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Valuation Dashboard: Consumer Staples – Update

Summary 4 key factors are reported across industries in the Consumer Staples sector. They give a valuation status of industries relative to their history. They give a reference for picking stocks in each industry. This is part of a monthly series of articles giving a valuation dashboard in sectors and industries. The idea is to follow up a certain number of fundamental factors for every sector, to compare them to historical averages. This article covers Consumer Staples. The choice of the fundamental ratios used in this study has been justified here and here . You can find in this article numbers that may be useful in a top-down approach. There is no analysis of individual stocks. You can refine your research reading articles by industry experts here . A link to a list of stocks to consider is provided in the conclusion. Methodology Four industry factors calculated by portfolio123 are extracted from the database: Price/Earnings (P/E), Price to sales (P/S), Price to free cash flow (P/FCF), Return on Equity (ROE). They are compared with their own historical averages “Avg”. The difference is measured in percentage for valuation ratios and in absolute for ROE, and named “D-xxx” if xxx is the factor’s name. For example, D-P/E = (Avg P/E – P/E)/Avg P/E . It can be interpreted as a percentage in under-pricing relative to a historical baseline: the higher, the better. It points to over-pricing when negative. ROE is already a percentage. A relative variation makes little sense. That’s why we take the simple difference: D-ROE = ROE – Avg ROE . The industry factors are proprietary data from the platform. The calculation aims at eliminating extreme values and limiting the influence of the largest companies. These factors are not representative of capital-weighted indices. They are useful as reference values for picking stocks in an industry, not for ETF investors. Industry valuation table on 12/2/2015 The next table reports the 4 industry factors. For each factor, the next “Avg” column gives its average between January 1999 and October 2015, taken as an arbitrary reference of fair valuation. The next “D-xxx” column is the difference as explained above. So there are 3 columns for each ratio.   P/E Avg D- P/E P/S Avg D- P/S P/FCF Avg D- P/FCF ROE Avg D-ROE Food&Staples Retail 22.22 19.16 -15.97% 0.44 0.34 -29.41% 44.43 33.01 -34.60% 12.01 9.78 2.23 Beverages 34.93 22.05 -58.41% 2.02 1.34 -50.75% 46.09 29.6 -55.71% 5.2 7.06 -1.86 Food 24.01 20.25 -18.57% 1.36 0.91 -49.45% 29.97 27.51 -8.94% 7.89 8.43 -0.54 Tobacco* 24.24 14.83 -63.45% 3.53 2.13 -65.73% N/A N/A N/A N/A N/A N/A Household Products 27.22 21.4 -27.20% 1.97 1.3 -51.54% 39.8 30.55 -30.28% 15.25 17.18 -1.93 Personal Products 19.31 18.05 -6.98% 1.69 1.51 -11.92% 15.74 20.7 23.96% -2.58 2.1 -4.68 * P/FCF and ROE are currently outliers in Tobacco Valuation The following charts give an idea of the current status of industries relative to their historical average. In all cases, the higher the better. Price/Earnings: Price/Sales: Price/Free Cash Flow: Quality (ROE) Relative Momentum The next chart compares the price action of the SPDR Select Sector ETF ( XLP ) with SPY (chart from freestockcharts.com). (click to enlarge) Conclusion The Consumer Staples sector has underperformed the broad market by about 2% in the last 3 months. XLP is about 3% below its all-time high of October. The 5 most prominent S&P 500 consumer staples stocks in the recent market recovery are Costco Wholesale Corp (NASDAQ: COST ), Dr Pepper Snapple Group (NYSE: DPS ), Hormel Foods Corp (NYSE: HRL ), Molson Coors Brewing (NYSE: TAP ), Tyson Foods Inc. (NYSE: TSN ). DPS, HRL, TSN have hit an all-time high this week. TAP and COST did it last month. No industry group looks attractive when considering historical valuations and quality factors. The Personal Products industry has significantly improved its valuation factors since last month, but the quality factor is stable and bad. However, there may be quality stocks at a reasonable price in any industry. To check them out, you can compare individual fundamental factors to the industry factors provided in the table. As an example, a list of stocks in Consumer Staples beating their industry factors is provided on this page . If you want to stay informed of my updates on this topic and other articles, click the “Follow” tab at the top of this article.

