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Goldman: Consumer Staples Should Continue To Outperform Despite Slowdown In US Growth

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Goldman Sachs says, “Data have shown deterioration in overall US consumer packaged goods (CPG) sales trends since early May 2010. Even so, we still expect Consumer Staples stocks to keep pace or outperform the broader market for two reasons: (1) We see earnings support from healthy emerging market sales and benign commodity costs. (2) Staples typically outperform the S&P at this stage of the cycle when ISM moves from peak back to 50.”

“Investors have rotated into the defensive Staples sector during the recent market retreat, with more US-oriented Staples names posting the best relative performance. We believe the specter of deflation in select consumer packaged goods (CPG) categories poses some risk to the traditional defensive nature of the US-centric companies…. Amidst the deteriorating overall US CPG picture, there are select categories where second-derivative trends are accelerating. Alberto-Culver is poised to show an improving top-line,” the analysts mention.

Goldman adds, “We would also steer money in the sector towards stocks with emerging market exposure. There is limited risk of deflation and demand is growing as the emerging middle class enters many of the CPG categories for the first time. Indications on trends remain solid and the recent retreat in the US Dollar also supports to estimates. Our preferred stocks (all rated Buy) include Colgate, Philip Morris International and Mead-Johnson. These names generate about 50% or sales from emerging markets and have little or no exposure to categories where promotion is aggressive in the US.”

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