Wall Street has maintained its momentum of 2019 since the beginning of this year, despite facing intermittent fluctuations due to geopolitical conflict with Iran and the outbreak of coronavirus in China. Meanwhile, fourth-quarter 2019 results have so far not been as disappointing as expected initially. However, overall earnings are still expected to dip.
Better-Than-Expected Fourth-Quarter Earnings Results So Far
As of Jan 27, just 87 S&P 500 members reported fourth-quarter earnings results. Total earnings of these companies are down 0.1% from the same period last year on 3.4% higher revenues. Of the total, 70.1% surpassed EPS estimates while 72.4% outpaced revenue estimates.
As of Jan 27, fourth-quarter 2019 earnings for the S&P 500 Index were projected to be down 2.6% year over year on 3.7% higher revenues. This suggests an improvement from earnings decline of 3.2% from the same period last year on 3.5% higher revenues, projected at the beginning of the reporting cycle. (Read More: Tech Earnings Expected to Turn Around)
Fourth-Quarter at a Glance
The final three months of last year were quite promising for Wall Street as the U.S.-China trade war finally seemed to ease and strong economic data boosted investors’ sentiments.
The U.S. economy is on a stable footing. Strong consumer spending, which constitutes 70% of the GDP, a strong labor market, a historically low level of unemployment, steady growth in wage rate and a housing-market revival bolstered investors’ sentiments and are likely to reflect on earnings results.
The consumer staples sector includes companies that provide necessities and products for daily use. This makes the sector defensive in nature. So, this has always been a go-to place for investors, who want to play it safe during extreme market fluctuations.
Adding stocks from the consumer staples basket lends more stability to portfolios in an uncertain market condition. Moreover, the sector remains lucrative for income-seeking investors given its strong dividend yield.
Notably, the Consumer Staples Select Sector SPDR (XLP), one of the total 11 sectors of the S&P 500 Index, has gained 28.1%, close to the broad-market index’s rally of 28.9%. However, during fourth-quarter 2019, when the market was almost free of volatility, XLP gained 3.3% compared with the benchmark index’s surge of 8.5%.
Our Top Picks
We have narrowed down our search to four Consumer Staples stocks. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the combination of a Zacks Rank #3 or better and a positive Earnings ESP, the chance of an earnings beat is as high as 70%. These stocks are expected to gain after earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The chart below shows price performance of our four picks in the past three months.
Colgate-Palmolive Co. CL manufactures and sells consumer products worldwide. It operates through two segments, Oral, Personal and Home Care and Pet Nutrition. The Zacks Rank #2 company has an Earnings ESP of +1.37% for the fourth quarter.
Colgate-Palmolive has an expected earnings growth rate of 5.3% for the current year. The Zacks Consensus Estimate for the current year has improved 0.3% over the last 30 days. The last four-quarter positive earnings surprise is 0.7%, on average. Colgate-Palmolive is set to release earnings results on Jan 31, before the opening bell.
Kellogg Co. K manufactures and markets ready-to-eat cereal and convenience foods. It operates through the U.S. Snacks, U.S. Morning Foods, U.S. Specialty Channels, North America Other, Europe, Latin America and Asia Pacific segments. The Zacks Rank #2 company has an Earnings ESP of +1.33% for the fourth quarter.
Kellogg has an expected earnings growth rate of 3.6% for the current year. The last four-quarter positive earnings surprise is 7.9%, on average. Kellogg is set to release earnings results on Feb 6, before the opening bell.
The Hain Celestial Group Inc. HAIN manufactures, markets, distributes and sells organic and natural products. It operates in seven segments: the United States, United Kingdom, Tilda, Ella's Kitchen UK, Canada, Europe and Hain Ventures.
The Zacks Rank #2 company has an Earnings ESP of +5.26% for the second quarter (ended December) of fiscal 2020. The Hain Celestial Group has an expected earnings growth rate of 1.5% for the current year (ending June 2020). The company is set to release earnings results on Feb 6, before the opening bell.
Post Holdings Inc. POST operates as a consumer packaged goods holding company in the United States and internationally. It operates through the Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands segments. The Zacks Rank #1 company has an Earnings ESP of +0.65% for the first quarter (ended December) of fiscal 2020.
Post Holdings has an expected earnings growth rate of 1.8% for the current year (ending September). The last four-quarter positive earnings surprise is 12.5%, on average. Post Holdings is set to release earnings results on Feb 6, after the closing bell.
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