The Consumer Staples sector may be the worst place to shop for a top Zacks Rank industry as we enter 2017. Why?
Overvaluation. No sector is more richly priced! The S&P 500 Consumer Staples sector has a forward 12-month P/E ratio of 19.76. In comparison, the high profit margin, cash-flow rich Information Technology sector has a 19.10. The overall S&P 500 large cap index has a forward 12-month P/E of 16.9. In simple terms, the slow growing, defensive staples sector is likely to be 17% overvalued to the broad S&P 500.
A sector or industry rotation away from Consumer Staples looks to be in the cards. The finance sector — with more Federal Reserve rate hikes and potential Trumponomics stimulus coming down the road — has a forward 12-month P/E of 14.28. Buy Finance stocks and sell Consumer Staples; right? Maybe. However, I found one sleeper industry inside Consumer Staples: Agricultural Operations.
This six-company Zacks industry sector is currently ranked #39 out of 265 (top 15%). It was #44 out of 265 just before Christmas.
Agricultural commodity price fundamentals put in a bottom early in 2016, along with the WTI crude oil price. Now, Materials and Energy sector companies are getting a bid, driving up shares nicely.
Three Top Zacks Rank Picks:
- Calavo Growers (CVGW) is a $1 billion market cap, low beta (0.58) stock priced at $65 right now. It is also a Zacks #1 Rank (strong buy) pick, with a Zacks Growth score of “A.”
- Fresh Del Monte (FDP) is a $3.2 billion market cap, low beta (0.29) stock priced at $62 right now. It is also a Zacks #1 Rank (strong buy) pick, with a Zacks Growth score of “A” and a Zacks Value score of “A,” giving it a long-term Zacks VGM score of “A.”
- Archer Daniels Midland (ADM) is a $26 billion market cap, low beta (0.88) stock priced at $46 right now. It is also a Zacks #2 Rank (buy) pick, with a Zacks Growth score of C and a Zacks Value score of “A,” giving it a long-term Zacks VGM (value-growth-momentum) score of “B.”