Better Earnings Indicate Strong Sector Trends

Stock markets continue to trade at elevated levels, and this shows that investors are positioning for changing policy perspectives at the US Federal Reserve without much to create negative sentiment. Some of these positives, however, have come from the fact that earnings themselves have shown relatively little weakness. And, at this stage, it is a good idea to start looking at which sectors are likely to show strength for the remainder of this year.



One of the best earnings stories in recent weeks was the quarterly performance shown by Campbell's Soup Co. (CPB), and this creates some interesting opportunities for the sector as a whole given the strength in its domestic sales numbers. It can be argued, however, that most of the move in CPB has already been seen or that the broader growth potential in the company is limited when compared to what could easily be seen in some of the company’s small-cap counterparts. One of the better choices here can be found in SoupMan, Inc. (SOUP), as there are several fundamental factors that should push valuations higher in coming quarters. As the economy continues to stabilize, the rising tide will lift all boats. But some of the best stock selections will likely be seen in the consumer staples and food sectors -- and there is little reason to rule out small-caps when looking for longer term exposure.

Earnings and Consumer Sales

“Quarterly earnings came in showing gains of 19% on a yearly basis,” said Sam Kikla, markets analyst at BestCredit. “This comes out to 76 cents per share when we look at earnings from continuing operations.” In addition to this, net earnings increased to $1.03 per share which was an impressive gain of 72% from the year prior. These numbers were well above analyst estimates and were driven largely by improvements in domestic demand from US markets. Net sales were 6% higher, coming in at roughly $2.3 billion and Campbell’s is now revising higher its projections for the remainder of 2014.


(charts created using OT Trend)

All of this points to clear positives for the sector, and for growth stocks that are well-positioned in these market segments. For these reasons, stocks like SOUP deserve another look, which gained a good deal of exposure after its media campaigns focused on Super Bowl audiences. For its own growth prospects, recent contractual agreements with Robert Azinian and CCA Foods will continue to create opportunities for the company to raise its profile in Canada and the US (largely in casino restaurants) and this offers diversified positioning for the company, given its sales presence at both Whole Foods and Wegman’s. SoupMan’s market cap of just under $20 million places the company in a strong position within the industry. The stock is currently trading near the lower levels of its yearly range, so there are clearly some valuation opportunities here that should be considered given the broadly positive outlook for the sector.

In all, consumer sector stocks should continue to see support throughout the remainder of the year. But it is important for investors to look past the biggest names and to find alternative opportunities, given the lack of potential growth that can be found in a stock like CPB. One of the better approaches here is to gain exposure to companies like SoupMan, Inc, as there is a greater potential there for long term gains.