It might be time for the U.S. retail sector to rejoice after March sales registered an increase since November. But we believe consumer staples will emerge as the real beneficiary. Agreed, vehicle sales hogged attention in the March retail sales report, but sales rose at grocery stores, restaurants and bars, and drug stores on a wider scale.
Staples Sales Stand Out in March
Overall, retail sales rose 0.6% sequentially in March 2018, rebounding from a 0.1% decline in February and beating market expectations of a 0.4% gain. Food & beverage stores (0.2%, the same clip as in February) and health & personal care stores (1.4% versus -1.1%) were some of the categories that drove the staples sector. Food services & drinking places also registered an increase of 0.4%, the same pace noticed last month.
Huge Room for Growth in Online Grocery
Per a study by the Food Marketing Institute conducted by Nielsen, online grocery sales are estimated to make up about 20% of total grocery retail by 2025 to reach $100 billion in consumer sales. Wal Mart (WMT) and Amazon (NASDAQ:AMZN) both are betting on this evolution. Walmart and logistics firm Postmates are joining hands to expand the retailer’s online grocery delivery option to more than 40% of U.S. households.
Amazon is also striving to strengthen its presence in that category. With about 18% market share in the online grocery, Amazon is leading the space. Within only four months of the acquisition, Whole Foods' 365 Everyday Value brand became Amazon’s second best-selling private-label brand after AmazonBasics, per One Click Retail. Whole Foods delivery via Amazon Prime is now accessible in seven cities and continued expansion across the United States is planned throughout the rest of the year (read: E-Commerce Face-Off: Wal-Mart (NYSE:WMT) Vs. Amazon ETFs).
Consumers Still Value Conscious?
Economists predict that healthy consumer confidence, a solid job market and the tax reform tailwind will boost consumer spending growth in the months ahead. But according to Wall Street Journal, the wider trend in consumer spending hints at moderate growth despite an uptick in worker paychecks. If this is the situation of consumers’ spending pattern, they would probably buy more staples than discretionary items.
Geopolitical Tension
Recent geopolitical tensions related to U.S.-led airstrikes on Syria may not be given much importance but souring relations of the United States with Russia (slapped with sanctions for supporting Syria government) and China (the latter may involve in a trade war with the United States) are causes for concerns and can disrupt market movement any time.
If this happens, investors will invariably flee to a safe sector like consumer staples. Moreover, safe-haven assets like U.S. Treasury gains in market volatility and yield falls. Staples stocks perform better in a low-rate environment (read: Winning ETF Areas of March).
Against this backdrop, below we highlight a few staples ETFs & stocks that could offer you good gains ahead (read: Staples ETFs: What Investors Need to Know).
ETFs in Focus
PowerShares Dynamic Food & Beverage Portfolio PBJ– Up 1.23% on Apr 16
The fund is dedicated to food and beverage companies with top allocations going to Constellation Brands Inc (NYSE:STZ), Sysco Corp (NYSE:SYY) and McDonald's Corp (NYSE:MCD).
PowerShares DWA Consumer Staples Momentum ETF (LON:PSL) – Up 1.14% on Apr 16
The underlying index looks to track companies that are showing relative strength (momentum). Food Products (22.76%), Diversified Consumer Services (17.27%), Beverages (13.74%) and Personal Products (11.64%) are the top four industries.
Vanguard Consumer Staples ETF VDC – Up 1.14% on Apr 16
Soft Drinks, Household Products, Packaged Foods & Meats, Tobacco and Hypermarkets & Super Centers get double-digit exposure to the fund.
Stocks in Focus
Ruth's Hospitality Group Inc. (NASDAQ:RUTH) – Up 1.37% on Apr 16
This is one of the largest fine dining steakhouse company in the United States, sporting a Zacks Rank #1 (Strong Buy). It has a VGM (Value, Growth, Momentum) Score of B.
Diplomat Pharmacy Inc. (NYSE:DPLO) – Up 4.60% on Apr 16
The Zacks Rank #3 (Hold) company operates as an independent specialty pharmacy in the United States. It has a VGM Score of B.
The Kroger Co. (NYSE:KR) – Up 1.85% on Apr 16
The Zacks Rank #3 company is one of the world's largest food retailers. It has a VGM Score of B.
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PWRSH-DYN FD&BV (PBJ): ETF Research Reports
VIPERS-CONS STA (VDC): ETF Research Reports
PWRSH-DW CON ST (PSL): ETF Research Reports
Diplomat Pharmacy, Inc. (DPLO): Free Stock Analysis Report
Ruth's Hospitality Group, Inc. (RUTH): Free Stock Analysis Report
The Kroger Co. (KR): Free Stock Analysis Report
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Zacks Investment Research