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What are we looking for?

U.S. consumer staple stocks with attractive valuations and earnings growth.

The U.S. consumer staples sector has been the worst-performing sector so far in 2018. The SPDR Consumer Staples ETF (XLP) is currently off by 13 per cent year-to-date and is on track for its worst annual performance since a 17-per-cent decline in 2008. The sector hit a record intraday high on Jan. 29 and has declined more than 15 per cent since despite very good earnings by some of the sector’s biggest names. Investors with an inclination toward value stocks would find this sector ripe with opportunity today.

The screen

We will be using Trading Central Strategy Builder to search for U.S. consumer staples stocks that have reasonable valuations and strong quarterly earnings results yet have seen their stock price slide over the past quarter.

We begin by setting a minimum market cap threshold of US$5-billion. This will focus our search on large cap U.S. consumer staples stocks whose revenue streams tend to be more predictable than their smaller cap cousins. We will also limit our search to stocks displaying trailing price-to-earnings ratios of 20 or less.

To select stocks with strong quarterly earnings growth, we will select only stocks with earnings growth (last quarter versus prior year) of 10 per cent or greater. Finally, we will limit our search to stocks whose prices have fallen off at least 5 per cent in the preceding 13 weeks.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.

What did we find?

Topping our list is Campbell Soup Co., which reported very strong second-quarter earnings on Feb. 16, beating analyst expectations by a wide margin. In spite of these strong earnings, the stock has lost more than 10 per cent of its value since mid-February. As with much of the sector, concerns over inflation and rising input costs have contributed to concerns about the company’s earnings outlook.

General Mills Inc., the U.S. packaged food giant, delivers many well-known brands. On March 21, the company released third-quarter earnings that met expectations but were up sharply from the prior year. In spite of this growth, the stock fell 10 per cent as the company guided full-year earnings below analysts’ estimates. The company’s stock is now trading almost 30 per cent off its 52-week high, set in January. General Mills also has the highest dividend yield on our list at 4.4 per cent.

One of the lowest P/E ratios on our list belongs to poultry producer Pilgrim’s Pride Corp. at just 7.6. The company’s stock has slumped 17.2 per cent in the past quarter, due mainly to concerns about increased tariffs on agricultural exports to China and other markets. Aside from this short-term concern, the company has an excellent track record of delivering revenue and earnings with a long-term earnings growth rate of 10 per cent.

U.S. consumer stocks with strong quarterly earnings growth

RankCompanySymbolRecent Price (US$)Mkt. Cap. (US$ Bil.)Price Performance (13 Wks.)P/E (Trailing 12M)EPS Growth (Last Qtr. vs. Prior Yr.)Div. Yield
1Campbell Soup Co.CPB-N$41.36$12.4-7.7%11.9187.9%3.4%
2General Mills Inc.GIS-N$42.51$24.2-22.2%11.4165.6%4.4%
3Kellogg Co.K-N$60.33$20.9-6.0%14.669.3%3.4%
4Pilgrim's Pride Corp.PPC-Q$21.23$5.3-17.2%7.692.9%0.0%
5Hershey Co.HSY-N$92.61$19.4-6.5%19.6184.5%2.8%
6Kraft Heinz Co.KHC-Q$58.48$71.3-20.5%6.511.0%4.1%
7Mondelez Int'l Inc.MDLZ-Q$38.77$57.2-12.0%18.351.2%2.2%
8Ingredion Inc.INGR-N$111.12$8.0-15.1%15.313.1%1.9%

Source: Trading Central

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Peter Ashton is vice-president of customer success at Trading Central.