Download - Consumer Staples (SP-30)
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Consumer Staples (SP-30)Ryan ChestnutBrian CullySabina CurovacOrla Costello
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AgendaSector OverviewBusiness AnalysisEconomic ForecastsFinancial AnalysisSector ValuationRecommendation
*Consumer Staples
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Market CapitalizationConsumer Staples Sector = $924,124 millionS&P 500 = $7,192,455 millionConsumer Staples accounts for 12.85% of the S&P 500Consumer Staples accounts for 14.22% of the assets in SIM Portfolio.Source: standardandpoors.com
DescGICSNCMKTCAPQTDYTDS&P 5005007192455-8.57%-8.57%Energy10391014055-3.16%-3.16%Materials1529218994-7.24%-7.24%Industrials2059763552-12.66%-12.66%Consumer Discretionary2580589017-10.64%-10.64%Consumer Staples3040924124-7.67%-7.67%Health Care35541146392-1.30%-1.30%Financials4081770678-26.55%-26.55%Information Technology45751166403-3.08%-3.08%Telecommunications Services509267760-11.06%-11.06%Utilities5534331480-0.83%-0.83%
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Consumer Staples vs. S&P 500 YTD
*Consumer Staples
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Consumer StaplesIndustries Within Consumer Staples SectorSource: standardandpoors.com
Consumer Staples
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Consumer StaplesCompanies With Consumer Staples SectorSource: standardandpoors.com
Consumer Staples
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Consumer StaplesSector OverviewIn theory, demand for consumer staples is steady or increases during economic downturnDefensive sector of mature companiesHistorical correlation with S&P is 0.64Stock price stability in downturns, but slow and steady growth in upswingsLow price elasticity of demandImportance of differentiation
Consumer Staples
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Consumer StaplesIndustry CharacteristicsHigh Barriers to EntryVery high capital requirementsMature companiesStrong brands put downward pressure on marginsThreat of substitutionInternational presenceRemaining growth opportunities
Consumer Staples
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Consumer StaplesBusiness OpportunitiesReduce (commodity) costs Hedge costs, merge or partner, create economies of scaleReduce finished good prices to wholesalersPrice differentiation important in slowdownsDifferentiate productsSuperior products can control pricesImportance of brandingSignificant substitution threat
Consumer Staples
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Consumer StaplesExternal FactorsRegulatory and legal issuesForeign exchange pricesImplications of weakness in the dollar Aging domestic population, but global growthCommodity pricesState of the economyEnvironmental Factors
Consumer Staples
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Economic Analysis Main Economic Indicators
Chart1
-0.2
0.9
2.8
-0.5
-3.8
-3
-0.8
1.1
2
Change in Real GDP
Percent
Change in Real GDP (source: Bloomberg Composite)
Sheet1
Actual / Forecasts
IndicatorQ4 07Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09Q1 10
Economic Activity
Real GDP (qoq % saar)-0.20.92.8-0.5-3.8-3-0.81.12--
CPI (yoy %)3.974.14.375.31.63-0.3-1.2-1.71.25--
Core PCE (yoy %)2.12.22.32.31.81.61.41.21.2--
Unemployment (%)4.84.935.376.076.877.588.258.4--
External Balance
Curr. Acct. (% of GDP)-5.21-5.02-4.87-4.84-3.9-3.2-3.2-3.1-2.9--
Fiscal Balance
Budget (% of GDP)-1.3-1.5-2.2-3-4.4-6-5.6-6.1-6.2--
Interest Rates
Central Bank Rate (%)4.252.25220.250.250.250.250.250.75
3-Month Rate (%)4.72.692.784.051.431.281.141.141.271.61
2-Year Note (%)3.051.592.621.960.770.780.881.091.351.85
10-Year Note (%)4.033.413.973.832.212.392.532.793.073.39
Exchange Rates
EURUSD1.461.581.581.411.41.31.281.31.35--
CountriesAustraliaBelgiumCanadaChinaGermanyFranceUnited KingdomItalyJapanNetherlandsSwedenSingaporeUnited StatesHong KongReal GDPNominal GDPUnemploymentCentralGDP
YoYYoYSABank RateDeflator
1.9% 9/0810.4% 9/084.5%12/084.2500%12/08110.4 9/08
1.2% 9/083.0% 9/087.10%12/082.00% 1/09104.7 9/08
-0.8%11/086.30% 9/086.60%12/081.000% 1/09123.00 9/08
6.8%12/0818.1% 9/08N.A.5.3100% 1/09N.A.
