- This week’s top stock trades take us to the consumer staples sector, which held firm during Monday’s massacre.
- Walmart (WMT): Its share price is only 6% off the high and holds the rising 50-day moving average.
- Verizon (VZ): Its juicy 5.27% dividend and steep share discount make it a compelling buy.
- Coca-Cola (KO): Has one of the best uptrends on the Street.
We’re at the stage of the cycle where companies dealing in soup, ketchup and soft drinks are the leaders. In times of turmoil, the consumer staples sector nearly always flexes its muscles. And that’s precisely what happened Monday when scores of stocks suffered double-digit percentage declines. I’m featuring three of the top performers for this week’s top stock trades to spotlight the relative strength.
The logic behind consumer staple’s outperformance is intuitive. The majority of companies that make up the sector are recession-proof to a large extent. Their goods are needed in good times and bad. And that makes their share prices far less economically sensitive. Today’s selections are all blue chips that need no introduction.
Let’s take a closer look at each chart and map out an intelligent way to play.
Top Stock Trades: Walmart (WMT)
Walmart (NYSE:WMT) is a good reminder of a quality uptrend. They’re rare these days, so you’re forgiven if you forgot what they looked like. March saw WMT stock cruise through resistance in one of its best upswings of the past year. It may as well have been an inverse ETF. The past two weeks of selling pulled prices to the rising 50-day moving average while creating a retest of the prior breakout at$150.
Monday’s 1.17% rally confirmed buyers defended their territory. A break above the previous day’s high would add further evidence. The next quarterly report arrives next week and remains an x-factor. Barring a significant misstep, I expect WMT to continue to provide stability.
The Trade: Sell the June $140/$135 put spread for 72 cents.
Consider this a bet that WMT sits above $140 at expiration. The max gain is 72 cents, and the max loss is $3.28.
While it doesn’t technically call the consumer staples sector home, Verizon (NYSE:VZ) still qualifies as a defensive stock with a history of outperformance during economic downturns. Sector classification aside, ask any consumer how they feel about their cell phone service, and I assure you, they’ll characterize it as a necessity.
VZ stock closed up nearly 1% on Monday. Sadly, the relative strength is only a recent phenomenon. Verizon shares are 22% off their highs, so they’ve suffered plenty alongside the rest of the market. But there is a silver lining to the beatdown. Shares are now much cheaper than they once were, and it’s translating into a juicy 5.27% dividend yield.
That said, I do expect $50 to put up stiff resistance if the VZ stock rally continues. But the dividend will line your pockets plenty while you wait. If you want to get paid for your willingness to buy shares, sell puts.
The Trade: Sell the June $45 put for 55 cents.
You’re obligating yourself to buy shares at $45. If the put expires out-of-the-money, you’ll pocket the 55 cents and can repeat the trade for July.
Top Stock Trades: Coca-Cola (KO)
Coca-Cola (NYSE:KO) rounds out our top stock trades with an uptrend even stronger than Walmart. Last week’s test of the 50-day moving average succeeded and kept the intermediate-term uptrend intact. Over the past three days, while the broader market crashed, KO stock formed three narrow-bodied candles.
The stability is mighty impressive and portends more relative strength to come. Earnings has come and gone, so there aren’t any corporate events to muddy the waters for another quarter. The higher implied volatility also makes naked puts or even bull puts an attractive proposition.
If you want to bet the upward drift continues, here’s a smart trade structure
The Trade: Sell the June $62.50/$57.50 bull put for 90 cents.
Consider this a bet that KO sits above $62.50 at expiration. You’re risking $4.10 to make 90 cents.