Today's Market: Bullish On Consumer Goods And Industrials

Includes: BA, JNJ, PEP, PG, UTX
by: Matthew Smith

The bond markets were closed yesterday in observance of Columbus Day, however look for the bond market to be active today as traders adjust their positions as well as their clients' positions in anticipation of an event (good or bad) out of Washington. It was a weird day yesterday not being able to check on the 10-year treasury, but we cannot argue with the result as the market finished at the highs of the day after rallying throughout the session.

Today we want to take a look at some consumer stocks, namely Johnson & Johnson (NYSE:JNJ), Proctor & Gamble (NYSE:PG) and PepsiCo (NYSE:PEP) which all have news out this morning or have been brought up in questions from readers. We also look at two of our favorite industrial names, Boeing (NYSE:BA) and United Technologies (NYSE:UTX), which we think hold tremendous upside still.

Chart of the Day:

For those who do not follow the European markets this may come as a surprise, but a number of those indices have done quite well in recent months and the German DAX is at all-time highs. We are bullish Europe and think that Germany might be the safest way to play a rebound in Europe as the trend is already your friend.

(Click to enlarge)

Source: Yahoo Finance

We have economic news today and it is as follows:

  • Empire Manufacturing (8:30 a.m. EST): Est: 4.5 Actual: 1.5

Asian markets finished higher today:

  • All Ordinaries -- up 1.01%
  • Shanghai Composite -- down 0.19%
  • Nikkei 225 -- up 0.26%
  • NZSE 50 -- up 0.29%
  • Seoul Composite -- up 1.02%

In Europe, markets are trading higher this morning:

  • CAC 40 -- up 0.59%
  • DAX -- up 0.70%
  • FTSE 100 -- up 0.81%
  • OSE -- up 0.91%

Consumer Goods

We have had a number of readers inquire about Johnson & Johnson recently as the shares had retreated from the last level which we indicated we were bullish at. The anxiety was understandable from a short-term perspective, however we have always stated that this is long-term capital and that we take the long view when looking at blue chip names such as J&J. The last few sessions have seen the shares gain back some of their lost ground and today's earnings should go a long way in helping Johnson & Johnson possibly test new highs.

The company reported earnings per share of $1.36, which were $0.04/share higher than analysts' estimates. Making the beat even more bullish is the fact that the company not only beat on the bottom line, but the top line too. For their FY 2013 EPS guidance, Johnson & Johnson raised their expected range to $5.44-5.49/share from a previous $5.40-5.47/share. The entire press release is available here.

In other news today concerning consumer related stocks, Proctor & Gamble has reached an interesting deal with Amazon whereby P&G will allow the online retailer to work within its warehouse network as Amazon pushes to offer everyday items through its website (this relationship, which has been implemented was first reported by The Wall Street Journal and is described in this CNBC article). In the last couple of decades investors have seen retailers and their suppliers team up to work hand in hand to increase sales and better manage inventory, with Wal-Mart being an early adapter of this, however actually allowing a retailer to utilize portions of your warehouse network strikes U.S. as an interesting idea. Obviously Proctor & Gamble would not allow any retailer to do this, but if this is successful for P&G and Amazon we would expect to see their biggest customer, Wal-Mart, look to involve themselves in some fashion.

One of our favorite names for years has been PepsiCo due to their diverse product offerings and exposure to India. It is lost on many that Pepsi products routinely outsell their rivals in grocery stores but get pummeled in the restaurant business, something which has always stuck with us. The company has great products and has had strong management for as long as we can remember. The recent "underperformance" as some of our readers have described it is nothing to worry about, and neither is the threat of the company getting split up by activist investors or forced to buy another food company (a constant rumor which seems to recirculate too often). The stock is a bit off of its recent highs, but with our bullishness on the consumer and our belief that the company will continue to make progress in overseas markets we think that this is a good long-term buy, however we would only nibble at these levels as we believe the stock is an extremely bullish buy when its yield approaches 3%.

The stock is at an attractive level when looking at technicals, but we think the area to get really bullish on is a few dollars lower when the yield is at 3%.

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Source: Yahoo Finance


The recent government shutdown has briefly put on the breaks to the sector we are most bullish of outside of the commodities complex, but we viewed this as a buying opportunity and hope readers to advantage of it. Boeing was actually really strong through the past two weeks and saw buyers come in at every point when the stock retreated significantly. Other names in the industrial sector have seen the same situation play out, namely United Technologies , and the sooner this government shutdown ends the sooner the uptrends in these names will resume.

We have said it before in other situations but will say it again. Stocks that break through $100 usually break through $105 and then usually break through $120 and then usually $130...and if it is an extremely bullish situation they will charge towards $150. We think this is the situation at Boeing.

(Click to enlarge)

Source: Yahoo Finance

We are beginning to get a little worried about some of the corporate names out there and their ability to continue to grow their bottom lines without any meaningful top line growth. This is a trend we have discussed over the past year or two as it has been our view that the corporate world was taking advantage of the initial turnaround in the economy by cutting employment costs to boost their EPS figures while losing sight of the big picture economic cycle. Cutting employees damages demand and as these companies continue to cut headcount they continue to weaken the economic turnaround. At some point that will come back to bite them, however both Boeing and United Technologies should be insulated from this as we see their businesses benefiting from multi-year replacement cycles for their products.

As it relates to Boeing, the stock has overcome every obstacle it has faced over the past 12-18 months, and as such we expect that the report out today (see here) stating the company overcharged the U.S. military for a parts contract shall be overcome as well, and in fact might be another event that offers a buying opportunity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.