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Rating the Three Consumer Sectors

Tickers in this article: AEO DKS FL PETM TECD VRA WFM
NEW YORK (TheStreet) -- At ValuEngine we track three consumer-oriented sectors. Based upon my analysis of the distribution of buy rated stocks vs. sell rated stocks, consumer discretionary stocks are skewed to the sell rated category, while consumer staples and retail-whole stocks are more heavily weighted to buy rated stocks.

This dispersion is a sign of a weakening economy as the number of sell rated consumer discretionary indicates to me that consumers just keep their hands on their wallets, and as consumer sentiment remains well below normal.

The consumer discretionary sector may be just 4.3% overvalued, but among the 437 stocks in this sector there are only seven buy rated names, with 47 sell rated names and eight rated strong sell. To me this configuration gives the sector an underweight rating.

The consumer staples sector is most overvalued sector by 14.6%, but among the 267 stocks in this sector 125 are rated buy with only 11 rated sell and four rated strong sell. Only four of the buy rated names are projected to gain more than 7.5% over the next 12 months. With 96.8% of these buy ratings projected to gain just 5.0% to 7.5%, I consider these ratings as weak buys. To me this configuration gives the sector an equal-weight rating.

The retail-wholesale sector is 12.4% overvalued. This sector has 358 stocks with two strong buys and 231 buys, and just 17 sells and three strong sells. Within this sector 52 of the buy rated stocks should gain more than 7.5% over the next 12 months. I give this sector an overweight rating as 65.1% of all stocks in the sector are rated buy, and with 52 stocks projected to gain more than 7.5% over the next 12 months. Today I profile seven of the retail-wholesale stocks that made the cut.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.