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The Best Dividend Stocks for 2012 – Consumer Discretionary Sector

December 22, 2011 – Comments (0) | RELATED TICKERS: FUN , PFCB , ALV

S&P recommends overweighting the S&P 500 Consumer Discretionary sector. Year to date through November 18, the sector index, which represented 10.7% of the S&P 500 Index, was up 1.1%, compared with a 3.3% drop for the S&P 500. In 2010, this sector index rose 25.7%, versus a 12.8% advance for the 500. There are 32 sub-industry indices in this sector, with Restaurants being the largest at 14.3% of the sector’s market value.

S&P equity analysts’ fundamental outlook on the Consumer Discretionary sector is positive. S&P Economics forecasts U.S. real GDP growth of 1.7% in 2012, and sees consumer spending increasing 2.2%. We anticipate that thematic drivers in 2012 will include technology advances, continued international expansion, continued market segmentation of the targeted consumer base (demographic considerations, etc.), secular changes in consumer behavior (online vs. traditional), advances in digital media technology, and further shifts to ROI-driven audience aggregation. According to Capital IQ, the sector trades at a P/E of 13.1X consensus estimated 2012 EPS, which is greater than the S&P 500′s projected P/E of 11.3X. Its P/E-to-projected-five-year EPS growth rate (PEG) ratio of 0.9X is below the broader market’s 1.0X. The sector’s marketweighted STARS average of 3.8 (out of 5.0) is in line with the average of 3.8 for the S&P 500.

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