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CONSUMER DISCRETIONARY VS. STAPLES

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Today we look at the high relative valuation of Consumer Discretionary vs. Staples stocks. Current levels have not been seen; at the 2000 high in which the bubble burst', the ratio stood near 1.40. We believe that this stretched valuation' argues for one to reassess their portfolios in terms of the shares within them. To move into Staples would imply a defensive move' related to a decline in the overall stock market. While that may not be today's or tomorrow's businessone must be cognizant of the high probability discretionary stocks will not outperform from this point forward.

If we are correct, and we must be buyers' then we must consider the largest holdings in each group. If we must be long: Altria (MO), Anheuser Busch (BUD), Coca-Cola (KO), Colgate Palmolive (CL), Gillette (G), Kimerbly Clark (KMB), Pepsico (PEP), Proctor & Gamble (PG), Wal-Mart (WMT) and Walgreen's (WAG). Conversely, we would be sellers of: Carnival (CCL), Comcast (CMCSA), ebay (EBAY), Home Depot (HD), Lowe's (LOW), McDonald's (MCD), Target (TGT), Time Warner (TWX), Viacom B (VIA.B) and Walt Disney (DIS). It may seem counter intuitiverelative performance is important.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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