ETF Trends
ETF Trends

Plenty of market observers have speculated that oil’s decline would be a boon for consumer sectors, including consumer staples.

To some extent, that has been as the Consumer Staples Select Sector SPDR (NYSEArca: XLP), the largest staples ETF gained 15.7% last year, outperforming the S&P 500 in the process. XLP is again outpacing the benchmark U.S. index this year with a gain of 1.1% while the S&P 500 is off 0.4%. Still, not everyone is impressed by the richly valued staples sector.

AltaVista Research has an underweight rating on XLP, the only one of the nine sector SPDRs the research firm has tagged with that rating.

“A rating of UNDERWEIGHT is assigned to funds with ALTAR Scores above 3.0% but below 6.0%. Typically, funds in this category consist of stocks trading at relatively expensive valuations and/or having below-average fundamentals,” said AltaVista in a new research note.

Of concern is that some of XLP’s marquee holdings are not contributing to the ETF’s modest upside this year. The ETF is home to three Dow components – Procter & Gamble (NYSE: PG), Wal-Mart (NYSE: WMT) and Coca-Cola (NYSE: KO). However, Wal-Mart is the only that has traded higher this year. [Investors Flock to Staples ETFs]

On top of that, valuation for staples, a sector that as a result of its defensive posture typically trades at a premium to broader indexes, is looking stretched. By AltaVista’s estimates, XLP’s 2015 P/E ratio is expected to be 19.3, trailing only the Energy Select Sector SPDR (NYSEArca: XLE) among the nine SPDRs. XLP’s estimated price/book value ratio of four is the highest among the sector SPDR ETFs, according to AltaVista data. [Listening to Staples ETFs]

“Profit forecasts have been trending downward in recent months even as sales growth is forecast to accelerate this year — probably due to increasing food price inflation. In any case, like some other defensive sectors Consumer Staples stocks have seen their P/E multiples continue to expand, and are now near their highest level in at least the last five years. As a result these stocks appear rather expensive, and Staples is the only sector with an UNDERWEIGHT recommendation,” said the research firm.

Consumer Staples Select Sector SPDR