Paul Sakuma
The Stock: Coca-Cola Co.
Trend: Since March many of the trades directed in this column have been inspired by a bearish interpretation of the market prospect. If not advising a "sell," most of the recent stock profiles have directed readers toward defensive sectors, notably health care and consumer staples stocks. This is a typical rotation in uncertain times, and current Canadian equity sector trends reflect this. The S&P/TSX Health Care index has logged positive gains in 10 of the last 13 weeks, while the S&P/TSX Consumer Staples index has turned Stock Trends Bullish after rallying 17-per-cent higher in the third quarter.
Admittedly, these TSX sectors are thinly represented by a small number of stocks - the health care sector particularly primed by the performance of red hot Biovail Corp. while the TSX consumer staples sector is buoyed by food stocks Saputo and Viterra as well as the growth story of convenience store operator Alimentation Couche-Tard Investors looking for proper direction from these sectors should survey heavily capitalized U.S. stocks in these groups for a true reading of sentiment in this value-centric area of the North American stock market. The price trends among the most familiar companies serving non-discretionary consumer spending is illuminating, although the spotty pockets of performers tells us that investors are not indiscriminately buying these defensive stocks.
Positive recent price trends in Alberto-Culver and Avon Products hardly hide the bearish look of Colgate-Palmolive and Revlon nor the August dip in the shares of Estée Lauder . Summer strength in Kimberly-Clark Energizer Holdings and Clorox is nice, but shares of Procter & Gamble the blue chip member of the consumer goods segment, are uninspired at the lower end of a trading range and remain conspicuously categorized as Stock Trends Bearish. Bullish trends abound among tobacco, beer and spirits stocks, and the shares of the big non-alcoholic beverage names also delivered a refreshing summer performance.
Like Viterra, the short-term trends of agricultural commodity stocks Archer-Daniels-Midland and Bunge have turned positive. Food stocks like Kraft Foods General Mills Heinz Campbell Soup Co. and Sara Lee are in Stock Trends bullish categories. Even shares of Nestlé SA, the largest food company in the world, have earned a solid third-quarter performance. But that performance is not echoed in all food stocks: check out the charts of Unilever Kellogg Tyson Foods Con Agra and Chiquita Brands
The tempered strength of the sector over the summer shows up in the exchange-traded funds representing these stocks. The most actively traded of this breed is the SPDR Consumer Staples ETF It is outperforming the S&P 500 this quarter, but only marginally. A look at the components of the underlying index reveals that Proctor & Gamble (a 15-per-cent weighting) is a wet rag on the recent fund performance. However, investors can find other components of the group that sport a bullish trend and a solid dividend.
The Trade: What better iconic consumer brand than Coca-Cola? Its stock is a current Stock Trends Bullish Crossover, an alert that the 13-week moving average trend line is now above the 40-week moving average trend line, and is a leading Dow Industrial performer in the third quarter. The stock dipped below $50 (U.S.) at the beginning of July but has rallied to spitting distance of its peak last December - a telling resistance level around $59.50 that should invite more trading activity if it is penetrated. This consumer blue chip is an attractive buy.
The Upside: The best thing about holding Coca-Cola stock might be everything Warren Buffett says about his holding in the company. However, market-timing investors are most interested in whether a 10-per-cent expansion of the earnings multiple will usher the shares back to their pre-recession high. There is hope here for a strong finish to 2010.
The Downside: The relative merit of this holding will depend upon the performance of other sectors. A retreat below $55 would not be welcome among skittish technical swing traders.