The market continued its recent selloff yesterday as the Nasdaq plunged below its 200-day moving average like a hot knife through butter, falling -1.15% to end at its lowest level since October of last year. The selling intensified into the closing bell, sending the Nasdaq into correction territory. The other indices followed suit with the S&P 500 shedding -0.97% and the Dow declining by -0.96%. All three indices are down on the year.
The VIX index spiked 4.65% to close at its highest level in more than a month. Over the past year, the muted spikes in volatility have represented good buying opportunities as a ‘buying the dip’ strategy has performed well. But with just eight trading days left in January, it remains to be seen if bulls will make a stand or if this is simply the beginning of a larger down move in the market. The major averages are attempting to draw a line in the sand today as the Nasdaq looks to reclaim its 200-day moving average. We’ll see how it all unfolds into the close.
Either way, it’s extremely likely that 2022 will not see the 20-30% annual gains that the markets have enjoyed in the recent past. Volatility is here to stay after being fairly nonexistent last year, so it’s a matter of targeting the right sectors and industry groups when choosing optimal investments for your portfolio.
Two defensive sectors that tend to outperform during market downturns are consumer staples and utilities, and we’re seeing that play out right now with staples looking like the stronger of the two. Staples as a group hit a new high earlier this month and are holding up well, less than 2% away from that all-time high price. The Consumer Staples Select Sector SPDR ETF XLP is a great way to gain exposure to many of the companies that are holding up well through the recent volatility.
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The Consumer Staples Select Sector SPDR ETF is outperforming the market to kick off the new year. Last year, XLP found support multiple times at its 200-day moving average, a good sign for the bulls. XLP continues to make a series of higher highs and should hold up well this year through any market downturns.
Below we will analyze three consumer staples companies, two of which are included in the XLP holdings. All three firms are components of the Zacks Food – Meat Products industry, which ranks in the top 18% out of all 254 Zacks Ranked Industries. Investing in the top-performing industry groups provides a constant tailwind to your investing success.
Sanderson Farms, Inc. (SAFM)
Sanderson Farms is an integrated poultry processing company that engages in the production, marketing and distribution of fresh, frozen and minimally-prepared chicken. The company’s prepared chicken product line includes institutional and consumer packaged chicken items for food service establishments and distributors. Founded in 1947 and based out of Laurel, MS, SAFM operates 11 hatcheries, 9 feed mills, 12 processing plants, and 1 prepared chicken plant.
A Zacks #1 Ranked stock (Strong Buy), SAFM handily beat earnings expectations in the most recent quarterly announcement, posting EPS of $8.24 versus the Zacks Consensus Estimate of $4.42 – an 86.43% surprise. The company benefitted from robust execution in Q4 across live production, sales and processing as the top and bottom lines increased year-over-year. Higher demand and prices for food products sold to retail grocery store customers boosted the quarterly results.
SAFM has exceeded earnings estimates in each of the past six quarters. The company is relatively undervalued (7.76 forward P/E) and has delivered an average positive surprise of 99.15% over the past four quarters. The stock has followed suit, advancing more than 42% in the past year.
Sanderson Farms, Inc. Price, Consensus and EPS Surprise
Looking into this year, analysts covering SAFM have revised their full-year EPS estimates upward by 12.11% in the past 30 days. The Zacks Consensus Estimate for 2022 EPS now stands at $24.26, representing growth of 19.8% relative to 2021.
Tyson Foods, Inc. (TSN)
Tyson Foods is the world’s largest processor and marketer of chicken, pork, and beef and is the second-largest food company in the Fortune 500. A member of the S&P 500, TSN manufactures and markets its products under recognized brand names such as Jimmy Dean, Hillshire Farm, and Ball Park. The company sells its products in more than 80 countries through its sales staff to grocery retailers and wholesalers, meat distributors, chain restaurants, convenience stores and hospitals. TSN was founded in 1935 and is headquartered in Springdale, AR.
Trading at an attractive 12.89 forward P/E, Tyson Foods has been gaining on strategic growth efforts including focus on protein-packed brands and capacity expansion endeavors. For fiscal 2022, TSN expects to grow its total volumes by 2-3%, outpacing the overall protein consumption growth. A significant percentage of this growth will likely stem from the company’s chicken segment which raises and processes live chickens into fresh, frozen and value-added chicken products.
TSN has delivered an earnings beat for past six quarters running, posting a trailing four-quarter average earnings surprise of 25.15%. The company most recently reported quarterly EPS of $2.3 back in November, a 4.55% surprise over consensus. TSN stock has outperformed the market over the past year with a greater than 42% return.
Tyson Foods, Inc. Price, Consensus and EPS Surprise
The Zacks Consensus Estimate for 2022 revenues stands at $50.57 billion, an increase of 7.47% relative to last year. TSN is scheduled for its next quarterly earnings report on February 7th.
Hormel Foods Corp. (HRL)
Hormel Foods is a global branded food company that develops, processes, and distributes various meat, nuts and food products to retail, food service, deli, and commercial customers. The company sells its products under more than 30 well-known brands such as SKIPPY, SPAM, Hormel, and Applegate. A member of the S&P 500, Hormel Foods was founded in 1981 and is based in Austin, MN.
HRL has delivered an earnings beat in each of the past four quarters, with an average surprise of 1.78%. The company posted quarterly EPS of $0.51 back in December, a 2% surprise over consensus estimates. The stock is showing relative strength as of late, up over 20% in the past four months and currently trading near a 52-week high.
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What the Zacks Model Reveals
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +1.5% and a Zacks Rank #3 (Hold), another earnings beat may be in the cards for HRL investors.
The Zacks Consensus Estimate for 2022 EPS stands at $1.97, translating to growth of 13.87% relative to last year. HRL is due to report earnings on February 17th.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.