At the moment, the Consumer Staples Sector may be the worst place to shop for a top Zacks Rank industry.
Why?
Overvaluation! Because the S&P 500 Consumer Staples sector has a forward 12-month P/E ratio of 19.76, while the high profit margin, cash-flow-rich Info Tech sector has a 19.10. No sector is more richly priced.
In comparison, the overall S&P 500 large cap index has a forward 12-month P/E of 16.9. In simple terms, the slow-growing, defensive Staples sector is likely to be +17% overvalued to the broad S&P 500.
A sector or industry rotation away from Staples looks to be in the cards. The Finance sector — with more Fed rates hike and Trump stimulus on the way to pad profits down the road — has a forward 12-month P/E of 14.28.
Buy Finance stocks and sell Staple stocks, right?
However, I have found a sleeper industry in there — Agricultural Operations .
This 6-company Zacks Industry is currently ranked #39 out of 265 (top 15%). It was #44 out of 265 just before Christmas. Check out the new Zacks Heat Map on all of our industries to see. The path of rising industry estimates goes back a few months.
Agricultural commodity price fundamentals put in a bottom early in 2016, along with the WTI oil price. Now, Materials and Energy sector companies are getting a bid, driving up shares nicely.
Momentum is on for buying fairly priced Ag Operations stocks, on the premise that if Iron Ore, Steel and Oil prices are on the way up, so should prices be for basic Agricultural commodities.
One fly in the ointment is the strong U.S. dollar. But many of these Ag Operations firms are U.S. multi-nationals. 2 of 6 are fully foreign firms that can benefit from a strong U.S. dollar.
Three Top Zacks Rank Picks–
(1) Calavo Growers ( CVGW ) is a $ 1 billion market cap, low beta (0.58) stock priced at $ 65 right now. It is also a Zacks #1 Rank (STRONG BUY) pick, with a Zacks Growth score of A.
In fact, over the past month, Q1 estimates have risen from 47 cents per share to 49 cents per share, while Q2 estimates have risen from $ 0.61 a share to $ 0.67 a share. Current year estimates have risen from $ 2.36 per share to $ 2.49 per share. They report again on March 14 th .
Calavo Growers, Inc . engages in the procurement and marketing of avocados and other perishable foods and the preparation and distribution of processed avocado products.
Their expertise in marketing and distributing avocado, processed avocado and other perishable foods allows them to deliver a wide array of fresh and processed food products to food distributors, produce wholesalers, supermarkets and restaurants on a worldwide basis.
(2) Fresh Del Monte ( FDP ) is a $ 3.2 billion market cap, low beta (0.29) stock priced at $ 62 right now. It is also a Zacks #1 Rank (STRONG BUY) pick, with a Zacks Growth score of A and a Zacks Value score of A, giving it a long-term Zacks VGM score of A.
Current year EPS estimates are at $ 4.15 per share. The last EPS surprise was +116%! They report again on Feb. 28 th .
Fresh Del Monte Produce Inc . is a world leader in the production, distribution and marketing of fresh produce. Their products are marketed throughout the world under the DEL MONTE brand name. It is a widely recognized symbol of product quality and reliability.
The major products are bananas, pineapples, deciduous fruit and melons. The deciduous fruit the company sells includes primarily grapes, plums, nectarines, peaches, apricots, cherries, apples, pears and citrus.
(3) Archer Daniels Midland (ADM) isa $ 26 billion market cap, low beta (0.88) stock priced at $ 46 right now. It is also a Zacks #2 Rank (BUY) pick, with a Zacks Growth score of C and a Zacks Value score of A, giving it a long-term Zacks VGM score of B.
Current year EPS estimates are at $ 2.28 per share, while next year EPS surges to $ 2.77. The last EPS surprise was +25%! They report again on Feb. 7 th .
Archer Daniels Midland Company procures, transports, stores, processes, and merchandises agricultural commodities and products. Its operations are classified into three business segments: Oilseeds Processing, Corn Processing, and Agricultural Services.
The company processes oilseeds, corn, wheat, cocoa and other agricultural commodities. It manufactures protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol and other value-added food and feed ingredients.
Archer-Daniels-Midland is headquartered in Decatur, Illinois.
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Fresh Del Monte Produce, Inc. (FDP): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Plantations International