How will you bear this market?
During a bear market, consumer staples are one of the chosen few. Typically people buy what they feel are necessities and cut out the fat. According to Investorpedia, Consumer Staples are defined as “the industries that manufacture and sell food/beverages, tobacco, prescription drugs and household products”.
The consumer staples sector makes up about 3% of the TSX composite which represents $185 billion in market capitalization. Some of the companies included in the consumer staples sector include Alimentation Couche-Tard (ATD.B), Empire Co. Ltd (EMP.A), Metro Inc. (MRU.A), George Weston Ltd. (WN), Saputo Inc. (SAP), Loblaw Companies Inc. (L), Maple Leaf Foods Inc. (MFI), North West Company Fund (NWF.un), Shoppers Drug Mart Corp. (SC), and Cineplex Galaxy Income Fund (CGX.un).
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The Consumer Staples sector closed at $152.57 on Friday October 21, 2008. Over the last year the high was $184.80 reached on Dec 11, 2007 and the low was 142.80 reached on October 10, 2008. From a technical perspective the Consumer staples sector has been trading in a downward channel since last year. That trend appears to have reversed since October 10th this year. The current price has recently been bouncing above and below the 50 day moving average. Despite this, since the 10th of October the Consumer staples sector has rallied 6.2% unlike the TSX which has dropped -10% and the S&P 500 which has dropped -11%. The only other sectors on the TSX to post positive gains during this period are the Telecom, Utilities and Gold sectors.
When you look at the P/E ratio and dividend yield relative to the TSX composite, the Consumer Staples sector seems less attractive. The average dividend yield is 2.10 and the P/E ratio is 14.71 for the Consumer Staples sector vs. the TSX which is 4.61 and 9.57 respectively. Since the beginning of this bear market you might as well throw these fundamentals out the window. According to Thackray’s 2009 Investor’s Guide which provides research on seasonality October is traditionally a good month for Consumer Staples and evidence suggests you should sell Consumer Staples in favour of Consumer Discretionary stocks. I would argue, not this year. In a bear market, people will naturally substitute going out for dinner in favour of cooking for themselves and family entertainment may include going to the movies in favour of travel or other forms of entertainment. How will you bear this market?
The consumer staples sector makes up about 3% of the TSX composite which represents $185 billion in market capitalization. Some of the companies included in the consumer staples sector include Alimentation Couche-Tard (ATD.B), Empire Co. Ltd (EMP.A), Metro Inc. (MRU.A), George Weston Ltd. (WN), Saputo Inc. (SAP), Loblaw Companies Inc. (L), Maple Leaf Foods Inc. (MFI), North West Company Fund (NWF.un), Shoppers Drug Mart Corp. (SC), and Cineplex Galaxy Income Fund (CGX.un).
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The Consumer Staples sector closed at $152.57 on Friday October 21, 2008. Over the last year the high was $184.80 reached on Dec 11, 2007 and the low was 142.80 reached on October 10, 2008. From a technical perspective the Consumer staples sector has been trading in a downward channel since last year. That trend appears to have reversed since October 10th this year. The current price has recently been bouncing above and below the 50 day moving average. Despite this, since the 10th of October the Consumer staples sector has rallied 6.2% unlike the TSX which has dropped -10% and the S&P 500 which has dropped -11%. The only other sectors on the TSX to post positive gains during this period are the Telecom, Utilities and Gold sectors.
When you look at the P/E ratio and dividend yield relative to the TSX composite, the Consumer Staples sector seems less attractive. The average dividend yield is 2.10 and the P/E ratio is 14.71 for the Consumer Staples sector vs. the TSX which is 4.61 and 9.57 respectively. Since the beginning of this bear market you might as well throw these fundamentals out the window. According to Thackray’s 2009 Investor’s Guide which provides research on seasonality October is traditionally a good month for Consumer Staples and evidence suggests you should sell Consumer Staples in favour of Consumer Discretionary stocks. I would argue, not this year. In a bear market, people will naturally substitute going out for dinner in favour of cooking for themselves and family entertainment may include going to the movies in favour of travel or other forms of entertainment. How will you bear this market?
posted by David Allard at
9:59 AM
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