Sep 3, 2010 9:02 AM PDT
I've officially grown annoyed with this market. It's not that it's going down that bugs me - stocks sometimes deserve to go down. This time though, it's particularly annoying that stocks are being torpedoed for a combination of (1) no good reason other than "they're going down because they're going down", (2) the crisis in Spain/Hungary/Greece, (3) coming up short on the employment numbers, or (4) it's summertime.
On the surface they all seem troubling for stocks. In reality, none of them are well-rationalized reasons to sell.... the selling is a knee-jerk reaction that stems from the 'flight to safety/flee from risk' mindset that's been fostered by those four reasons.
Here's the thing though.... right or wrong, the reactions to those reasons are still something we have to contend with until the assumptions subside. Good news though - that 'flight to safety' has created opportunities out of UnitedHealth Group Inc. (NYSE:UNH), Campbell Soup Company (NYSE:CPB), and Kimberly-Clark Corporation (NYSE:KMB). Here's why you may want to add them to your portfolio sooner than later.
I made a point of mention in last Friday's newsletter that the healthcare plan providers were the only winners that day - a fact that should be interpreted as bullish for the likes of UnitedHealth Group Inc. (NYSE:UNH) and its peers. We're seeing the same kind of relative strength today from UNH, validating the outlook.
Why it's bullish: Healthcare is (mostly) recession-proof. That's not to say we're entering a recession again; it's just that investors see safety in healthcare, which will always be in demand. Thus, those stocks are safe bets. I specifically like UnitedHealth Group right now, as it's coming off a short-term low is a long-term bullish trading range.
-------------------------------------------------------------------------------
Sign-Up for Free to Receive Our Complete Opinions, Detailed
Analysis, and Timely Trading Alerts on UNH, KMB, and CPB.
-------------------------------------------------------------------------------
If the rest of the market is the hare, then Campbell Soup Company (NYSE:CPB) is the tortoise. That's fine by me. What CPB lacks in pizzazz it more than makes up for in reliable progress (supported by consistent earnings). In fact, this stock has pretty much been unfazed by the market's volatility over the last few weeks; the bigger uptrend has prevailed. Plus, with a current P/E of 15.7 and a forward-looking P/E of 13.6, it's not like there's a great deal of overvaluation risk.
Why it works: Like healthcare, no matter how nasty things get economically, people are not going to stop eating. In fact, they may well eat lower-priced goods like those made by Campbell Soup Company.
And finally, Kimberly-Clark Corporation (NYSE:KMB) shares have started to draw a buying crowd again following several months of consolidation. In fact, we've seen a converging wedge shape materialize since last September, and KMB is now close to the tip of that triangle (and will have to go somewhere soon). This one's a breakout waiting to happen, and anything above $63 should trigger it.
Why it should work: You already know what I'm going to say......Kimberly-Clark Corporation makes tissue, diapers, hospital supplies, and the like - all of which are going to be in demand regardless of what the economy's doing.
You get the idea here, don't you? Yeah, well here's the annoying part - these companies don't do any better or any worse when the economy's bad. For that matter, most of the 'risky' companies investors are dumping right now aren't going to do any worse - or better - than they were going to do this summer anyway. See, the mentality driving the flight to safety doesn't actually drive consumer spending trends - it just drives investment assumptions. And just to prove the point, all three of these stocks are up for the last few weeks, while the rest of the market is much lower, with no real reason to think bottom lines have been impacted yet.
The truth is, today's pessimistic outlooks about the market and the economy won't last through the quarter, so we won't even remember to put today's underlying assumptions to the test a couple of months from now. Yet, it doesn't change the fact that we have to contend with the assumptions now.
And you thought stocks were priced based on a rational valuation.....? If only. Welcome to the world's biggest chess match.
If you'd like to receive our complete opinions, detailed analysis and timely trading alerts on CPB, UNH, and KMB, be sure to Sign-Up for the SCN Newsletter today! It's FREE.
