Jake Farwick's Consumer Staples Sector Analysis Presentation
Explore Jake Farwick's detailed analysis of the Consumer Staples sector, covering business, economic, financial, and valuation analysis along with key recommendations. Gain insights into performance, industries, companies in SIM portfolio, consumer trends, and strategic factors affecting the sector's dynamics.
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Presentation Transcript
Consumer Staples Sector Presentation Jake Farwick
Agenda Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendation
Industries of Consumer Staples Beverages Food and staples retailing Food products Household products Personal products Tobacco
Companies in SIM Portfolio Other Consumer Staples Image result for pg logo Image result for coca-cola logo
Business Cycle Four Phases of the Business Cycle 1. Expansion 2. Peak 3. Contraction 4. Trough The US economy has entered the contraction phase of the business cycle In large part due to the COVID-19 pandemic COVID ended a long period of expansion Consumer Staples are more attractive to investors later in this cycle Low volatility in the sector could be important if contraction leads to a recession
Consumer Trends Household Products and Food & Staples retailing have highest change in YTD returns Affected by COVID?
Supplier Bargaining Power: LOW - Many Suppliers - Competitive Pricing Internal Competition: HIGH - Easy product replacement - Many options on market Threat of Substitutes: HIGH - Products relatively the same - Low Brand Loyalty - Price Sensitive Customer Bargaining Power: HIGH - Easy to switch to new product Threat of New Entrants: Medium - Difficult to penetrate market
Regression Analysis Consumer Staples vs Real GDP Low correlation Products needed regardless of economic climate Consumer Staples vs Unemployment Negative Correlation As unemployment falls Consumer Staples performs better
Consumers Staples vs S&P 500 The consumer staples sector has outperformed all but one sector since 1962 In the last two years the S&P 500 has outperformed Consumer Staples but historically they move closely to each other Consumer staples has outperformed the S&P 500 during the last three recessionary periods
Major Companies Sales and Growth Company Revenue Growth P&G 70,950 M 4.83% Walmart 1.86% 523,964 M Coca-Cola 37,273 M 9.17% S&P 500 Growth: 7.83% Target 3.66% 78,112 M
Consumer Staples and the Market Consumer Staples are Non-Cyclical and Defensive Sector is very constant Consumer Staples being products that people are unable or unwilling to cut out of their budgets regardless of their financial situation. Demand grows with population
My Recommendation Major Positives: If we choose to overweight this sector it would help us outperform the S&P 500 if the contraction in the business cycle is here to stay or turns into a recession With Food & Staples and Household products outperforming the market during the last 6 months of COVID it seems that until everything opens back up that should continue Major Risks: A strong bounce back from COVID and a boom in the S&P 500 would cause sector to underperform
