The stock: Sysco Corp.
The Trend:
Defensive sectors, such as health care, consumer goods, transportation, utilities and telecommunications are among the areas that have shown bullish trends in recent months. The current rotation from commodities to boring value and income stocks may continue to be a major theme of the coming summer.
Investors are in an anxious mood with a bull market that is now two years old and counting. More than 20 per cent of the stocks listed on the TSX, NYSE, Nasdaq and Amex exchanges are in a Stock Trends Weak Bullish trend - a category that indicates a stock has dipped below trend line support. Added to the 28 per cent of stocks that are already in a bearish trend, the face of the stock market is growing a tad pale.
Commodity stocks are particularly vulnerable, with materials, mining and energy stocks all in Weak Bullish trends. Investors in these groups must make a decision: Hang in for a bullish rebound or rotate toward defensive sectors.
The technical analysis that is behind Stock Trends indicators does not offer guidance for evaluating the value of income stocks, but conservative investors should take interest in the technical triggers that indicate the time is ripe for low-volatility U.S. big-capitalization income stocks in sectors such as food products.
The Trade:
Shares of Sysco Corp. broke out last week, and the stock is a current Stock Trends pick. Sysco is the largest food products distributor in North America, with annual revenue of $40-billion (U.S.). Its ubiquitous trucks supply food service companies, including restaurants and institutions.
Until the current breakout, Sysco's stock had been largely flat over the previous 12 months, even while the S&P 500 was going up. Last week's rally on unusually high trading volume drove the stock above its May, 2010, peak and delivers a trading opportunity for conservative investors coveting the company's 3.2-per-cent dividend yield.
The Upside:
This trade assumes a levelling off in rising fuel costs and food inflation, both unfriendly to Sysco's bottom line. Canadian investors must also be aware of exchange rate risk, since Sysco's share price and dividend are both in U.S. dollars. Technically, a revived bullish trend for this stock suggests a modest 10-per-cent advance from the current share price before resistance restrains the breakout.
The Downside:
In many eyes, inflation remains a risk and the commodity bull ride is scheduled to return. If so, this trade looks far less attractive. A drop back to the stock's 40-week average price at $29 is not out of the question.