So far this year, the Consumer Discretionary Index has outperformed the broad S&P 500 Index as well as the more conservative and less volatile Consumer Staples Index.
A large portion of this performance divergence can be explained by sector rotation among professional money managers. Now that many believe that the economic recovery is underway, investors are selling their steady Consumer Staples stocks in favour of more cyclical Consumer Discretionary names. Consequently, some of this year’s best performers are from last years biggest losers. Take Ford for example, the stock is up almost 300% this year. On the other hand, Wal-Mart, a go-to defensive name during 2008 is down 2% for the year. Many market pundits have dubbed 2009 as the junk rally as low quality, high beta stocks outperform their more stable peers.
This phenomenon is what is known as reversion to the mean. In time, the more defensive, dividend-paying, Consumer Staples stocks will shine again. So where’s the value? Relatively speaking, value can be found among food retailers (Kroger, Safeway), food an beverage companies (Molson Coors, Kraft, Hershey, Heinz, Pepsi, General Mills) as well as industry heavyweights like Proctor & Gamble and Wal-Mart. Within the consumer discretionary group, McDonalds, one of 2008’s better performers, hasn’t done much this year either.
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YTD Performace (As of December 10, 2009)
SP Consumer Discretionary Index: +36%
SP 500 Index: +22%
SP Consumer Discretionary Index: +12%
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Again... you do some unique work online and I appreciate your work. I was just looking at SBUX today - an interesting stock when times are "bad" or "good."
Cheers
Thanks for the positive feedback
SBUX is up 136% so far in 2009 after dropping 54% in 2008.
Morningstar's Take on SBUX:
Despite a harsh consumer environment and the emergence of lower-priced substitutes, Starbucks remains the dominant player in specialty coffee. Although we doubt the firm can return to its lofty historical growth numbers, particularly in the domestic retail segment, we expect international expansion and new product innovations to provide alternative avenues of growth. Lower-priced competitors represent a threat, but we expect the firm to navigate the current economic downturn and establish a solid, albeit more modest, long-term growth trajectory.
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