logo

Kellogg, McCormick and other staples are surging, and the rally might just be getting started

VIDEO3:3903:39
The rally in your cupboard might just be getting started

A handful of household names like McCormick, Sysco and Kellogg have surged in recent months. One market watcher says this staples rally is just getting going.

Amazon similar item screenshot 181002 KIM

“As the rhetoric around a trade war really starts to become real for people, a lot of investors are looking more defensively and there’s nothing more defensive than food stocks,” Gina Sanchez, CEO of Chantico Global, told CNBC’s “Trading Nation” on Friday.

Consumer staples rallied to begin July as the first round of tariffs between the U.S. and China went into effect and hopes for a quick trade resolution faded. The XLP consumer staples ETF is up more than 1 percent this month after a nearly 4 percent rise in June. Defensive sectors like consumer staples typically outperform when market uncertainties rise.

It’s more than just an investor hideout, said Sanchez. The group’s fundamentals also look solid.

“The outlook for these stocks has been really good, but they have been out of favor because everyone wanted growth,” added Sanchez. “All of these guys, they’re cheap and there isn’t that much that’s cheap out there.”

Names like Kellogg and Sysco trade at less than 20 times forward earnings, while the XLP ETF has a 17 times multiple. The trades at 16 times earnings, though some of its more expensive components such as Amazon trade at a multiple many times higher.

Bill Baruch, president of Blue Line Futures, said the charts suggest more upside for the consumer staples group.

“I see further momentum. The broader sector ETF, the XLP, has some momentum behind it,” Baruch said Friday on “Trading Nation.”

Baruch sees a possible swing to April highs at roughly $53.50 a share. That marks another 2.5 percent increase from current levels.

“There’s one I’m keeping a close eye on too in Mondelez, which has buyout rumors and there’s some good tailwind on technical factors,” added Baruch. “It has some potential room to run pretty well.”

Mondelez is one of the best performers in consumer staples over the past month. It is up 3 percent in July, roughly triple the gains seen in the rest of the space.