«The Consumer Staples sector is looking pretty pricey again! I carry 17 companies on my watch list that I classify here: CHD, CL, CLX, COST, DEO, GIS, HRL, HSY, KMB, KO, MKC, NSRGY, PEP, PG, SYY, UL, WMT. Note that a few of these are retail/distributors, not manufacturers. Classify those separately if you prefer. 🙂
The median P/E based on estimated 2019 operating earnings is 21.6x, with the mean slightly higher. GIS (at 15.5x) is the only stock on the list with a forward P/E under 18.0x.
The median yield is 2.6%. GIS, again, is the only one with a yield greater than 3.5%. The median projected growth rate is 6.7% to 6.9% depending on your source. Keep in mind that projected growth rates consistently lean optimistic (at least for the sources I follow). Thus we are looking at an optimistic yield+growth number of 9.5% over the next few years. Not bad, right? Except those numbers are consistently optimistic — and thus I would expect something in the 8% to 9% range. This is a sector where mid-single-digit growth is success.
The actual total return over the next few years should approximate the yield+growth only if P/E multiples remain steady. If you expect the P/E multiples to fall a bit from their presently elevated levels (the 18-20 range is more typical than the present 21.6x), that will knock the total return back a bit. Thus I anticipate four-year annualized total return in the 2% to 4% range for the stocks on my list.
The best values at this time appear to be GIS, KMB, KO, PEP, and PG, with projected forward total return ranging from 4% to 6%. SYY actually leads the list at 7.9%, however as a distributor it merits a lower multiple than the brand-name peers (and thus is not really directly comparable). These five companies pay dividends ranging from 2.8% to 4.0%. With the exception of GIS (which trades at a substantial valuation discount), they have credit ratings of A2 or higher. Intermediate to strong investment grade quality. The valuations are mostly in the vicinity of 20x, thus there is less potential for retrenchment than in some of the frothier sector names.
My present holdings include HRL, DEO, UL, and NSRGY, however I am not looking to add to those at this time due to valuation. I also hold PG, PEP, KMB, GIS, and SYY, though I am not looking to add to either PG or KMB based on position size.
Potential candidates to add at this time would be PEP and KO. Strong companies, good dividends, attractively valued.«