Thursday , 19 April 2018

Home » RESOURCES » Why Now is the Time for Food and Beverage Stocks

Why Now is the Time for Food and Beverage Stocks

As volatility and uncertainty creep into the markets many investors tend to turn their attention to defensive sectors such as consumer staples. One segment within the consumer staples industry that fits well into a defensive strategy is food and beverage stocks. Demand for these types of products tend to be relatively inelastic compared to other areas of the market. For the average investor, one of your best options for gaining exposure to this market segment is the PowerShares Dynamic Food & Beverage Portfolio (PBJ).

For those unfamiliar with this ETF, it seeks to invest at least 90% of its assets in 30 companies related to the manufacturing, sale and distribution of food and beverages. Taking a look at the five-year weekly chart below, you can see that the uptrend is stronger than just about anywhere else in the public markets. An investment in this broad fund in early 2010 would have led to more than a 100% return. (For related reading, see: Consumer Staples Defend Against Volatility.)

PBJ Fundamentals

For traders unfamiliar with this ETF, it trades with a reasonable total expense ratio of 0.61%. Traders looking to build a portfolio of quality food and beverage stocks, which tend to have betas lower than the rest of the market, may want to investigate the top five holdings shown in the table below:

Company

Weighting (%)

Kroger Co. (KR)

5.38

Starbucks Corp. (SBUX)

5.00

Sysco Corp. (SYY)

4.94

Kellogg Co. (K)

4.84

General Mills Inc. (GIS)

4.84

Source: invesco.com

Profit from Your Morning Coffee

The significant outperformance of Starbucks Corp. over the past several months has rewarded investors of the PBJ fund. Based on the five-year weekly chart shown below you can see that the stock is trading near its highs and there is little reason to expect this uptrend to reverse any time soon. As the company diversifies its operations, builds new stores and increases the scope of its offerings it will undoubtedly gain new customers and investors are obviously in agreement. (For more, see: Coffee Continues to Shine in the Commodities Market.)

Kroger Co. Leads the Way Higher

Active traders would be hard-pressed to find a stronger performing stock in the U.S. market than Kroger Co. The food and drug store operator has seen its stock rise an impressive 73.08% over the past twelve months. While the RSI indicator suggests that the move could be overbought over the short term, there is little reason to think that his strong uptrend should reverse. (For more, see: Kroger Leverages its Strength to Get Even Stronger.)

Investing in the Basics

Sysco Corp. offers food and related foodservice products such as frozen foods, fully prepared entrees, fruits, vegetables, and desserts to restaurants and institutions. The company also offers non-food items such as disposable napkins, plates, cups and tableware. With a market capitalization of more than $22 billion and more than 50,000 employees, the company offers exposure to the food and beverage market like no other company in the market. Taking a look at the five-year weekly chart below, you can see that the stock has been trading within a significant long-term uptrend. Notice how the 50-week moving average (blue line) has acted as support on each pullback since early 2012. Active traders would expect the uptrend to continue until the price closes below the support of the moving average, which is currently trading at $37.69. (For more, see: Keep it Simple: Trade with the Trend.)

The Bottom Line

As volatility creeps into the markets and traders start to question the validity of the uptrend, it’s natural for retail traders to investigate stable sectors such as food and beverages. After looking at the PowerShares Dynamic Food and Beverage Portfolio it is apparent that it could be worth taking a look at defensive sectors such as consumer staples. Extremely strong uptrends suggest that this could be a sector that could continue to trend higher for some time. (For more, see: 3 Food Stocks Flying Under the Radar.)

Receive News & Ratings Via Email - Enter your email address below to receive a concise daily summary of the latest news and analysts' ratings with MarketBeat.com's FREE daily email newsletter.

Why Now is the Time for Food and Beverage Stocks Reviewed by on . As volatility and uncertainty creep into the markets many investors tend to turn their attention to defensive sectors such as consumer staples. One segment with As volatility and uncertainty creep into the markets many investors tend to turn their attention to defensive sectors such as consumer staples. One segment with Rating:
scroll to top