Top quant-rated consumer staples during Q1

The consumer staples sector (NYSEARCA:XLP), which is said to be less susceptible to economic cycles, frequently lags in a risk-on market. The Consumer Staples Select Sector SPDR Fund ETF (XLP), which holds an ~5.8% weightage on the S&P 500, bagged a gain of ~4.8% in Q1. XLP remained among the bottom four worst-performing sectors, only better than real estate, consumer discretionary, and utilities. Broader market (SP500) Q1 gains were ~10.8%. 

These are considered defensive investments as they buffer investors and minimize the impacts caused by stock market shocks or economic downturns.

However, Seeking Alpha contributor Ricardo Fernandez commented, "..when we zoom into the last 10yrs the consumer staples sector has substantially underperformed the SPY. What worked in the past may not work in the future, especially in a world with slowing population growth."

Over the last year, consumer staples has been the worst-performing sector, with a loss of 1.4% vs. S&P 500 (SP500) gain of ~26%.

A look at Quant ratings

According to Seeking Alpha's Quant Rating System, the consumer staples fund, XLP Fund (XLP), gets a Hold Quant rating with a 2.50 score, the highest grade given to dividends and liquidity, the lowest to risk, and an average health score of 3.43.

Seeking Alpha's quant system grades based on quantitative measures like valuation, earnings growth, and stock performance, with the highest score of 5.

Among stocks, Tyson Foods (TSN), Target (TGT), and The Kroger (KR) all have Strong Buy quant ratings and scores of 4.81, 4.75, and 4.76 respectively. Retailers Target (TGT) and Kroger (KR) have the highest factor grades given to profitability and momentum.

Consumer staple stocks that get the lowest Quant rating are Lamb Weston (LW) and Brown-Forman (BF.B) with scores of 2.52 and 2.57, respectively, with the lowest factor grades given to valuation and revisions.

Broadly, the stocks in Consumer Staples Select Sector SPDR Fund ETF (XLP) get a health score of 3.44 out of 5, and a dividend safety score of 3.81 under SA's quant system.

Analyst comments

CitiGroup analysts gave top 6 buy-rated stocks and top 5 sell-rated stocks within consumer staples. Analyst Scott Chronert wrote that YTD, the sector’s underperformance has “rightsized” the valuation compared to its fundamentals. 

Included in CitiGroup's recommended large-cap stocks are Walmart (WMT) with a price target of $63.33 and Constellation Brands (STZ) with a PT of $305, both of which have a Quant Rating Hold.

Morgan Stanley recently published a note on consumer staples performance in Q1: "In terms of short-term trades with Q1, Estee Lauder (EL) and Coty (COTY) stand out positive in our minds, and Monster (MNST) on the negative side short-term (although we are OW MNST longer-term)." The report added, "Our top long-term OW-rated picks remain Pepsi (PEP), Colgate (CL), Constellation Brands (STZ), Coca-Cola (KO), and Church & Dwight (CHD).."

Besides, UBS analysts ordered stocks within the consumer staples sector (XLP) from the most crowded longs to the most crowded shorts.

ETFs: (VDC), (FXG), (IYK), (KXI), (VDC), (FSTA), (PSL)