The sector recently has been especially favored by top-performing advisers
CHAPEL HILL, N.C. (MarketWatch) — There are at least two good reasons to give serious consideration to the consumer-staples sector when choosing stocks to add to your equity portfolio.
TRADING STRATEGIES: NOVEMBER
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• Two reasons to focus on consumer staples
• Time has run out for these household names
• Filling up on food stocks
• See full Trading Strategies report for November
The first is that stocks within the sector have received many upgrades in recent sessions from the top performing advisers I monitor.
The second is that the consumer-staples sector historically has tended to be one of the best-performing groups in the months immediately prior to major stock market tops. So the sector would be worth favoring even if you were concerned that a bear market might begin in upcoming months.
Let me start by reviewing the data that support this second point. Those data come from Ned Davis Research, which has ranked the S&P 500 sectors according to their average performance over the three months prior to all bull market tops of the last five decades. That ranking, from best to worst, is:
Notice that the consumer-staples sector is second only to the consumer-discretionary sector in relative performance prior to bull-market tops. Assuming the future is like the past, this should provide some solace to investors who both want to participate in this impressively strong stock market, but who are also nervous about a possible bear market.
If these data are insufficient to get you to consider consumer staples, then you should take a look at which sectors have recently received the most upgrades from the top performers. To construct this group of select advisers, I follow the lead of my companion service Hulbert On Markets and focus on just those monitored advisers who have beaten a buy-and-hold in the stock market over the last 15 years. I then restrict this group of market beaters by taking just the 15 with the best returns over the trailing 12 months.
The following table ranks the sectors according to which have received the greatest number of net upgrades over downgrades from these top performers in recent weeks. (Note that the ranking relies on the Dow Jones industrial classification system, which is quite similar, but not identical, to the S&P 500 categorization.)
Industry sector # of net upgrades from top performing advisers
Consumer Goods 7
Health care 5
Consumer Services 2
Basic materials 1
Oil & Gas -8
Notice that the Dow Jones Consumer Goods sector is very near the top of the ranking.
One way to invest in the sector, of course, is through an ETF benchmarked to it. One popular one is the Select Sector SPDR—Consumer Staples XLP, -0.25% .
Another might be to favor the stocks within the sector that are currently recommended by at least two of the top-performing advisers. The following seven make this cut:
Archer Daniels Midland ADM, +0.85%
Constellation Brands STZ, +0.65%
Hanesbrands HBI, -1.35%
Lear LEA, +1.00%
Nike NKE, +0.29%
PepsiCo PEP, -0.06%
Tyson Foods TSN, +0.55%