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Consumer Staples May Foreshadow What's To Come In 2022

Consumer Staples May Foreshadow What's To Come In 2022

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This story originally appeared on Zacks

The price action in the stock market has been fast and furious as investors have positioned their portfolios for the new year. Sector rotation has been on full display, with institutions foregoing growth and technology names and shifting to more defensive positions. Below we can see the S&P sector performance over the past month.

- Zacks

Zacks Investment ResearchImage Source: Zacks Investment Research

After lagging for the better part of 2021, the consumer staples sector is leading the pack over this timeframe and is breaking out to new all-time highs. New highs are a sign of strength; many staples have completed large bases and are climbing into new ground on above-average volume, which serves as another sign that this safeguarding move may have more room to run.

The Consumer Staples Sector SPDR ETF (XLP) is showing resilience recently and is up nearly 20% in the past year. XLP has outperformed over the past month and is showing no signs of a peak in the movement. We are going to explore three XLP constituents that are also breaking out to new all-time highs.

Zacks Investment ResearchImage Source: Zacks Investment Research

While the recent performance is a positive for staples, it’s important to note that defensive sectors leading could potentially be a warning sign. Most investors are expecting the growth names that were beat up last year to rebound in 2022, but as we know the crowd is usually wrong. Trends can persist for much longer than most investors would expect. When staples and utilities have broke new ground in the past whilst technology has lagged, history has shown that increased volatility may be in store in the coming months. Prior non-recessionary periods in which the S&P 500 experienced negative returns have tended to coincide with defensive sector outperformance.

At this point, this line of thinking is something to keep an eye on rather than eyeing a complete portfolio overhaul. Volatility is still relatively muted after spiking in late November. As investors we want to maintain maximum flexibility and adjust our gameplan as necessary. Rather than initiate a knee-jerk reaction, it’s important to keep an open mind about multiple potential outcomes.

Let’s dive deeper into three well-established staples that are each making new all-time highs.

PepsiCo, Inc. (PEP)

PepsiCo is engaged in the manufacturing, marketing, and distribution of grain-based snack foods, beverages and related products. The company’s food and beverage portfolio includes well-known brands such as Frito-Lay, Pepsi-Cola, Gatorade, Quaker and Tropicana. PepsiCo serves a variety of distributors, grocery and drug stores, mass merchandisers, membership stores, and internet retailers through a network of direct-store-delivery, warehouse, and e-commerce platforms. PEP was founded in 1898 and is headquartered in Purchase, NY.

PEP has strung together a notable history of earnings beats, exceeding estimates in each quarter for the past five years running. The company has delivered an average beat of +6.51% over the past four quarters. PEP most recently reported EPS of $1.79 back in October, a +3.47% surprise over consensus. PEP is breaking out to new all-time highs and is up nearly 24% in the past year.

PepsiCo, Inc. Price, Consensus and EPS Surprise

PepsiCo, Inc. Price, Consensus and EPS Surprise

PEP management raised its guidance for full-year 2021 revenues amid market share growth in the liquid refreshment beverage category. The company now expects organic revenue growth of 8% compared to the 6% growth anticipated earlier in the year. The Zacks Consensus Estimate for 2021 revenues now stands at $78.54 billion, which would translate to 11.6% growth relative to last year.

Zacks Investment ResearchImage Source: Zacks Investment Research

PEP is due to report its final 2021 quarterly earnings on February 10th. The EPS Consensus Estimate sits at $6.25, representing a 13.22% growth rate when compared to 2020 EPS.

The Coca-Cola Co. (KO)

The Coca-Cola Company manufactures, markets, and sells various nonalcoholic beverages worldwide. KO is the world’s largest total beverage company and includes household names such as Dasani waters, Del Valle juices and nectars, Fanta, Gold Peak teas and coffees, Honest Tea, Minute Maid juices, Powerade sports drinks, Simply juices, Sprite, and Vitaminwater. The company operates through a diverse network of distributors, wholesalers, and retailers. KO was founded in 1886 and is headquartered in Atlanta, GA.

A Zacks #2 Buy stock, KO has surpassed earnings estimates in each of the last eighteen quarters, with an average positive surprise of 14% in the past year. The Coca-Cola Company most recently reported EPS of $0.65 in October, a +12.07% surprise over consensus. KO shares have climbed nearly 21% over the past year and are currently hitting all-time highs.

CocaCola Company The Price, Consensus and EPS Surprise

CocaCola Company The Price, Consensus and EPS Surprise

KO is slated to report its final set of 2021 quarterly earnings on February 9th. The Zacks Consensus Estimate is anticipating growth of 16.92% (EPS of $2.28) when compared to 2020.

Keurig Dr. Pepper, Inc. (KDP)

Keurig Dr. Pepper operates as a global beverage company. KDP manufactures and distributes non-alcoholic beverages, offering soft drinks, teas, juices, mixers, waters and other beverages. Its well-known brands include Dr. Pepper, Green Mountain Coffee Roasters, Canada Dry, Snapple, and Bai. The company also creates and distributes various finished goods related to its coffee systems including brewers, K-Cup pods, and special coffee. KDP was founded in 1981 and is dually headquartered in Burlington, MA and Frisco, TX.

KDP has either met or exceeded earnings estimates in each of the last fourteen quarters. The company has posted a trailing four-quarter average surprise of +1.66%. KDP shares have followed suit, advancing 21.66% over the past year.

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

Keurig Dr Pepper, Inc Price, Consensus and EPS Surprise

With over 25,000 employees, KDP operates more than 120 offices, manufacturing plants, warehouses and distribution centers in North America. Management raised its sales view for 2021 and reiterated its earnings guidance. The Zacks Consensus Estimate for 2021 revenues calls for an 8.47% increase relative to 2020.

KDP is scheduled to release its final 2021 quarterly earnings on February 24th. Analysts are expecting EPS of $1.60, growth of 14.29%.

The Consumer Staples sector is outperforming the general market in recent weeks. These three long-term winners are all breaking out and likely still have room to run.



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