Nobel Prize-winning economist Paul Samuelson once said that investing should be like watching paint dry or grass grow. "If you want excitement," he went on, "Take $800 and go to Las Vegas." Intentionally or not, he was making the case for shares of companies that sell consumer staples.
Over the past year, stock-market fancy has turned from iPhones to electric cars to Twitter (TWTR) and back to iPhones again as investors search for the "next big thing." But while technology and social media may get more headlines (or at least tweets), shares of companies that make utilitarian products people use everyday sport excellent charts.
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Procter & Gamble (PG), which makes such mundane items as laundry soap, toothbrushes and toilet paper, is not making headlines by curing cancer or conducting missions to Mars. For investors, that is a good thing because as a mature stock it is moving a bit more slowly—and predictably. It also seems to follow technical analysis rules a bit better, so its recent long-term breakout is likely to be more reliable and last longer.
P&G spent most of 2013 in a trading range between roughly $75.50 and $82.50. Last month, it finally broke out to the upside. It was not a dynamic breakout with huge volume and heavy media coverage, but it was indeed a positive technical event. Over the past two weeks, it eased back down to once again trade at the top of its former range before rebounding nicely during the market's Dec. 6 post-jobs report rally (it traded at $84.75 Monday afternoon).
Chart watchers will note that the decline and recovery was a "test" of the breakout. It allowed late bulls a second chance to buy at lower prices, and they did in a big way. Demand now dominates supply, and that suggests higher prices ahead.
P&G made a similar move last year as it broke out from a two-year trading range. It took a few months for the rally to develop as the stock tested its breakout not once but twice, but the rally did indeed progress. And today, trends in short-, medium- and long-term time frames are now up.
There is an added benefit to a stock such as P&G. It is a member of the defensive consumer-staples sector, which tends to hold up better during market downswings than technology and consumer-discretionary sectors. It may put on an exciting show during bull markets, but as Samuelson suggested, investors should leave exciting to the roulette wheel.
Church & Dwight (CHD), maker of birth-control products and baking soda, made a similar breakout above its respective 2013 trading-range top. It spent all of November testing that breakout until finally resuming its rally with a new high last week.
Such a pattern—a breakout, pause and breakout—does bode well. Unlike the sexy names of today, however, its percentage moves are going to be more sedate. That means investors are less likely to see huge, unexpected price swings.
Clorox (CLX), maker of cleaning products and charcoal briquettes, has a different pattern that shows steep gains over the past few months. It is trading at the top of its long-term trend channel and therefore is at a bit more risky than its peers for a corrective decline. Investors can keep it on their watch lists and revisit it if and when the stock pulls back to the vicinity of its 50-day moving average. At its current rate of ascent, the average should reach $90 in about a week's time. Clorox traded at $95.65 Monday afternoon.
There are other stocks in the group that have been quite strong, although not quite as strong as the broad market over the past four months. Lawn- and garden-products maker Scotts Miracle Gro (SMG)—which actually helps grass grow—and battery and bug-spray maker Spectrum Brands (SPB) both boast double-digit percentage gains this year, but as with Clorox are also trading at the tops of their respective trend channels. They would be better as "buy the dip" candidates, in my view.
Consumer nondurable stocks are not going to make headlines like the next social-media public offering will. What they can make, however, is money, and in the long-run that is a lot sexier for investors.