Continue to Book Profits in Consumer Staples

NEW YORK ( TheStreet) -- Consumer staples stocks continue to perform well in 2012, but strength in these stocks should be used to book profits, particularly in those names that have set multiyear highs recently.

Back on Aug. 6, I profiled this sector in an article titled " Book Profits in Overvalued Consumer Staples," and this remains my theme in today's update.

Back on Aug. 6, 67.4% of all stocks were undervalued, according to my Web site, www.ValuEngine.com. As this week began, the percentage of undervalued stocks is down to 45.7%.

On Aug. 6, the consumer staples sector was 11.3% overvalued, and now it's 14.5% overvalued.

My benchmark for this sector remains the Consumer Staples Sector SPDR Fund ( XLP).

XLP's weekly chart shows overbought momentum, and this condition began at the end of the week of July 27.

XLP will remain positive but overbought with a weekly close above its five-week modified moving average at $35.58.

READERS ALSO LIKE:


If you are employing a "buy and trade" strategy in XLP, my annual value level lags at $32.87, with monthly and weekly risky levels at $36.09 and $36.35, respectively.

The first of these levels was tested at last week's multiyear high at $36.11. My quarterly risky level is $37.64.

Source: Thomson Reuters

Today I profile eight of the components of XLP that have Strong Buy or Buy ratings and set multiyear highs between July 30 and Sept. 17.

The above table shows data from www.ValuEngine.com covering eight components of the Consumer Staples Sector SPDR Fund.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by this percentage, 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 One-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.

Value Level: the price at which to enter a good-'til-cancelled limit order to buy on weakness. The letters mean: W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: the price at which to enter a GTC limit order to sell on strength.

Coca-Cola Enterprises ( CCE) ($30.95) set a multiyear high at $31.29 on Sept. 17. CCE was downgraded to buy from strong buy this morning, has a so-so price-to-earnings ratio and is well above its 200-day simple moving average at $27.88. Reduce this position on strength to my monthly pivot at $31.60, then employ a "buy and trade" strategy between the value level and risky level.

Costco Wholesale ( COST) ($102.25) set a multiyear high at $102.89 on Sept. 13. COST is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $88.91. Employ a "buy and trade" strategy between the value level and risky level.

McCormick & Co ( MKC) ($62.94) set a multiyear high at $63.91 on Sept. 12. MKC is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $55.23. Employ a "buy and trade" strategy between the value level and risky level.

Procter & Gamble ( PG) ($69.25) set a multiyear high at $69.25 on Sept. 17. PG is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $65.11. If you can sell strength to this week's pivot at $69.81, do so, then employ a "buy and trade" strategy between the value level and risky level.

JM Smucker ( SJM) ($87.02) set a multiyear high at $87.54 on Sept. 13. SJM is rated a buy, has an elevated P/E ratio and is well above its 200-day SMA at $78.18. Employ a "buy and trade" strategy between the value level and risky level.

Constellation Brands ( STZ) ($32.94 vs. $31.92 on Aug. 6) - set a multiyear high at $34.20 on Sept. 7. STZ is rated a strong buy, has a so-so P/E ratio and is well above its 200-day SMA at $23.56. Employ a "buy and trade" strategy between the value level and risky level.

Whole Foods Market ( WFM) ($97.62 vs $94.60 on August 6) set a multiyear high at $99.60 on Sept. 14. WFM is rated a Buy, has an extremely elevated P/E ratio and is well above its 200-day SMA at $84.92. Employ a "buy and trade" strategy between the value level and risky level.

Wal-Mart Stores ( WMT) ($73.99 vs $74.55 on Aug. 6) set a multiyear high at $75.24 on July 30. WMT is rated a strong buy, has a so-so P/E ratio and is well above its 200-day SMA at $64.50. Consider selling strength to the multiyear high at $75.24, then employ a GTC limit order to buy weakness to my monthly value level at $72.62.

All eight of the stocks profiled today are overvalued fundamentally with overbought weekly chart profiles. All eight have traded higher by 11.3% (PG) to 72.1% (STZ) over the past 12 months, have P/E ratios between 14.4 (CCE) and 39.7 (WFM). In my judgment, when these stocks turn lower, the risk is to the 200-day simple moving averages.

At the time of publication, Suttmeier held no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.