Top-3 Stock Picks in a Sector That Is Heating Up as the Market Cools Down

When the going gets tough, the consumer staples sector gets going. This sector is focused on items that consumers need to purchase, regardless of the state of the economy.

From January 15 through Wednesday’s close, the SPDR Consumer Staples Fund XLP gained over 8%. That’s impressive, considering the recent level of overall market volatility.

While the XLP's recent performance has been eye-opening, the ETF is nearing its all-time closing high, set in September of last year (black dotted line). A 1.9% pullback on Wednesday creates a nice entry point for investors. 

Let’s dig a little deeper. Here are the three names I find most attractive in the consumer staples sector right now. 

Walmart

The world’s biggest retailer disappointed investors last week when it predicted lukewarm earnings for the current fiscal year. Walmart WMT now sees earnings per share in the $2.50 to $2.60 range.

Investors responded by taking Walmart to the woodshed, temporarily knocking the Bentonville, Arkansas-based retailer below its 50-day moving average (blue). However, the selling seems to have subsided, as the stock gained nearly 4% on Tuesday. Walmart’s bullish trend is still intact. 

While the company's forward guidance was disappointing, I don’t see Walmart’s recent warning as company-specific. I believe this is more of an issue of inflation-strapped consumers hitting the wall. 

It’s also possible that Walmart officials are attempting to lower the retail giant’s ever-rising expectations. Walmart shares have gained 60% over the past 52 weeks, a stellar performance.

GRADE: A-

Colgate-Palmolive

In addition to the toothpaste and dishwashing liquid products listed in the company’s name, Colgate-Palmolive CL also provides well-known brands of deodorant, hand soap, and floor cleaning products. These are products that consumers will purchase regardless of the state of the economy. 

Shares of the New York-based company are down 12% over the past six months, but the stock is breaking out after a protracted decline. Colgate-Palmolive has gained 5% over the past seven sessions, and has climbed above its bearish trendline (black dotted line) and its 50-day moving average (blue). 

GRADE: B+

Kimberly-Clark

Year-to-date, Kimberly-Clark KMB has outperformed the major indexes, gaining 6.5%. This puts it well ahead of the S&P 500 (1.5% gain) and the Nasdaq Composite (-1% loss).

The Irving, Texas-based provider of tissues and undergarments recently formed a higher high by climbing above a nearby resistance level (point A). Kimberly-Clark is gaining despite an earnings miss in January, but investors appear to have shrugged off that news and are now buying the stock. 

GRADE: B-

At the time of publication, Ponsi was long WMT and CL.