Consumer Staples Sector
Bennett Cross
Ryan Darner
Feng Dong
Yichao Wang
Overview
Financial Analysis
Business Analysis
Economic Analysis
Valuation Analysis
Recommendations
Overview
Consumer Staples Sector
• Comprises companies whose businesses are less
sensitive to economic cycles
– manufacturers and distributors of food, beverages and
tobacco
– producers of non-durable household goods and
personal products
– Food & drug retail companies
– Consumer supercenters
S&P 500
Consumer Staples Sector
Number of Companies
Market Cap ($ billion)
S&P 500 Weight
Industry
Soft Drinks
Household Products
Tobacco
Packaged Foods & Meats
HyperMarkets & Super Centers
Drug Retail
Food Retail
Personal Products
Distillers & Vintners
Agricultural Products
Food Distributors
S&P 500 Brewers
42
$1,370
10.85%
Sector Weight
21.5%
19.2%
18.4%
15.4%
10.3%
6.5%
2.4%
1.8%
1.5%
1.5%
1.2%
0.5%
Consumer Staples Sector
Top 5 Holdings
Procter & Gamble
Coca-Cola Co
Philip Morris International
Wal-Mart Stores
Altria Group Inc
Sector Weight
13.5%
12.2%
11.1%
7.8%
4.7%
Performance
Total Return
Consumer Staples
S&P 500
QTD
YTD
0.30%
-0.63%
5.86%
11.88%
SIM Portfolio
Consumer Staples Sector
Number of Companies
Market Cap
SIM Portfolio Weight
3
$1,353,948
10.95%
Company
Industry
CVS Caremark Corp.
Philip Morris International, Inc.
Wal-Mart Stores Inc.
Drug Retail
Tobacco
HyperMarkets & Super
Centers
SIM Portfolio
Weight
Sector Weight
4.19%
3.62%
3.15%
38.2%
33.1%
28.7%
S&P 500 vs. SIM Portfolio
Telecommunicati
on Services
2.91%
S&P 500
Telecommunicati
on Services
1.02%
Utilities 3.50%
SIM Portfolio Weight
Utilities 3.47%
Materials 3.93%
Materials 3.45%
Consumer
Discretionary
10.04%
Consumer
Discretionary
11.22%
Consumer
Staples 10.85%
Information
Technology
20.29%
Consumer
Staples 10.95%
Information
Technology
21.91%
Energy 10.42%
Energy 11.22%
Industrials
10.51%
Industrials 7.37%
Financials
13.36%
Financials
14.68%
Health Care
11.39%
Health Care
13.61%
Business Analysis
Market Cycle
• Stocks in the Consumer Staples sector are best to buy
during the transition from a bull to a bear market.
– Currently in a bull market
– Potential transition to a bear market in the next year;
however, the bull market is expected to continue through
the next SIM portfolio repositioning date.
Supply & Demand
• Demand for Consumer Staples remains relatively steady
throughout economic and business cycles.
• Supply for Consumer Staples easy to match with demand
due to predictability and steadiness of the sector.
• Abundance of raw materials allow for easy increases in
required capacity.
• Strong positions in Consumer Staples during bull markets
generally leads to missing out on greater growth in other
sectors.
– Due to increase in spending for non-necessity items
Phase of the Life Cycle
• Consumer Staples are non-cyclical in nature.
• Provide steady growth and regular dividends
throughout economic and market cycles.
User and Geography
• Consumer Staples includes everyday necessity items for
consumers throughout the U.S. and the rest of the
world.
Porter’s Five Forces
Scenario
Analysis
Competition From Rivals Low Prices
Standardized Products
Threat of New Entrants Large Economies of Scale
High Barriers to Entry
Top Companies Control Major Portion of Market Share
Power of Customers
Highly Price Sensitive
Low Brand Loyalty
Seeking Best Value
Power of Suppliers
Necessity for Low Input Costs
Supplies Not Necessarily Rare or Valuable
Threat of Substitutes
Products Already on Low End of Pricing Scale
Necessity Products Difficult to Find Substitutes
Threat
High
Low
High
Moderate
Low
Economic Analysis
Relative to S&P 500
Defensive Sector
Relative to Real GDP
Low correlation
Relative to Disposable Income
Low correlation
Relative to Consumer Confidence
Negative correlation
Relative to 10-year Treasury
Negative correlation
Relative to Consumer Price Index (CPI)
Potential margin threat
Relative to Producer Price Index (PPI)
Potential margin threat
Currency Exchange Rate
EUR/USD +13.4%
AUD/USD +7.8%
INR/USD +20.4%
CHF/USD +6.3%
JPY/USD -1.5%
GBP/USD +3.5%
CNY/USD -2.8%
Threat to Exports -- Stronger US Dollar
Financial Analysis
Revenues
Quarterly moving average 5 year growth rate of 6%
120
110
100
90
80
70
60
2007
2008
2009
2010
2011
E2012
E2013
Dividends Per Share
Q1
Q2
Q3
Q4
Annual
2007
7%
10%
12%
12%
10%
2008
21%
11%
13%
14%
15%
2009
14%
20%
8%
7%
12%
2010
7%
9%
10%
11%
9%
2011
12%
11%
12%
11%
12%
2012
11%
-
Earnings per share (EPS)
Consumer Staples
6.5
6
5.5
5
4.5
4
3.5
3
2007
2008
2009
2010
2011
E2012
E2013
P/E Ratio
P/E Range (S&P 500 P/E
P/E Range (Relative to S&P 500)
1.5
1.6
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
22
1.3
1.3
1.3
1.3
1.2
1.2
1.1
21
21
20
20
16
18
1.1 1.1
1.1
1
21
1
0.9
16
0.7
2005 2006 2007 2008 2009 2010 2011 2012
17
14
14
16
18
18
18
14
12
0.7
17
12
10
11
12
2005 2006 2007 2008 2009 2010 2011 2012
Valuation Analysis
Sector Absolute Basis
Absolute Basis
High
Low
Median Current
P/Trailing E
23.4
12.2
18.3
16.7
P/Forward E
20.8
12.1
17.4
15.4
P/B
7.8
2.6
4.2
3.6
P/S
1.5
0.6
1
0.9
P/CF
16.9
8.6
12.9
12.2
Sector Relative to S&P 500
Relative to S&P 500
High
Low
Median Current
P/Trailing E
1.3
0.83
1.1
1.2
P/Forward E
1.3
0.82
1.1
1.2
P/B
2.7
1.4
1.7
1.6
P/S
1.1
0.6
0.7
0.7
P/CF
1.5
1
1.3
1.3
Recommendations