TIn a market that is clearly characterized by high-penny markets, there is not much that is actually working right now. As the Nasdaq slips back into a bearish market, technology and growth stocks are the ones most affected. Investors would be better off sticking with stocks that are leading the market and are on the rise, rather than trying to catch a falling knife.
While 2022 has been a disastrous year for most stocks, there are some pockets that have been successful. These pockets are worth pursuing and we will shift our portfolio allocations in order to be more defensive as the market experiences higher inflation and higher interest rates. Sector rotation is evident, with institutions shifting to more stable positions while avoiding growth and technology names. Below you can see the S&P Sector performance year-todate
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As commodity prices have skyrocketed, energy has led the charge. However, I think energy is a bit overexposed and I would be cautious about opening new positions, especially if there is already exposure to this sector.
After being lagging for much of last year, the consumer staples industry has reached new all-time highs. New highs are a sign that there is strength. Many staples have completed large volumes and are now climbing to new heights on above-average volumes. This signals that this safeguarding move may have more potential.
The Consumer Staples Sector SPDR ETF XLP has shown resilience this year, rising more than 3%, while the S&P 500 has lost about -11.5%. XLP has outperformed in the past month and shows no signs that it is reaching its peak. The Consumer Staples Select Sector SPDR ETF hit a new record last week.
Consumer Staples Select Sector SPDR ETF Price
While the recent performance was a positive for XLP it is important to remember that defensive sectors leading can be a warning signal. Many investors expect the growth names that have been battered to rebound in 2022. However, we know that the majority of investors are wrong. Trends can continue for longer periods than most investors would think. The S&P 500’s negative returns in previous periods that weren’t recessionary have often coincided with the outperformance of defensive sectors.
We as investors want to be flexible and adapt our gameplan as needed. Let’s take a look at two XLP constituents which are also breaking records. These stocks make up a little more than 2% overall XLP holdings. These two companies are part of the Zacks Food Meat Products sector group, which currently ranks among the top 28% of approximately 250 industries. Our chances of success are dramatically increased by targeting stocks in the top industry groups. You will also notice the positive valuation characteristics of this group.
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Tyson Foods, Inc.TSN)
Tyson Foods is the largest processor and marketer in the world of chicken, pork and beef. It is also the second-largest food company within the Fortune 500. TSN is a member of the S&P 500 and manufactures and markets its products using well-known brands such as Jimmy Dean, Hillshire Farm and Ball Park. Through its sales staff, the company sells its products to more than 80 countries. Its customers include grocery retailers and wholesalers as well as meat distributors, chains restaurants, convenience stores, hospitals, and meat distributors. TSN was established in 1935 in Springdale, AR.
Tyson Foods trades at a competitive 10.89 forward PE. This is due to its strategic growth efforts that include focus on protein-packed brands, capacity expansion and other initiatives. TSN expects to increase its total volumes by 2-3% in fiscal 2022, which will outpace the overall protein consumption growth. The company’s chicken segment, which raises and processes live poultry into fresh, frozen, and value-added products, will likely account for a significant portion of this growth.
TSN has posted an earnings beat for seven consecutive quarters, posting a trailing four quarter average earnings surprise of 32.22%. The company reported Q4 EPS in February at $2.87. This was a +51.05% increase over the $1.90 consensus estimate. TSN stock has seen a 23% increase in returns over the past year, outperforming the market.
Tyson Foods, Inc.
Analysts expect EPS to increase 37.31% compared to the previous quarter a year ago. The fiscal Q2 Zacks Consensus estimate stands at $1.84. TSN is expected to report the results May 5Th.
Hormel Foods Corp.HRL)
Hormel Foods, a global branded food company, develops, processes and distributes various meats, nuts and food products to commercial, food service, retail and food service customers. The company sells its products under over 30 well-known brands, including Applegate, SPAM and SKIPPY. Hormel Foods, a member of the S&P 500 was founded in 1981 in Austin, MN.
In each of the last four quarters, HRL has delivered an earnings beat with an average surprise 1.74%. The March quarter’s fiscal Q1 earnings per share (EPS) was $0.44. This is a surprise of 2.33% over consensus estimates. The stock has been showing relative strength, with an increase of over 9% in the last year.
Hormel Foods Corporation Price Surprise and EPS
What the Zacks Model Reveals
The Zacks EarningsESP (Expected Surprise Prediction), shows companies that have seen positive earnings estimate revision activity. This information is believed to be a better predictor of future earnings, which gives investors an advantage during earnings season. Our 10-year backtest shows that stocks can surprise 70% when they have a Zacks Rank of 3 or better and a positive earnings ESP.
A Zacks Rank #3 (Hold) and an EarningsESP +1.29% means that HRL investors may see another earnings beat.
The Zacks Consensus estimate for fiscal Q2 earnings per share stands at $0.46. This is an increase of 9.52% over last year. HRL will report its quarterly results on May 19.Th.
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The views and opinions expressed in this article are those of the author and not necessarily those of Nasdaq, Inc.