The Consumer Staples Bubble Is Popping

TheStreet.com

NEW YORK (TheStreet) -- When watching financial TV Wednesday afternoon my jaw dropped when I heard a strategist suggest that investors would be better off investing in consumer staples stocks than in U.S. Treasuries. While it may be true that the dividend yield on many consumer staples stocks is higher than the yield on the U.S. Treasury 30-year bond, at least you know that you will get your money back at maturity. A stock does not have a maturity. Today, many consumer staples stocks are in a parabolic bubble, whereas U.S. Treasuries are not!

The consumer staples sector remains one of the most overvalued sector at 16.1% overvalued. On March 25 I wrote, 9 Consumer Staples Stocks at Risk of Reversion and this sector was 25.9% overvalued. Being less overvalued was primarily due to the decline in U.S. Treasury bond yield from 3.19% to 2.90%. All nine of these stocks were rated buy on March 25 and today four have been downgraded to hold as six of these stocks set multi-year highs between April 19 and April 23 in parabolic patterns. A parabolic always ends with the pop of a bubble.


Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Ambev ($39.65 vs. $42.44 on March 25) still has a buy rating and set a multi-year high at $47.17 on Jan. 31. The stock is now below its 200-day simple moving average at $41.08. The weekly chart profile is negative with the five-week modified moving average at $41.76. My weekly value level is $38.52 with a monthly risky level at $45.09.

Anheuser Busch ($96.28 vs. $98.10 on March 25) still has a buy rating and set a multi-year high at $101.86 on April 10. The weekly chart profile shifts to negative on a close this week below the five-week MMA at $96.91. My semiannual value level is $79.38 with a quarterly pivot at $97.67 and monthly risky level at $100.99.

Colgate Palmolive ($117.90 vs. $114.41 on March 25) still has a buy rating and set a new multi-year high at $121.44 on April 23. The weekly chart profile is positive but overbought with the five-week MMA at $116.28. My monthly value level is $112.50 with a weekly pivot at $119.12 and quarterly risky level at $123.28. The high was between $119.12 and $123.28 on this parabolic stock.


General Mills ($49.34 vs. $48.15 on March 25) has been downgraded to hold from buy and set a multi-year high at $50.90 on April 23. The weekly chart profile is extremely overbought with the five-week MMA at $48.10. My monthly value level is $47.41 with an annual pivot at $50.80 and weekly risky level at $51.04. The high was between $50.80 and $51.04 as this parabolic stock was downgraded.

Kellogg ($65.43 vs. $63.39 on March 25) has been downgraded to hold from buy after setting a multi-year high at $66.84 on April 23. The weekly chart profile is extremely overbought with the five-week MMA at $63.60. My annual value level is $60.79 with a monthly pivot at $66.48 and weekly risky level at $67.25. The high was between $66.48 and $67.25 as this parabolic stock was downgraded.

Kimberly-Clark ($103.40 vs. $95.66 on March 25) has been downgraded to hold from buy after setting a multi-year high at $106.54 on April 19. The weekly chart profile is positive but extremely overbought with the five-week MMA at $99.08. My quarterly value level is $98.05 with a weekly pivot at $102.86. Investors should book profits on this parabolic stock given the downgrade.

Coca Cola ($42.15 vs. $40.04 on March 25) still has a buy rating and set a multi-year high at $42.96 on April 23. The weekly chart profile is positive but overbought with the five-week MMA at $40.60. My monthly value level is $36.15 with a semiannual pivot at $42.26.


Pepsico ($82.34 vs. $78.64 on March 25) has been downgraded to hold from buy and set a new multi-year high at $84.43 on March 23. The weekly chart profile is positive but overbought with the five-week MMA at $79.20. My annual value level is $79.02 with a weekly pivot at $82.66. Investors should book profits on this parabolic stock given the downgrade.

Procter & Gamble ($77.12 vs. $77.27 on March 25) still has a buy rating and set a multi-year high at $82.54 on April 23. The weekly chart profile shifts to negative on a close this week below its five-week MMA at $77.80. My annual value level is $75.13 with an annual pivot at $78.73 and monthly pivot, now a risky level at $79.66. If this stock ends the week below its last week low at $78.85 it would be a key reversal on the weekly chart, which is a sign of a popping bubble.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

It's Official: Action Alerts PLUS beats the S&P 500 with Dividends Reinvested! Cramer and Link were up 16.72% in 2012. Were you? See what they are trading for 14-days FREE.

View Comments (0)