0.8% 9/082.6% 9/087.8% 1/092.00% 1/09109.8 9/08
0.6% 9/082.6% 9/087.3% 9/082.00% 1/090.000 9/08
-1.8%12/082.3% 9/086.10%11/081.500% 1/09113.4 9/08
-0.9% 9/082.0% 9/086.67% 9/082.00% 1/09121.2 3/08
-0.5% 9/08-2.1% 9/084.4%12/080.100% 1/0988.9 9/08
1.8% 9/084.7% 9/083.90%12/082.00% 1/09122.4 9/08
0.3% 9/083.70% 9/085.61% 9/042.00% 1/09N.A.
-3.7%12/081.7% 9/082.6%12/080.13% 1/09109.0 9/08
-0.2%12/081.7%12/087.2%12/080.250% 1/09123.012/08
1.7% 9/083.8% 9/084.1%12/080.5000% 1/09104.3 9/08
ItemRange1Range2
Raw BETA1.3721.261
ALPHA(Intercept)-0.012-0.009
R^2(Correlation^2)0.9610.927
Std Dev Of Error0.1070.066
Std Error Of ALPHA0.0110.007
Std Error Of BETA0.0280.035
Number Of Points103103
Sheet2
IndicatorChange in Real GDP
Q4 07-0.2
Q1 080.9
Q2 082.8
Q3 08-0.5
Q4 08-3.8
Q1 09-3
Q2 09-0.8
Q3 091.1
Q4 092
Sheet2
Change in Real GDP
Percent
Change in Real GDP (source: Bloomberg Composite)
Sheet3
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Economic Analysis (cont.)Source: Bloomberg Composite
*Consumer Staples
Chart1
4.8
4.93
5.37
6.07
6.87
7.5
8
8.25
8.4
Unemployment (%)
Unemployment (%)
Final
The Ohio State University
Fisher College of BusinessEqy_Ind_DPS_Annual_NetPX TO BOOK RATIOSECURITY_NAME
Student Investment Management PortfolioEqy_SH_OUTPE_RATIO
Portfolio Appraisal RecordEqy BetaLAST PRICE
January 30, 200901/30/09EQY_DVD_YLD_12M_NETEqy Dvd Sh Ind Net
QuantitySecurityTickerGIC SectorUnit CostTotal CostMarket PriceMarket ValueUnrealized Gain/(Loss)Unit IncomeEst. Ann. Income%age AssetsEq shares outMarket Cap (In Millions $)BetaBeta%age EquityWtd. Mkt. CapP/EWtd. Avg. P/EP/BVWtd. Avg. P/BVDiv YieldAvg Div YieldBloomberg codes
COMMON STOCKS
16,900Abercrombie & Fitch Co.ANFCons Discr73.08$1,235,054.1517.85$301,665.00($933,389)0.70$11,830.02.13%87.0531,553.91.450.030862.19%34.063.84700.08430.86290.01893.92160.0860Consumer DiscretionaryCons DiscrANF equity
9,600Colgate-Palmolive Co.CLCons Staples66.48$638,220.9265.04$624,384.00($13,837)1.60$15,360.04.41%504.71532,826.70.750.033194.54%1,489.3416.80620.762517.03400.77282.46000.1116Consumer StaplesCons StaplesCL equity
13,500Pepsico Inc.PEPCons Staples70.67$953,992.3550.23$678,105.00($275,887)1.70$22,950.04.79%1,553.12178,013.30.690.033134.93%3,843.9713.91410.68564.88460.24073.28490.1619Consumer StaplesCons StaplesPEP equity
10,000Philip Morris Int'lPMCons Staples42.86$428,604.0037.15$371,500.00($57,104)2.16$21,600.02.62%2,023.03475,155.71.670.043802.70%2,028.7811.55000.31186.47290.17474.14540.1119Consumer StaplesCons StaplesPM equity
34,000Sara Lee CorpSLECons Staples14.15$481,098.6410.03$341,020.00($140,079)0.44$14,960.02.41%706.9167,090.41.020.024532.48%175.709.05230.22432.59440.06434.23730.1050Consumer StaplesCons StaplesSLE equity
28TOTAL$21,426,678.88$13,762,126.10($7,664,553)$404,082.797.15%1.0044100.00%60,733.9210.633.082.66%
CASH AND EQUIVALENTS
SSGA FDS U S Govt MMF$414,009.94$403,654.742.47%$9,962.22.85%34.06
ACCRUALS0.00%Portolio Weight - Consumer Staples
Dividend Accruals2.13%As Percemtage of Assets
TOTAL PORTFOLIO
Cash and Common Stocks$21,840,688.82$14,165,780.84$414,044.9100.00%0.00%
