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.
