Some US consumer staples should be considered growth stocks considering the high range of growth the...
Some US consumer staples should be considered growth stocks considering the high range of growth they offer, especially in periods of economic slowdown, according to Tony Vento, an analyst with Edward Jones in the US.
Vento, who covers the consumer and retail areas of the US market, says: "They used to be considered growth stocks before the technology boom and in my opinion they still are, although it does depend on the company. Household products, like Colgate and Proctor & Gamble are growth companies."
Colgate Palmolive has been showing solid sales growth in the 6-7%pa range, while its earnings per share this year was up 15% on last year and it looks likely to repeat the feat next year, Vento adds. The stock is down 18.65% in the year to 9 August in US dollar terms compared to a fall of 35.36% in the S&P Household products index.
Andrew Dove, US portfolio manager at Scottish Equitable, is wary of the sector, believing investors are concerned about the marked slow down in consumer spending within retail.
He argues that consumers have had a growing income for some time and they have simply bought everything they need. He adds: "There was a fair amount of pent up consumer demand which has now been satisfied."
Dove believes the high interest rates may also account for some of the slowdown. For example, oil prices are so high that consumers are spending on petrol, leaving a lot less money for retail expenditure.
As interest rates increase, the economy is slowing down or plateauing at best, Dove believes.
He feels the disappointment has already been factored into the market. He says: "The economy will have a soft landing. Growth will moderate steadily but find a healthy level."
Vento says the Fed raising of rates will affect the market but that consumer products will still perform more consistently than other sectors. He says: "Consumer products will outperform most sectors in a slowing economy. While the technology story is not over, attention at the moment is being paid to other sectors. After the earnings disappointments in technology, investors are looking for more dependable growth stocks."
Vento considers Proctor & Gamble cheap at the moment following recent problems within the group as it tried to expand too rapidly.
The stock has fallen 48.37% in the year to 9 August in US dollar terms, compared to a fall of 35.36% in the S&P Household Products index.
Vento feels these problems are short term and the company is likely to have a quick bounce back, unlike Gillette. Gillette has posted several profits warnings as of late and is dealing with many different issues within the company as some of its subsidiaries struggle, Vento says.
He adds: "No company is immune to problems if you are complacent and perhaps it was. It had been doing so well for so long that it made mistakes. I do think the outlook is better now than 12 months ago but we are not out of the woods yet."
Besides Colgate and Proctor & Gamble, Vento favours Clorax, which he believes is well placed for the long term. Clorax has fallen 31.14% in US dollar terms.
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