Rating the Three Consumer Sectors

TheStreet.com

NEW YORK (TheStreet) -- At ValuEngine we track three consumer-oriented sectors. Based upon my analysis of the distribution of buy rated stocks vs. sell rated stocks, consumer discretionary stocks are skewed to the sell rated category, while consumer staples and retail-whole stocks are more heavily weighted to buy rated stocks.

This dispersion is a sign of a weakening economy as the number of sell rated consumer discretionary indicates to me that consumers just keep their hands on their wallets, and as consumer sentiment remains well below normal.

The consumer discretionary sector may be just 4.3% overvalued, but among the 437 stocks in this sector there are only seven buy rated names, with 47 sell rated names and eight rated strong sell. To me this configuration gives the sector an underweight rating.

The consumer staples sector is most overvalued sector by 14.6%, but among the 267 stocks in this sector 125 are rated buy with only 11 rated sell and four rated strong sell. Only four of the buy rated names are projected to gain more than 7.5% over the next 12 months. With 96.8% of these buy ratings projected to gain just 5.0% to 7.5%, I consider these ratings as weak buys. To me this configuration gives the sector an equal-weight rating.

The retail-wholesale sector is 12.4% overvalued. This sector has 358 stocks with two strong buys and 231 buys, and just 17 sells and three strong sells. Within this sector 52 of the buy rated stocks should gain more than 7.5% over the next 12 months. I give this sector an overweight rating as 65.1% of all stocks in the sector are rated buy, and with 52 stocks projected to gain more than 7.5% over the next 12 months. Today I profile seven of the retail-wholesale stocks that made the cut.

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.

American Eagle Outfitters ($19.37): Set a 2013 low at $18.02 on March 26. The weekly chart profile stays negative on a close this week below the five-week modified moving average at $19.68. My quarterly value level is $18.70 with a monthly pivot at $20.11 and semiannual risky level at $23.16.

Dick's Sporting Goods ($46.70): Set a 2013 low at $45.00 on March 11. The weekly chart stays negative on a close this week below the five-week MMA at $47.68. My semiannual value level is $46.12 with a quarterly pivot at $48.20 and monthly risky level at $49.06.

Foot Locker ($33.25): Has been moving sideways to down since setting a multi-year high at $37.65 on Sept. 21. The weekly chart profile shifts to negative with a close this week below the five-week MMA at $33.52. My weekly value level is $32.14 with a monthly pivot at $35.55 and monthly risky level at $36.28.

PetSmart ($63.43): Has been moving sideways to down since setting a multi-year high at $72.75 on Sept. 19. The weekly chart stays negative on a close this week below the five-week MMA at $63.76. My weekly value level is $59.59 with a semiannual pivot at $62.22 and monthly risky level at $67.23.

Tech Data ($45.17): Set a 2013 low at $44.62 on April 5. The weekly chart stays negative on a close this week below the five-week MMA at $47.51. My monthly value level is $43.90 with a weekly pivot at $45.85 and semiannual risky level at $48.08.

Vera Bradley ($22.38): The Jan. 14 low is $22.00 with the 200-day simple moving average at $24.54. The weekly chart stays negative on a close this week below the five-week MMA at $23.64. My annual value level is $19.48 with a weekly pivot at $22.96 and annual risky level at $24.86.

Whole Foods Market ($83.74): Set a 2013 low at $81.39 on Monday. The weekly chart stays negative with a close this week below the five-week MMA at $86.38. My weekly value level is $77.05 with a monthly risky level at $92.40.

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.

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