Zacks Investment Ideas feature highlights: Consumer Staples Sector SPDR ETF, Tyson Foods and Hormel Foods
For Immediate Release
Chicago, IL – April 27, 2022 – Today, Zacks Investment Ideas feature highlights Consumer Staples Sector SPDR ETF XLP, Tyson Foods, Inc. TSN and Hormel Foods Corp. HRL.
Stick with These Leaders in This Tough Market Environment
There simply isn't much that's working right now in what is undoubtedly a "hard-penny" market environment. Technology and growth stocks are bearing the brunt of this decline as the Nasdaq has slipped back into a bear market. Rather than attempt to catch a falling knife, investors would be better served sticking with stocks that are leading this market and are breaking out to the upside.
While most stocks have found 2022 to be disastrous, certain pockets of the market have been working. We want to gravitate towards these pockets and shift our portfolio allocations to become more defensive as the market digests higher inflation and interest rates. Sector rotation has been on full display, with institutions foregoing growth and technology names and shifting to more stable positions.
Energy has led the way as commodity prices have skyrocketed across the board. But energy looks a bit extended here and I'd be cautious about initiating new positions, particularly if exposure to this sector is already present.
After lagging for the better part of last year, the consumer staples sector has broken out to new all-time highs. New highs are a sign of strength and many staples have completed large bases and are climbing into new ground on above-average volume, which serves as another signal that this safeguarding move may have more room to run.
The Consumer Staples Sector SPDR ETF is showing resilience this year and is up over 3% while the S&P 500 has shed about -11.5% so far. XLP has outperformed over the past month and is showing no signs of a peak in the movement. The Consumer Staples Select Sector SPDR ETF made a new all-time high just last week.
While the recent performance is a positive for XLP, it's important to note that defensive sectors leading can be a warning sign. Most investors are expecting the growth names that have been beaten up to rebound in 2022, but as we know the crowd is usually wrong. Trends can persist for much longer than most investors would expect. Prior non-recessionary periods in which the S&P 500 experienced negative returns have tended to coincide with defensive sector outperformance.
As investors we want to maintain maximum flexibility and adjust our gameplan as necessary. Let's explore two XLP constituents that are also breaking out to new all-time highs. These two stocks account for a bit more than 2% of the overall XLP holdings. Both companies are components of the Zacks Food – Meat Products industry group, which currently ranks in the top 28% out of approximately 250 industries. By targeting stocks within the top industry groups, we can dramatically improve our odds of success.
Tyson Foods, Inc.
Tyson Foods is the world's largest processor and marketer of chicken, pork, and beef and is the second-largest food company in the Fortune 500. A member of the S&P 500, TSN manufactures and markets its products under recognized brand names such as Jimmy Dean, Hillshire Farm, and Ball Park. The company sells its products in more than 80 countries through its sales staff to grocery retailers and wholesalers, meat distributors, chain restaurants, convenience stores and hospitals. TSN was founded in 1935 and is headquartered in Springdale, AR.
Trading at an attractive 10.89 forward P/E, Tyson Foods has been gaining on strategic growth efforts including focus on protein-packed brands and capacity expansion endeavors. For fiscal 2022, TSN expects to grow its total volumes by 2-3%, outpacing the overall protein consumption growth. A significant percentage of this growth will likely stem from the company's chicken segment which raises and processes live chickens into fresh, frozen and value-added chicken products.
TSN has delivered an earnings beat for the past seven quarters running, posting a trailing four-quarter average earnings surprise of 32.22%. The company most recently reported Q4 EPS back in February of $2.87, a +51.05% surprise over the $1.90 consensus estimate. TSN stock has outperformed the market over the past year with a 23% return.
For the most recent quarter, analysts are expecting EPS to have increased 37.31% relative to the same quarter a year ago. The fiscal Q2 Zacks Consensus Estimate stands at $1.84. TSN is scheduled to report the results on May 5th.
Hormel Foods Corp.
Hormel Foods is a global branded food company that develops, processes, and distributes various meat, nuts and food products to retail, food service, deli, and commercial customers. The company sells its products under more than 30 well-known brands such as SKIPPY, SPAM, Hormel, and Applegate. A member of the S&P 500, Hormel Foods was founded in 1981 and is based in Austin, MN.
HRL has delivered an earnings beat in each of the past four quarters, with an average surprise of 1.74%. The food company posted fiscal Q1 EPS of $0.44 back in March, a 2.33% surprise over consensus estimates. The stock is showing relative strength as of late, up over 9% this year.
What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +1.29% and a Zacks Rank #3 (Hold), another earnings beat may be in the cards for HRL investors.
The Zacks Consensus Estimate for fiscal Q2 EPS stands at $0.46, translating to growth of 9.52% relative to last year. HRL is due to report the quarterly results on May 19th.
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Hormel Foods Corporation (HRL) : Free Stock Analysis Report
Tyson Foods, Inc. (TSN) : Free Stock Analysis Report
Consumer Staples Select Sector SPDR ETF (XLP): ETF Research Reports
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