Concerns over commodities inflation and slowing consumption by shoppers has led to consumer staples stocks really being out of favor among investors right now.
The share of consumer staples within the S&P 500 has plunged below 6% for only the second time in 30 years, according to a note from Sundial Capital Research. Researchers at Sundial say the decline reflects lagging stock prices and shrinking market caps among consumer staples, and more upbeat trading in other S&P 500 sectors.
“So many of the stocks have been forgotten, for so long, that the McClellan Summation Index for the sector has dropped below -500, enough to consider it deeply oversold,” points out Sundial.
The consumer staples landscape is rife with underperforming stocks currently.
Shares of Campbell Soup, Coca-Cola, Hormel and Conagra Brands are down on average of 10% in the past six months, per Yahoo Finance analysis. Over in the consumer products arena, Clorox shares have shed 16% in six months time while Kimberly-Clark is down 5%. Proctor & Gamble’s stock has lagged the S&P 500 since mid-April, though is up 2%.
The S&P Consumer Staples Index is down 5% going back to early September.
“Although near-term dynamics are volatile and challenging for CPG companies (i.e. higher inflation risking downside to margins, go-forward price realization/price elasticity concerns, etc.), we see P&G well-positioned with strong execution and scale advantages supporting continued market share momentum,” contended Deutsche Bank analyst Steve Powers in a note to clients.
Interestingly, consumer staples look so oversold that Sundial thinks it may be time for buyers to begin nibbling. The thesis: The market knows all the bad news and investors could look at the space amid a rise in broader market volatility.
Says the research outfit, “There are few sectors that excite investors less than consumer staples, and that’s one of their endearing qualities when the broad stock market gets tough. It’s one of the better places to hide during protracted sell-offs. If stocks take off during Q4, and there are reasons to expect they might, Staples might come along for the ride but will almost certainly underperform; they don’t lead risk-on rallies. The setup in these stocks isn’t at slam-dunk levels, but it’s at least compelling given the oversold nature of many of the component stocks and and lack of interest they generate among investors. It might be worth a modest overweight, just in case stocks don’t follow through on Q4 expectations.”