Sector Profit Alert: Consumer Staples

June 18, 2009

Welcome to Sector Profit Alerts, Friend!

As I mentioned last week in What’s Working on Wall Street Now, we are embarking on another exciting journey together—this time, with our eight-week trading series: Sector Profit Alerts. Each week we’ll identify the hottest stocks in the hottest industries.

But I must make this clear right away: You will only get buy and sell instructions on these FREE weekly stock picks here in my Thursday eletter, so make sure you carefully read each installment carefully. I will not be following our Sector Profit Alert stocks in any other newsletter or elsewhere on NavellierGrowth.com, so these Thursday messages from me are more important now than ever. I really don’t want you to miss any of this crucial advice!

Sector Profit Alert: Consumer Staples

While much of the world is still finding its way through this recession, the “Consumer Staples” sector has been insulated from much of the trouble and its strength makes it a perfect fit for our first issue of Sector Profit Alerts.

Consumers will continue to buy items like food, soap and toilet paper regardless of any gyrations on Wall Street. These items are necessary to live and work in any market. This is what makes this such a great sector when times are tough, and right now is an excellent time to move some of your portfolio into Consumer Staples stocks.

You see, this sector was hot in the summer of 2008 when the recession was hitting hard and Americans were slashing spending. But then gas prices, which topped out at about $4 a gallon nationwide, started to recede. Oil dropped to about $30 a barrel by the end of the year and without the pain at the pump, Americans had a bit more disposable income and consumer confidence was up.

But now, with crude oil more than twice what it was on Dec. 31, we’ve started to see gas prices rise and the beginnings of a consumer pullback due to economic uncertainty. Just look at May’s disappointing retail sales numbers—if you exclude the higher cost of gas from the data, there’s actually no increase at all in spending.

That’s why I expect Americans to start getting a bit more nervous in the coming weeks. Add to that rising unemployment in the wake of recent automaker bankruptcies and you’re going to see consumers focusing only on necessary purchases.

That’s why investors like you should get back to basics before the surge. To help you profit from this sector trend, I have a few specific stocks for you. Let’s get right to them.

Consumer Staples Breakdown

The Consumer Staples sector contains several different industries, but can essentially be broken down into two parts—manufacturers of food and household products and retailers of food and household products.

These are two sides of the same coin, but one side is going strong right now while the other is lagging. There are a few reasons behind this:

First, consumers are looking for the best deals and stores have slashed prices to attract business. These price cuts have cut into their profit margins. They may be charging a bit less for the goods, but the rent or taxes on their property have remained the same. Because of this many stores are operating on the razor’s edge.

Food manufacturers, on the other hand, have lower costs due to international operations and cheaper labor while maintaining prices or only lowering slightly.

So in a nutshell, if you want to cash in on the strength in the Consumer Staples sector, be sure to focus on companies that are growing the food or producing the products instead of the merchants selling the goods in their stores.