Markets remain under pressure, and investors are on the defensive. Rather than chase hot sectors, capital is rotating into safe havens that offer more stability. And that bodes well for consumer staples stocks. Their low beta and less economically sensitive business models make them a popular spot to hide money when uncertainty strikes.
The recent omicron variant and anxiety over how quickly the Federal Reserve will start raising interest rates have investors on edge. We just saw inflation surge at its fastest pace since 1982 in November with a scorching hot 6.8% year-over-year jump. It could advance the Fed’s timeline and cause continued market volatility as equities adjust.
That said, consumer staples stocks are holding firm in the face of all the drama. So here are three of my favorite picks in the sector. Each is up significantly over the past week and boasts charts worth chasing.
Consumer Staples Stocks: Coca-Cola (KO)
With this week’s leap, Coca-Cola shares notched a new 52-week high, clearing significant resistance in the process. The breakout clears the way for a return to its record high at $60. Volume patterns offer compelling confirmation. The last seven up days saw above-average participation, signaling institutional accumulation.
Implied volatility is low enough to make long premium strategies tempting. For example, I like buying a longer-term, in-the-money call and selling a short-term out-of-the-money call against it to create a bull call diagonal spread.
The Trade: Buy the Feb $55 call while selling the Jan $60 call for $3.50.
The max loss is limited to your original purchase price. If KO stock climbs to $60 by expiration, you can capture $1.50 per share.
Walmart (WMT)
The trajectory of Walmart’s weekly trend has flattened over the past year, but after the solid five-year run it just had, the rest is well-deserved. The recent rebound off of the $135 long-term support zone makes me optimistic over the near term. The retail giant has climbed for four sessions in a row, with increasing volume adding legitimacy to the move. We’ve quickly moved back above all major moving averages, clearing multiple potential resistance zones in the process.
With the short-term trend back up and consumer staples stocks in vogue, I think a run to the top end of the range at $152.50 is likely. Once again, low implied volatility has me eyeing long options trades.
The Trade: Buy the Jan $145/$150 bull call spread for $2.
You’re risking $2 to make $3 if WMT stock rises to $150 by expiration.
Consumer Staples Stocks: Johnson & Johnson (JNJ)
Johnson & Johnson has staged quite the turnaround this month. It entered December 13.3% off its high and below all major moving averages. However, after rallying for two weeks straight, it’s now regained the high ground. Monday’s breakout bar was particularly noteworthy. JNJ was able to blast through critical resistance at $166, officially ending its short-term and intermediate-term downtrend.
The stage is set for an eventual return to the $180 peak. Again, similar to WMT, I like to call vertical spreads here. They offer a cheap, limited-risk way to play. And, again, implied volatility is low enough to support the idea.
The Trade: Buy the Jan $170/$175 call vertical for $2.40.
You’re risking $2.40 to make $2.60 if JNJ rises above $175 by expiration.
On the date of publication, Tyler Craig was LONG WMT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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