Dave Carson, Ranjoy Choudhuri, Thaddeus Davis Consumer Staples Dave Carson, Ranjoy Choudhuri, Thaddeus Davis

SIM WT vs S&P WT Insert wt graph

Companies in Portfolio Overview: Companies in Portfolio Kroger (KR) Portfolio Wt. = 3.99% Wal-Mart (WMT) Portfolio Wt. = 3.61% Largest in Sector Wal-Mart (WMT) Proctor & Gamble (PG) Coca-Cola (KO) Philip Morris International Inc. (PM) Altria Group (MO) Costco Wholesale Corp (COST) The Kraft Heinz Company (KHC) CVS Health Corp (CVS) Walgreens Boots Alliance Inc. (WBA) Mondelez International Inc. (MDLZ) Consumer Staples: Non-cyclical Generally consistent dividends and earnings Strong market positions mitigate upside

Business Analysis: Sector has performed poorly against the broader S&P over the past year. *Much better over longer time horizons Consumer Staples will continue to confront challenges in the way of increasing commodity prices and margin compression - resulting from an inability to easily pass along price increases as competition from online retailers intensifies.

Economic Cycle: Late Recovery Economic Cycle: Late Recovery. Traditionally, a good time for Consumer Staples.

Economic Analysis: Forward GDP looks stable and to outpace inflation overall. 15% probability of recession according to forecast.

Regression Statistics Multiple R 0.98127737 R Square 0.962905277 Adjusted R Square 0.962218338 Standard Error 17.94944734 Observations 56 Highly correlated to Unemployment Rates

Financial Analysis: Balance Sheet Liquidity has remained relatively constant at $29/share for the years ended 2016 and 2017 2018 estimates for book value per share goes down to $108 compared to $109 the previous year. However, estimates for 2019 indicate a book value of $114/share

Financial Analysis: Income Statement Projections for sales growth & earnings are strong in the near term – as some analysts look for a rebound following the (-) TTM returns. Long-term projections are more tepid from a growth perspective.

Financial Analysis: Cash Flow Free Cash Flow for the sector is estimated to grow by 9% as of year end 2018 and 14% by year end 2019. Dividends as of year end 2018 and 2019 are expected to go up to $16.51/share and $17.67/share, respectively. This increase is mainly driven by the expected increases in the cash flow from operations.

Relative Valuation 17% below average 11% below average

Recommendations Select a handful of stocks in the sector that have high expected growth potential as they get closer to their intrinsic fair value – right sizing from the past year. Maintain current weight. While WMT and KR should get closer to their respective fair values, we can find other stocks in the sector that have a higher growth potential than WMT and KR, and thus outperform the broader S&P500.