AGGREGATE PORTFOLIO METRICS
Average P/E10.63
Average P/BV3.08
Avg. Mkt. Cap. (in $ mln.)60,733.92
Portfolio Beta1.00
Dividend Yield2.66%
0.00%
ENTER Month-end DATE HERE
Sector Weight
MTDTrailing 3MOCalendar YTDFiscal YTDTrailing 12MO3YR5YR10YRInception
S&P 500-8.43%-14.09%-8.43%-34.51%-38.63%-11.78%-4.24%-2.65%7.17%
SIM (Gross of fees)-6.43%-13.38%-6.43%-37.95%-42.87%-11.39%-3.74%-1.11%6.27%
SIM (Net of fees)-6.43%-13.49%-6.43%-38.10%-38.10%-11.83%-4.22%-1.61%5.75%
+ Net Outperformance/ - (Net Underperformance)2.00%0.60%2.00%-3.60%0.53%-0.05%0.02%1.04%-1.42%
S&P 500 WeightSIM Weight+/-1-Jul1-Aug1-Sep1-Oct1-Nov1-Dec1-Jan1-Feb1-Mar1-Apr1-May1-Jun1-Jul
Consumer Discretionary8.19%9.67%1.48%S&P 500 TR1936.42338.24
Consumer Staples12.85%14.22%1.37%
Energy14.09%8.05%-6.05%20.75%
Financials10.72%9.59%-1.13%
Health Care15.94%21.50%5.56%
Industrials10.62%8.27%-2.35%
Information Technology16.22%18.97%2.75%
Materials3.04%1.79%-1.25%
Telecommunication Services3.72%2.19%-1.53%
Utilities4.61%2.89%-1.72%
Cash0.00%2.85%2.85%
100.00%100.00%0.00%
Top Ten Holding by Market Value
TickerTotal
JNJ$1,021,113
HPQ$830,525
PEP$678,105
MSFT$627,570
BRK/A$626,514
CL$624,384
BBY$683,688
COP$584,619
CAH$711,585
LLY$729,036
Grand Total$7,117,139
MBD03E65223.bin
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Economic Analysis (cont.)Source: Bloomberg Composite
*Consumer Staples
Chart2
3.97
4.1
4.37
5.3
1.63
-0.3
-1.2
-1.7
1.25
CPI (yoy %)
Sheet1
Actual / Forecasts
IndicatorQ4 07Q1 08Q2 08Q3 08Q4 08Q1 09Q2 09Q3 09Q4 09Q1 10
Economic Activity
Real GDP (qoq % saar)-0.20.92.8-0.5-3.8-3-0.81.12--
CPI (yoy %)3.974.14.375.31.63-0.3-1.2-1.71.25--
Core PCE (yoy %)2.12.22.32.31.81.61.41.21.2--
Unemployment (%)4.84.935.376.076.877.588.258.4--
External Balance
Curr. Acct. (% of GDP)-5.21-5.02-4.87-4.84-3.9-3.2-3.2-3.1-2.9--
Fiscal Balance
Budget (% of GDP)-1.3-1.5-2.2-3-4.4-6-5.6-6.1-6.2--
Interest Rates
Central Bank Rate (%)4.252.25220.250.250.250.250.250.75
3-Month Rate (%)4.72.692.784.051.431.281.141.141.271.61
2-Year Note (%)3.051.592.621.960.770.780.881.091.351.85
10-Year Note (%)4.033.413.973.832.212.392.532.793.073.39
Exchange Rates
EURUSD1.461.581.581.411.41.31.281.31.35--
CountriesAustraliaBelgiumCanadaChinaGermanyFranceUnited KingdomItalyJapanNetherlandsSwedenSingaporeUnited StatesHong KongReal GDPNominal GDPUnemploymentCentralGDP
YoYYoYSABank RateDeflator
1.9% 9/0810.4% 9/084.5%12/084.2500%12/08110.4 9/08
1.2% 9/083.0% 9/087.10%12/082.00% 1/09104.7 9/08
-0.8%11/086.30% 9/086.60%12/081.000% 1/09123.00 9/08
6.8%12/0818.1% 9/08N.A.5.3100% 1/09N.A.
0.8% 9/082.6% 9/087.8% 1/092.00% 1/09109.8 9/08
0.6% 9/082.6% 9/087.3% 9/082.00% 1/090.000 9/08
-1.8%12/082.3% 9/086.10%11/081.500% 1/09113.4 9/08
-0.9% 9/082.0% 9/086.67% 9/082.00% 1/09121.2 3/08
-0.5% 9/08-2.1% 9/084.4%12/080.100% 1/0988.9 9/08
1.8% 9/084.7% 9/083.90%12/082.00% 1/09122.4 9/08
0.3% 9/083.70% 9/085.61% 9/042.00% 1/09N.A.
-3.7%12/081.7% 9/082.6%12/080.13% 1/09109.0 9/08
-0.2%12/081.7%12/087.2%12/080.250% 1/09123.012/08
1.7% 9/083.8% 9/084.1%12/080.5000% 1/09104.3 9/08
