9 Consumer Staples Stocks at Risk of Reversion

NEW YORK (TheStreet) -- The consumer staples sector has been the most overvalued sector among the 16 that I track. On Dec. 26 I wrote, Consumer Staples Stocks Are Holiday Laggards, and since then these nine stocks performed nicely. Today all nine are rated buy according to ValuEngine, but two were downgraded to buy from strong buy during the first quarter.

Today www.ValuEngine.com shows that 64% of all stocks are overvalued, just 1% below a ValuEngine Valuation Warning. The consumer staples sector is 25.9% overvalued in a tie with the transportation sector.

Last week I wrote, 12 Sell Downgrades Threaten Dow Transports and today I am concerned that this contagion can spread to consumer staples. The nine consumer stocks are more overvalued today than at the end of 2012, less so than the sector.

All nine are trading above their 200-day simple moving averages which reflects the risk of a reversion to this mean.

Wall Street continues to tell investors that stocks are cheap given a 15 price-to-earnings ratio for the S&P 500. ValuEngine incorporates this data in its valuation model, as both the 12-month trailing and 12-month forward P/E are two of the three most heavily weighed factors in determining the fair value price of every stock. The 12-month trailing P/E for the nine stocks profiled today are elevated at 17.5 to 24.7.

Given my analysis a buy-and-trade strategy remains in play for these stocks, but its time to clean up positions by reducing exposures on strength to risky levels.

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Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that 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 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.

Value Level: Price at which to enter a GTC 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: Price at which to enter a GTC limit order to sell on strength.

Ambev ( ABV) ($42.44 vs. $41.96 on Dec. 26): Downgraded to buy from strong buy and set a multi-year high at $47.17 on Jan. 31. Consider the 200-day SMA at $40.68 as the value level with a quarterly pivot at $42.45 and a weekly risky level at $44.04. The weekly chart profile is negative with the five-week modified moving average at $44.23.

Anheuser Busch ( BUD) ($98.10 vs. $87.54 on Dec. 26): Downgraded to buy from strong buy and set a new multi-year high at $98.10 last Friday. My weekly value level is $96.61 with my monthly risky level at $103.57. The weekly chart profile is positive but overbought with the five-week MMA at $93.94.

Colgate Palmolive ( CL) ($114.41 vs. $105.05 on Dec. 26): Set a multi-year high at $116.71 on March 7. This stock held its 200-day SMA back on Dec. 31 with this support now at $106.84. My annual value level is $111.19 with a monthly pivot at $112.59 and my weekly risky level at $114.98. The weekly chart profile is positive but overbought with the five-week MMA at $112.21.

General Mills ( GIS) ($48.15 vs. $41.00 on Dec. 26): Set a multi-year high at $48.31 on March 21. My monthly value level is $44.53 with a weekly risky level at $49.42. The weekly chart profile is positive but overbought with the five-week MMA at $45.26.

Kellogg ( K) ($63.39 vs. $56.14 on Dec. 26): Set a multi-year high at $63.50 Friday. My annual value level is $60.79 with a weekly pivot at $63.03 with no risky level. The weekly chart profile is positive but overbought with the five-week MMA at $60.61.

Kimberly-Clark ( KMB) ($95.66 vs. $83.79 on Dec. 26): Set a multi-year high at $96.50 on March 5. My monthly value level is $91.33 with a weekly risky level at $100.34. The weekly chart profile is negative but overbought with the five-week MMA at $92.38.

Coca Cola ( KO) ($40.04 vs. $36.73 on Dec. 26): Set a multi-year high at $40.67 on July 31 and the stock challenged this high last Thursday. My monthly value level is $37.00 with a quarterly pivot at $39.18 with my semiannual risky level at $42.26. The weekly chart profile is positive but overbought with the five-week MMA at $38.67.

Pepsico ( PEP) ($78.64 vs. $69.43 on Dec. 26): Rallied to $79.27 Friday to challenge its January 2008 high at $79.79. My semiannual value level is $75.53 with an annual pivot at $77.05 and annual risky level at $79.02. The weekly chart profile is positive but overbought with the five-week MMA at $75.46.

Procter & Gamble ( PG) ($77.27 vs. $68.52 on Dec. 26): Set a multi-year high at $77.82 on March 20. My annual value level is $75.13 with an annual risky level at $78.73. The weekly chart profile is positive but overbought with the five-week MMA at $75.59.

At the time of publication the author held no positions in any of the stocks 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.

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