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Book Profits in Overvalued Consumer Staples

The above table shows data from ValueEngine.com covering the 41 components of the XLP listed from top to bottom by percentage of index weight. This ETF is heavily weighted by Dow Components Coca-Cola (KO) (12.78%) and Procter & Gamble (PG) (12.58%).

Reading the Table

OV/UN Valued -- The stocks with a red number are undervalued by the percentage shown. Those with a black number are overvalued by the percentage shown, according to ValuEngine.

VE Rating -- A 1-Engine rating is a strong sell, a 2-Engine rating is a sell, a 3-Engine rating is a hold, a 4-Engine rating is a buy and a 5-Engine rating is a strong buy.

Last 12-Month Return (%) -- Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return -- Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Analysis of the Consumer Staples Sector

Looking at the overvalued and undervalued data, the XLP is equally split between undervalued and overvalued stocks with 20 undervalued and 21 overvalued. All but three stocks are rated strong buy or buy, according to ValuEngine. Three are rated hold.

Thirty-two components of the XLP have moved higher over the past 12 months, while nine have declined. Six moved higher by more than 40%, with Wal-Mart (WMT) up 49.3%, Altria (MO) up 44%, Reynolds American (RAI) up 41.5%, Whole Foods Market (WFM) up 50.2%, Monster Beverage (MNST) up 76.5%, and Constellation Brands (STZ) up 53.8%. The biggest gainers were, therefore, the largest retailer and supermarket, an upper-end supermarket, two tobacco stocks, a soft-drink maker and a maker of wine, beer, vodka and whisky. Consumers in this sluggish economy have been eating, smoking and drinking.

All 41 components are projected to have higher prices 12 months from now, but I am concerned about the generally elevated price-to-earnings ratios, since 25 of the 41 stocks have P/E ratios above 15.

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