ItemRange1Range2
Raw BETA1.3721.261
ALPHA(Intercept)-0.012-0.009
R^2(Correlation^2)0.9610.927
Std Dev Of Error0.1070.066
Std Error Of ALPHA0.0110.007
Std Error Of BETA0.0280.035
Number Of Points103103
Sheet2
IndicatorChange in Real GDP
Q4 07-0.2
Q1 080.9
Q2 082.8
Q3 08-0.5
Q4 08-3.8
Q1 09-3
Q2 09-0.8
Q3 091.1
Q4 092
IndicatorUnemployment (%)CPI (yoy %)
Q4 074.83.973.973.973.973.973.97
Q1 084.934.14.14.14.14.14.1
Q2 085.374.374.374.374.374.374.37
Q3 086.075.35.35.35.35.35.3
Q4 086.871.631.631.631.631.631.63
Q1 097.5-0.3-0.3-0.3-0.3-0.3-0.3
Q2 098-1.2-1.2-1.2-1.2-1.2-1.2
Q3 098.25-1.7-1.7-1.7-1.7-1.7-1.7
Q4 098.41.251.251.251.251.251.25
Sheet2
0
0
0
0
0
0
0
0
0
Change in Real GDP
Percent
Change in Real GDP (source: Bloomberg Composite)
Sheet3
0
0
0
0
0
0
0
0
0
Unemployment (%)
0
0
0
0
0
0
0
0
0
CPI (yoy %)
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Economic Analysis (cont.)Source: Bespoke Investment Group
*Consumer Staples
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Foreign Currency Exchange
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Foreign Currency Exchange (cont.)Consumer Staples
Consumer Staples
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Consumer StaplesSector Sales AnalysisSales GrowthCurrent growth below 10-year averageCurrent growth close to low of 5.8% experienced in early 2002 Downward trend since end of 2006, continues out to 12/31/2008Largest Companies in SectorProctor & Gamble Currently at 5.5%, below 10 yr. average of 8.1%Downward trend since mid-2006Wal-MartCurrently at 9%, below 10-yr. average of 11.7%Downward trend since beginning of 2007, with low (8.6%) occurring 1/31/08
*Consumer Staples
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Consumer StaplesSector Earnings AnalysisEarnings GrowthVery low relative to 10-year averageEPS growth currently at 10 year lowLarge drop in EPS growth since 9/30/2007Largest Companies in SectorProctor & GambleCurrent growth at 12.1%, above 10-yr. average of 11.1%Growth falling since mid-2008; Lowest EPS growth (-1%) occurred in 2001Wal-MartCurrent growth at 11.4%, just under 10-yr. average of 12.5%EPS growth from mid-2007 to mid-2008, slight drop since
*Consumer Staples
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Consumer StaplesSector Sales and Earnings Growth
*Consumer Staples
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Consumer StaplesIndex Sales and Earnings GrowthSales GrowthCurrent growth right below 10-year average7.6% compared to mean of 8% Downward trend since 9/30/2008Earnings GrowthCurrent EPS growth negative, extremely low-16.7% compared to mean of 13.4%Currently near 10-year low of -17.3%, which occurred in the beginning of 2002EPS growth plummeting since end of 2006
*Consumer Staples
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Index Sales and Earnings GrowthConsumer Staples
*Consumer Staples
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Consumer StaplesComparison of Sales and Earnings
*Consumer Staples
