The sector has been outperforming, but slow growth at home means even more needs to come from emerging markets.
In the hunt for elusive profits in a sector that relies on consumer demand, the companies poised to outperform are those that are less dependent on slow-growing developed markets and more exposed to faster-growing emerging markets.
Despite the challenges facing the U.S. and Europe, consumer staples companies have outperformed the broader market this year. Accounting for 11.3% of the S&P 500, the sector has risen at a 5.7% clip in 2010, better than the 3% advance for the index as a whole. Looking ahead, analysts think the biggest winners are going to be the companies that have moved aggressively into Asian and Latin American that are poised to lead the way in consumption growth for the next several years.
"Most emerging markets are healthier now than they were 10 months ago," says Citi analyst Wendy Nicholson. For companies like Avon Products ( AVP - news - people ), which has invested more than 90% of its business in emerging markets and 50% in Latin America alone, the potential to offset weaker profits in developed economies with strength from newer markets is good.
One of the biggest benefits to U.S. companies with strong operations abroad has been the decline of the dollar, and the correlation between rising consumer staples stocks and the sliding greenback is readily apparent. As just one example, Avon shares are up 32% since June 1, while the dollar is down 12% against the euro. "That the dollar has fallen over the last 6 months is a huge positive for these companies. Now they owe us an update in the way this has affected their top and bottom lines," Nicholson says.
In Pictures: 10 Consumer Staples Stocks Set Up For Success
BATS Real-Time Market Data by Xignite
0 comments:
Post a Comment