Sector Outlook: Consumer Staples

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Sector OutlookConsumer Staples

• Joe Gale
• Adam Giere
• Bitan Ghosh
• Iliana Filyanova

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Sector Overview
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Portfolio Details
Underweight SP 4 bps
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-6.72 Relative Market -7.66
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Projection of Economy

• Projections of US economy
• Fed continuing to make cuts
• Value of the dollar
• Consumer behavior
• Foreign economies will determine if consumer
  staples sector will continue to stabilize or grow
  

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Projection of Economy

• Business cycle and product life cycle

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Demand

• Inelastic demand
• No matter how good or bad the economy is,
  consumers will generally not spare expenses
  towards staple products
• Demand in the US market is steady
• Increasing demand in international sectors
  promote potential of sector growth spurt

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Demand

• Product differentiation influences consumer to a
  degree
• Kellogs cereal shelf-space vs. generic brand
• Price still deciding factor
• Effect on revenues and profits

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Business Sector

• Buyer Power High
• Low switching costs
• Supplier power Low (lots available)
• Substitution big threat ? multiple brands in
  same product line

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Net Profit Margin Comparison
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Possible Contributorsto Margin Loss
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Other Factors Relative SP500
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CF SP-30
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Wal-Mart
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Altria
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Colgate-Palmolive
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Dean Foods
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Earnings Growth Analysis
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Valuation by P/E F12M
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Valuation by P/S
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Relative Valuation Analysis
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Relative Valuation Analysis Graphs
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Recommendations

• Inflationary pressure, rising commodity prices,
  energy and employee benefits ? Margins under
  pressure
• Despite raising cost, earnings should progress
  nicely in 2008
• Economic outlookbottom in June?
• Increase weight of SP-30
• Offer stability in a market filled with
  uncertainty
• Target Household Products companies
• Wait see attitude for Food Processing