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Consumer StaplesMargin Growth AnalysisYTY net profit margin growth for both at 10-year lowConsumer Staples: -5%S&P 500: -22.8%Downward trend in Consumer Staples starting in early 2006S&P 500 plummeting roughly one year later
*Consumer Staples
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Consumer StaplesComparative Margin Growth
*Consumer Staples
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Consumer StaplesConsumer Staples has seen relatively constant margins but decreasing ROE from 2000-2007
S&P 500 has more volatile margins throughout the period and increasing ROEEBITDA range from 16.55% to 23.5%; EBIT range from 10.86% to 17.98%Comparative Income Statement Ratios
*Consumer Staples
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Consumer StaplesFree Cash Flow & DividendsFree cash flow increasing from 2004-2007Dividends increasingFree cash flow after dividends decreasing most yearsDividend yield increasing, currently at 10-year high
*Consumer Staples
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Sector ValuationConsumer Staples
Consumer Staples
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Sector Valuation (cont.)Consumer Staples
Consumer Staples
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Sector Valuation (cont.)Consumer StaplesHistorical Correlation with the S&P 500 is 0.64
Consumer Staples
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Sector Valuation (cont.)Consumer Staples
Consumer Staples
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RecommendationKeep current allocation, sector overweight relative to the S&P 500 by 175 basis pointsPossibility of another market downturn followed by low volatility around the 8000 point markHigher return for the sector vs. the market in the next 3-4 monthsWe see the market having flat returns, and the consumer stables sector outperforming by 200-300 basis pointsAttractive industries: Tobacco, BrewersConsumer Staples
Consumer Staples
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ReferencesBloombergHoovers InvestopediaStandard &Poors (www.standardandpoors.com)StockValValue LineYahoo Finance (finance. yahoo.com)Bespoke Investment Group (http://bespokeinvest.com)
*Consumer Staples
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Commodity PricesSupplemental InformationConsumer Staples
*Consumer Staples
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Supplemental InformationConsumer Staples
*Consumer Staples
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Future Earnings EstimatesConsumer StaplesSupplemental Information
EPS200920102011Mean2.842.983.28High2.973.193.49Low2.752.793.09Number of Est13146Number Up111Number Down783
*Consumer Staples
*For both the S&P 500 and the Consumer Staples sector, revenue growth and earnings growth hit lows in early 2002. Only EPS growth for the consumer staples sector has fallen below these numbers as of 12/31/08. The highest sales experienced in Consumer Staples occurred in early 2007, when during this period the S&P 500 had the lowest sales in over 5 years.
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