Some analysts maintain tepid opinions on both consumer ETFs. For example, AltaVista Research, in a recent research note, slapped underweight ratings on both XLP and XLY, saying of the former “Raw materials inflation may put a dent in profit margins this year, so even as revenue growth accelerates earnings growth could be about flat (revisions appear to have stabilized). Estimates for next year look better. In any case, Consumer Staples stocks have seen their P/E multiples expand considerably over the last five years. As a result these stocks appear rather expensive, and Staples has an UNDERWEIGHT recommendation.”
Of XLY, AltaVista said consumer discretionary names remain “richly valued” against the S&P 500. [Discretionary ETFs Look for Upside]
XLP/XLY Ratio Chart
Chart Courtesy: Kimble Charting Solutions