How to Capitalize on Sector Rotation

When you look at how the market has performed over the last six years – a long running bull market by historical standards – it’s easy to understand why some investors are getting defensive.sector-rotation
Semiconductor and biotech stocks got us this far, and now there’s a changing of the guard. The market is looking to shift from offense to defense and is turning to the defensive consumer staples space.
The consumer staples sector has outperformed the information technology sector over the last month. And yet, the current sector rotation could be a positive for the bull market, helping make it a bit more balanced.
The number of stocks hitting 52-week highs has been on the rise, while stocks hitting 52-week lows is falling. This suggests that there could be increased volatility in the market going forward.
In truth, the theme this week is focusing on preparing for increased volatility in the market for 2015. Consumer staples are a great place to take refuge during times of market volatility.
With all this in mind, here are the three best consumer staple plays:

Energizer Holdings (NYSE: ENR)

First up is Energizer Holdings, which is an underrated consumer staple. In part, this is because its market cap is smaller, coming in at $8.6 billion, which is much smaller than other consumer staples players.
Energizer is a maker of batteries and flashlights, but it is also in the business of skin care and shaving products. It has plans to split those businesses this summer, spinning off the household products business as Edgewell Personal Care.
Both of its segments are major players in their respective markets, and both should prove to be more efficient by operating independently. The other advantage to the split is restructuring savings, where Energizer is expected to save over $300 million after the split. For a company generating around $900 million in earnings before interest, taxes, depreciation and amortization (EBITDA), those savings are significant.
The company also offers a fairly solid 1.45% dividend yield.

Unilever (NYSE: UL)

Unilever is a giant in the consumer stables field, with a $129 billion market cap. It also pays one of the most robust dividend yields, at 3.1%. And yet, it’s been a lackluster performer over the last year, up just 5%
But with the upcoming sector rotation, Unilever could come back in favor. Other benefits includes its economic moat, which is a global distribution network and portfolio of products. Compared to other consumer staples companies, it also has an advantage in emerging markets –  which account for nearly 60% of sales.
Even with a vast portfolio, Unilever continues to bring new products to market which are having success. For example, it has successfully launched Knorr Stock Pot bouillon and Persil concentrated liquid detergent.

Mead Johnson (NYSE: MJN)

Mead Johnson is a major player in the baby formula market, with a $21 billion market cap. It’s also a key player in Asia and Latin America, where it generates nearly 75% of its sales. The other beauty of these markets is that they have a growing middle class.
Besides China, Mead Johnson has entered other emerging markets, like India, which have little traction. But that could change as wage growth and labor participation (by women) increases.
Mead Johnson also boasts a beta of just 0.7, which means that for every $1 fall in the market, Mead Johnson’s stock should theoretically only fall 70 cents.
Don’t forget about its 1.6% dividend yield, which is just a 40% payout of earnings. And Mead Johnson has upped its dividend for five straight years.
Who knows when the bull market will end. Trying to predict the peak is a fool’s game. But it never hurts to be defensive, and the beauty of most consumer staples stocks is that they still provide upside in a bull market, while also paying dividends.

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