Consumer Staples in the Spotlight Next Week

by Rick Pendergraft | April 25, 2012 8:09 am

After experiencing one of the best quarters of this century during the first quarter, stocks have become a little more volatile over the course of the past month. From March 23 through April 23, the S&P 500 lost just over 2%. Looking at the ETFs that represent the 10 main sectors, seven of them lost ground.

The three sectors that managed to gain ground during this time period were the defensive sectors of healthcare, utilities and consumer staples, but it is the consumer-staples sector that caught my eye.

The consumer staples sector will be in the spotlight over the course of the next week as six of the 10 largest holdings in the Consumer Staples Select Sector SPDR (NYSE:XLP[1]) will release earnings results. The table below shows the top –10 holdings, with the bolded companies representing the ones that have earnings scheduled.

Top-10 Consumer Staples Holdings[2]

Looking at the sentiment for the six that are reporting, I put together the following table:

Consumer Staples Sentiment Indicators[3]

The highlighted areas represent areas of concern (red) or areas that could boost the stock (green) should the company beat estimates. For the open interest put/call ratio, if the reading was among the highest 10% of readings for the past year, it was highlighted green and if it was in the lowest 10% of readings for the past year, it was highlighted red. Essentially, red highlights mark potential bearish factors and green highlights represent potential bullish factors. These are based on contrarian thinking of course.

The one stock that stands out on the bullish side is Colgate-Palmolive (NYSE:CL[4]). CL has a number of potential bullish factors working in its favor. Analysts don’t think very highly of the stock, as evidenced by 18 “hold” ratings compared to only five “buy” ratings. The stock’s short-interest ratio is above three, which isn’t huge, but when you compare it to the rest of the sector, it stands out. We also see that options traders have two puts open for every one call open and that is one of the highest readings of the past year.

What is even more impressive about CL is that even with all of this negative sentiment toward the stock, it is up almost 25% in the past year. Over the same time period, the S&P is up a meager 2.2%.

The stock that stands out the most for a potential disappointment is CVS Caremark (NYSE:CVS[5]). Like Colgate-Palmolive, CVS has performed admirably over the past year by gaining more than 21%. The difference between the two lies in the sentiment.

Analysts love CVS; look at the 20 “buy” ratings with only four “hold” ratings and no “sell” ratings. Short sellers have shied away from CVS as well, with a short-interest ratio of only 1.70. And unlike CL, the open interest put/call ratio for CVS is among the lowest readings of the past year.

Going by the sentiment readings of the six consumer staples stocks releasing earnings over the next week, Colgate-Palmolive looks like the best bet to surprise to the upside while CVS Caremark has the greatest potential to disappoint.

As of this writing, Rick Pendergraft does not own any shares mentioned here. 

  1. XLP:
  2. [Image]:
  3. [Image]:
  4. CL:
  5. CVS:

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