The stock: Atco Ltd.
The trend: Defensive stocks are looking buff again. Health care, consumer staples, utilities - all are showing strength as market volatility tests investor confidence. This rotation toward more stable assets will continue unless the inflation trade reignites.
Stocks in the consumer non-discretionary area and the health care sector have been among the biggest beneficiaries of the growing desire for safety. The S&P Consumer Non-Cyclical index and the S&P Healthcare index rank among the top three-month performers in the 10 major U.S. sectors. Recent share price trends of PepsiCo and Johnson & Johnson typify the spring march of blue chip names in these traditionally defensive areas. Canadian reflections of this strength can be found in the stocks of Saputo , the cheese maker, and SXC Health Solutions , which provides pharmacy benefits management. Both have been frequent flyers in the 52-week-high club.
Investors should not forget about utilities stocks, though. Companies that are sensitive to interest rates, such as utilities, tend to suffer in an environment where rates are rising, or expected to rise. However, utilities stocks are performing solidly and have now achieved positive price performance against the broader market. Duke Energy is among many U.S. utilities stocks hitting new highs amid recent market gyrations.
The solid dividends of utilities will attract even more investors if the market shows signs of weakening. The number of North American stocks categorized as Stock Trends Bullish has dropped from 63 per cent to 52 per cent over the past month, a sign that risk-adverse investors should hold dear trustworthy streams of income.
The Trade: The fired-up stock of Atco Ltd. illustrates the general rotation toward the utilities sector. Atco is a conglomerate with extensive operations in power generation, transmission and storage, as well as industrial construction and logistics services. Shareholders should be happy with the stock's push to new 52-week highs and can expect more advances in the months ahead.
The Upside: This bullish trending stock is looking like a good bet to return to the $65 mark it peaked at in late 2007. Multiples on this stock stretched to the 2007 level suggest setting a further 20-per-cent advance as a trend objective.
The Downside: The trend line, currently at $59, should be a secure support level. A serious drop below would signal a major shift in market conditions.