4 Strong-Buy Small-Cap Value Mutual Funds

A small-cap value fund is a good choice for investors seeking diversification across sectors and companies, and focusing on gaining exposure to stocks that are trading at discounts. Investors with a high-risk appetite should invest in these funds. Small-cap funds generally invest in companies having market caps lower than $2 billion. The companies, smaller in size, offer growth potential and their market capitalization may increase subsequently. Meanwhile, value stocks are those that tend to trade at a price lower than their fundamentals (i.e. earnings, book value, debt-equity). It is a common practice to invest in value funds for income or yield. However, not all value funds solely comprise companies that primarily use their earnings to pay dividends. Investors interested in choosing value funds for yield, should be sure to check the mutual fund yield, which is the dividend payout divided by the value of the mutual fund’s shares. Below we share with you 4 top-rated, small-cap value mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect the fund to outperform its peers in the future. CornerCap Small Cap Value (MUTF: CSCVX ) seeks capital growth over the long run. CSCVX invests the lion’s share of its assets in small cap companies located in the US. CSCVX defines firms with market capitalization below $3 billion as small cap. The CornerCap Small Cap Value fund returned 9.4% over the past one year. As of September 2015, CSCVX held 221 issues with 0.69% of its assets invested in Fidelity Southern Corp. (NASDAQ: LION ). Perkins Small Cap Value Fund A (MUTF: JDSAX ) invests a large chunk of its assets in common stocks of undervalued small-cap companies. JDSAX invests in securities of companies with market capitalization similar to those listed in the Russell 2000 Value Index. JDSAX may invest a maximum of 20% of its assets in cash or equivalents. The Perkins Small Cap Value A fund returned 5.7% over the past one year. JDSAX has an expense ratio of 1.03% as compared to the category average of 1.23%. Northern Small Cap Value (MUTF: NOSGX ) seeks long-term growth of capital. NOSGX invests a major portion of its assets in equity securities of companies having market capitalization within the universe of the Russell 2000 Value Index. NOSGX may focus on a particular sector including financial services. NOSGX may invest in companies that may not provide any dividend. The Northern Small Cap Value fund returned 5.6% over the past one year. Robert H. Bergson is the fund manager of NOSGX since 2001. Queens Road Small Cap Value (MUTF: QRSVX ) invests generally in securities of small-cap companies located in the U.S. QRSVX seeks to provide capital appreciation by investing the majority of its assets in equity securities of companies. The Queens Road Small Cap Value fund returned 6.3% over the past one year. QRSVX has an expense ratio of 1.24% as compared to the category average of 1.23%. Original Post

10 Questions And Answers On ETFs And Other Topics

I was asked to participate with 57 other bloggers in a post that was entitled 101 ETF Investing Tips . It’s a pretty good article, and I felt the tips numbered 2, 15, 18, 23, 29, 35, 44, 48, 53, 68, 85, 96, and 98 were particularly good, while 10, 39, 40, 45, 65, 67, 74, 77, 80, and 88 should have been omitted. The rest were okay. One consensus finding was that Abnormal Returns was a “go to” site on the internet for finance. I think so too. Below were the answers that I gave to the questions. I hope you enjoy them. 1) What is the one piece of advice you’d give to an investor just starting to build a long-term portfolio? You need to have reasonable goals. You also have to have enough investing knowledge to know whether advice that you receive is reasonable. Finally, when you have a reasonable overall plan, you need to stick with it. 2) What is one mistake you see investors make over and over? They think investment markets are magic. They don’t save/invest anywhere near enough, and they think that somehow magically the markets will bail out their woeful lack of planning. They also panic and get greedy at the wrong times. 3) In 20 years, _____. (this can be a prediction about anything – investing-related or otherwise) In 20 years, most long-term public entitlement and private employee benefit schemes that promised fixed payments/reimbursement will be scaled back dramatically, and most retirees will be very disappointed. The investment math doesn’t work here – if anything, the politicians were more prone to magical thinking than naïve investors. 4) Buy-and-hold investing is _____. Buy-and-hold investing is the second-best strategy that average people can apply to markets, if done with sufficient diversification. It is a simple strategy, available to everyone, and it generally beats the performance of average investors who buy and sell out of greed and panic. 5) One book I wish every investor would read is _____. (note that non-investing books are OK!) One book I wish every investor would read is the Bible. The Bible eliminates magical thinking, commends hard work and saving, and tells people that their treasure should be in Heaven, and not on Earth. If you are placing your future hope in a worry-free, well-off retirement, the odds are high that you will be disappointed. But if you trust in Jesus, He will never leave you nor forsake you. 6) The one site / Twitter account / newsletter that I can’t do without is _____. Abnormal Returns provides the best summary of the top writing on finance and investing every day. There is no better place to get your information each day, and it comes from a wide array of sources that you could not find on your own. Credit Tadas Viskanta for his excellent work. 7) The biggest misconception about investing via ETFs is_____. The biggest misconception about investing via ETFs is that they are all created equal. They have different expenses and structures, some of which harm their investors. Simplicity is best – read my article, ” The Good ETF ” for more. 8 ) Over a 20-year time horizon, I’m bullish on _____. (this can be an asset class, fund, technology, person – anything really!) Over 20 years, I am bullish on stocks, America, and emerging markets. Of the developed nations, America has the best combination of attributes to thrive. The emerging markets offer the best possibility of significant growth. Stocks may have a rough time in the next five years, but in an environment where demographic and technological change is favoring corporate profits, stocks will do better than other asset classes over 20 years. 9) The one site / Twitter account / newsletter that I can’t do without is _____. Since you asked twice, the Aleph Blog is one of the best investing blogs on the internet, together with its Twitter feed. It has written about most of the hard questions on investing in a relatively simple way, and is not generally marketing services to readers. For the simple stuff, go to the personal finance category at the blog. 10) Any other ETF-related investing tips or advice? For a fuller view of my ETF-related advice, go to Aleph Blog, and read here . Briefly, be careful with any ETF that is esoteric, or that you can’t draw a simple diagram to explain how it works. Also realize that traders of ETFs tend to do worse than those that buy and hold.