Clorox combine for about 3.6
percent of XLP's weight.
The Vanguard Consumer Staples ETF (NYSE:
) is off by about one percent. VDC, XLP's chief rival, allocates
12.1 percent to P&G and 3.4 percent to Colgate-Palmolive.
Kimberly-Clark is that ETF's eleventh-largest holding.
The iShares Dow Jones U.S. Consumer Goods Sector Index Fund
) is down 0.83 percent. That ETF devotes about 12.3 percent to
P&G and 2.9 percent to Colgate-Palmolive. IYK, which has more
of a discretionary feel to it than XLP or VDC by virtue of
allocations to stocks such as Ford (NYSE:
) and Nike (NYSE:
), allocates a combined 2.9 percent of its weight to
Kimberly-Clark and Clorox.
While today's performances for XLP and friends do not qualify
as deep pullbacks, it is worth noting these funds remain pricy on
a valuation basis. XLP has a P/E ratio of 17.78 and a
price-to-book ratio of 3.88,
according to State Street data
. IYK trades at almost 21 times earnings with a price-to-book
ratio of 6.47,
according to iShares data
By comparison, the SPDR S&P 500 sports a P/E of just over
14 and a price-to-book ratio of 2.25.
Indeed, staples ETFs do look pricey compared to the broader
market and higher growth sectors such as technology. The
Technology Select Sector SPDR (NYSE:
) has a P/E of just over 13, but there a case can be made that
Wednesday's declines in staples ETFs are just a blip before the
funds and their constituents continue to grind higher.
Investors have shown a willingness to pay up to play defense
over the past few years. That has translated to an overt love
affair with low volatility/low beta sectors and ETFs.
Additionally, slumping commodities prices
could be another positive catalyst for staples
stocks and ETFs
. Bottom line: P&G and friends may be down Wednesday, but
they certainly are not out.
For more on ETFs, click
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