This Consumer Stock Is Bucking the Trend. Here’s How to Trade It.
With staples stocks stuck in the pantry, this one is beating the sector and market, and serving up compelling risk-reward.
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“With a name like Smucker’s, it has to be good.”
That was the tag line for the old Smucker TV commercials in the 1980s. It was a clever, self-deprecating way for the Orrville, Ohio-based packaged goods manufacturer to build brand awareness. Smucker’s portfolio of products include Jif peanut butter, Folgers, Dunkin coffee, and Milk Bone dog biscuits.
While the old ads sing the praises of Smucker’s products, the stock itself hasn’t always been good. Over the past five years, J.M. Smucker Company (SJM) shares have actually lost ground, falling 7.6%.
Smucker Is Beating the Market
However, Smucker shares are enjoying a revival. The stock, which has gained 25% year-to-date, is beating the S&P 500, which has only managed an 8% gain. Smucker has just broken out of a cup-and-handle pattern (shaded yellow). That bullish pattern projects the stock to the $140 area.
Earlier this month, the stock’s rising 50-day moving average (blue) crossed above its rising 200-day moving average (red), a bullish momentum indicator.
A Trading Position in Smucker
While we maintain a core position in this stock, we’re adding a trading position at current levels, near $121 (ENTRY). Our stop will be located just beneath the stock’s 50-day moving average, which currently rests at $109.70 (STOP).
As the moving average rises, we can raise the stop, while keeping it just below that key indicator. If the price breaks through the 50-day moving average, we’ll exit the trade.
Our target for this trade is $140. This target was created by applying a measuring technique to the cup-and-handle formation. The reward-to-risk ratio of this trade is approximately 2:1.
Smucker Is Beating its Sector
The timing of this move is interesting because it comes as consumer staples stocks are languishing. The State Street Consumer Staples SPDR (XLP), a bellwether for that sector, has been flat since early March (shaded yellow).
Like the above chart, most food and beverage stocks are rangebound. One exception (in addition to Smucker) is The Kraft Heinz Company (KHC), which closed just one penny shy of its year-to-date high on Monday. However, Kraft Heinz is lagging well behind Smucker, gaining just 7.5% since the start of the year.
Earnings and Dividends
Smucker is scheduled to report earnings on September 1. The company just raised its dividend for the 25th consecutive year. J.M. Smucker currently has a dividend yield of 3.7%.
At the time of publication, Ponsi was long SJM.
