The Stock: Alberto Culver Co.
Recent price: $29.42
The Trend: When the pendulum of investor sentiment swings, bearish defensive stocks show their polish. Typically, utilities, telecommunications, consumer staples and health care stocks display relative strength as the market turns increasingly bearish. The majority of North American equities are now categorized as Stock Trends Bearish and these defensive sectors are again in the spotlight.
Investors worried that the U.S. economy is destined for another dose of deflation have started to adjust their portfolios, with utilities and telecom stocks performing the best during the current market correction. This relative performance during a developing bearish broad market trend should continue to feed money flows to quality value stocks in these groups. While some investors are less inclined to act when the market is signalling changes in asset allocation, others will be looking to protect capital in uncertain economic conditions.
The consumer non-discretionary sector attracts investors to the stable operating cash flows of major consumer product brands. While recent trading volume has been tame in the group, share prices of funds holding these consumer staple stocks are beginning to perk up. Although currently in Stock Trends Bearish categories, sector exchange traded funds like the Consumer Staples Select Sector and Vanguard Consumer Staples are outperforming the S&P 500 index by 6 per cent in the past three months and have logged positive gains in recent weeks. Among other blue chip consumer staple stocks, Procter & Gamble and Colgate-Palmolive have made positive gains in July, giving investors reason to shift into the category.
The Trade: As the stock market turns south, the number of buying opportunities for trend-following equity traders thins - although with all the new bear funds listed on exchanges there are now instruments to trade in a failing market. But sometimes defensive stocks pop up in bullish trend filters. Count beauty care and household product manufacturer and distributor Alberto Culver Co. among the most recent stock picks. Although the company is not nearly the size of competitors like Kimberly-Clark Corp., Estée Lauder Cos. Inc., or even Avon Products Inc., Alberto Culver's core brands are familiar names to consumers.
The stock advanced through intermediate-term resistance at $29 (U.S.) last week, adding to its relative price performance gains. It is about to return to a Stock Trends Bullish category - the 13-week moving average trend line crossing above the 40-week moving average trend line - after turning bearish when shares faltered in the first quarter of the year. This is a good time for investors to add Alberto Culver shares to a portfolio of non-cyclical consumer stocks.
The Upside: This week's trading volume should elevate in advance of the company's earnings results next Monday, possibly pushing shares above $30 and to a new 52-week high. If the market is happy with the results, shareholders can expect continued relative price performance - something that will be at a premium if the broad market continues to suffer.
The Downside: Buying a stock in advance of earnings results always runs a risk of disappointment and an abrupt retreat in the share price. The stock could slip back below $28.50 and toward its intermediate term trend line. However, that result that might still leave it performing above market in the context of further broad stock market declines.
Skot Kortje