Fundamental Face Off: Tech vs. Consumer Staples

Despite the fact that the S&P 500 was down 63 bps today, there was one sector SPDR that closed in the green: $XLP (consumer staples).  To juxtapose this, the tech sector SPDR ($XLK) was down 81 bps, underperforming the S&P 500.  Today’s divergence is a continuation of a trend that’s been ongoing for several months.  As the XLP continues to make new highs, the XLK can’t break above levels it reached in April of last year.

Below is a comparison of some fundamental metrics of the 5 largest holdings of XLP vs. XLK.  For each index the top 5 holdings represent 40-45% of the total holdings.  I broke the fundamentals into two general categories: valuation and quality.  The tech companies beat the staples companies on every fundamental metric that I pulled: better margins, better returns on capital and better growth (past and projected).  And the tech companies are also cheaper on every metric except for PE; they are significantly cheaper on a P/FCF basis.  On top of that, the tech companies are skewed by the fact that AT&T is XLK’s 5th largest holding, which I would argue trades like it should be in XLP.  If ORCL, the 6th largest holding, were to be swapped in, the picture would be even more skewed on both the value and quality sides of the equation.

 

XLK vs. XLP Fundamentals

 

XLK vs. XLP Top Holdings

 

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