Today, the raid on risk assets is extending to the fifth session in a row. Growth stocks continue to poison portfolios, and rising rates remain the apparent enemy. If you tire of the bloodbath and seek shelter, I suggest taking a good look at defensive sectors. I scanned the space for this week’s top stock trades and found many quality candidates holding firm.
For the unaware, so-called defensive sectors are named such for multiple reasons.
First, they have lower volatility. Second, they include industries that are less sensitive to the business cycle. Third (and related to the second), they thus have cash flow streams that are more consistent and reliable. Health care, consumer staples, and utilities fall under the defensive umbrella.
Here are three of my favorite setups. Some of their peers have already run too far from low-risk entry points. These have not.
Let’s take a closer look at each and map out a trade to profit.
Top Stock Trades for the Week: Comcast (CMCSA)
Comcast has been in a downtrend since September. A string of failed bounces litters its history, with many falling at the doorstep of the declining 50-day moving average. Now is the time if the current rally wants to succeed where its predecessors did not. For the past two weeks, we’ve been basing sideways.
The relative strength has been impressive given the selling frenzy striking everything else. The longer we stay up here, the more likely an upside breakout becomes. Each day we chew through more supply. Eventually, it will dry up, and prices should leap higher. I suggest using $51.30 as your line in the sand. Pushing above it will confirm the trend is reversing.
I don’t mind a long stock trade here, but if you also want to use options to juice your returns, then consider the following call spread.
The Trade: Buy the March $50/$55 bull call for around $2.
You’re risking $2 to make $3 if CMCSA climbs above $55 by expiration.
Bristol-Myers Squibb (BMY)
Bristol-Myers Squibb is topping my watch list in early-trading Monday. The 2.5% gain stands in stark contrast to the sea of red everywhere else. But, importantly, it’s not just this single feat of strength that speaks to me. Instead, it’s the consistent outperformance that began when BMY stock bottomed last November.
Prices are up 21% since then. Every retracement has been extremely shallow, revealing how quickly buyers have accumulated shares. BMY broke above horizontal resistance and the 200-day moving average with this morning’s jump. That clears the way for a return to the old high near $70. Given the trend strength, it could take a while, but I wouldn’t bet against it.
The Trade: Buy the March $65/$70 bull call spread for $1.55.
The max loss is $1.55, and the max gain is $3.45.
Top Stock Trades for the Week: Abbot Laboratories (ABT)
We’re returning to the healthcare sector for the final top stock trades idea. Abbot Laboratories boasts one of the best long-term uptrends I’ve seen. It ended 2021 at a record high which makes the current bout of weakness attractive. We’ve cracked the rising 20-day moving average, but I count that we’re above the 50-day as more critical.
The correlation between ABT and its sector has been high during the pullback, and now both are offering clean buy-the-dip patterns. The key is to wait for evidence that buyers return before pulling the trigger. I suggest using Friday’s high ($136.18) as the signal.
The higher implied volatility does make selling put spreads more interesting on this pick versus the others.
The Trade: Sell the February $125/$120 bull put spread for 70 cents credit.
You’re risking $4.30 to make 70 cents if ABT stock sits above $125 at expiration.
Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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