Grocer-Driller Stock Gap Favors Reversal Trade: Chart of the Day

Grocers and oil and gas drillers may represent “the most out-of-whack trade” related to falling crude prices, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

The CHART OF THE DAY displays the stock-performance gap between the two industry groups, as Levkovich did in a Dec. 19 report. The differential is based on year-over-year percentage changes in the Standard & Poor’s 500 Food & Staples Retailing Index and the S&P 500 Oil & Gas Drilling Index.

Earlier this month, the spread surpassed 70 percentage points for the first time since April 1999, according to data compiled by Bloomberg. The retailing index, tracking Wal-Mart Stores Inc. and pharmacy owners along with supermarkets, ended yesterday’s trading with a 18 percent gain for the quarter. The drilling-industry gauge was down 29 percent.

A potential reversal in grocers relative to drillers is “far more intriguing” as the basis for a trade than a similar strategy in consumer-discretionary and energy stocks, Levkovich wrote. The consumer group consists of retailers other than the grocery chains and drugstores -- included in another category, consumer staples -- along with media companies, automakers, homebuilders and hotel owners.

Year-to-year performance gaps between the S&P 500’s consumer-discretionary and energy indexes have been no wider than 21.4 points this month. The peak was exceeded as recently as 14 months ago.

Many retailers may not fare as well as their shares’ “positive knee-jerk reaction” to falling oil prices would indicate, Levkovich wrote. The New York-based strategist added that “online challengers and vast amounts of retailing space” are concerns.