3 Defensive Consumer Stocks to Trade in a Falling Market

These stocks may see further buying in a "risk-off" market

Defensive consumer stocks have flown under the radar in the first quarter of 2019. Investors have instead been drawn to cyclical sectors, such as technology and industrials, as recession fears eased amid a more accommodative Federal Reserve and on hopes that the United States and China can reach a mutually beneficial trade deal in the not too distant future.

However, this week, investors have turned their trade dispute concerns to mounting tensions between the United States and the European Union (EU) after President Trump said that he's considering imposing $11 billion worth of retaliatory tariffs on a range of goods in response to illegal subsidies the EU granted aerospace firm Airbus SE (EADSY). In a double blow for stocks, the International Monetary Fund (IMF) also downgraded its 2019 global growth forecasts to the lowest level since the financial crisis, reigniting fears of a slowdown in global economic growth.

Those who want to play more defensive and prepare for a "risk-off" market environment should run their eye over these three stocks that have pushed higher in recent trading sessions as selling pressure creeps into other sectors. Let's go over tactics to trade each issue.

Campbell Soup Company (CPB)

Campbell Soup Company (CPB), with a market capitalization of $11.89 billion, manufactures and markets branded convenience food products, most notably soup. Established bands in the 150-year-old company's portfolio include Campbell's, Pace, Prego, Swanson and V8. Last year, the soup maker increased its foray into the snack market by acquiring Snyder's-Lance for $6.1 billion – a move that will see snacks make up almost half of Campbell's annual net sales. Despite several broker downgrades, the company has exceeded analysts' earnings expectations over the past four consecutive quarters. Campbell Soup pays an attractive 3.72% dividend yield and is trading up 20.76% year to date (YTD), outperforming the S&P 500 Index by nearly 6% over the same period as of April 10, 2019.

Campbell Soup shares have spent the better part of two years trending lower due to soup no longer warming investors as it once did. The stock convincingly broke above a multi-month downtrend line in Tuesday's trading session on above-average volume – the day before the company's shares trade ex-dividend. As a possible new trend may be developing, those who open a long position should use a trailing stop to bank profits. For example, traders could move stops beneath each subsequent higher swing low. Consider placing an initial stop-loss order below the 200-day simple moving average (SMA) to protect against a failed breakout.

Chart depicting the share price of Campbell Soup Company (CPB)

Monster Beverage Corporation (MNST)

Monster Beverage Corporation (MNST) develops and sells energy drinks as well as concentrates, with over 70% of revenue generated within the United States. The energy drink giant recently expanded its lawsuit against Vital Pharmaceuticals, the maker of competing energy drink Bang, alleging that the rival company engaged in false advertising and other business malfeasance. Analysts expect year-over-year (YoY) first quarter sales growth of 9.4% when Monster reports earnings on Tuesday, May 14. Trading at $54.69 with a market cap of $29.71 billion, Monster stock is up 7.82% as of April 10, 2019.

Since gapping 8.6% after the company topped fourth quarter earnings expectations on Feb. 28, Monster shares have retraced toward crucial support at the $52 level, where a horizontal line connects several other gaps in price. The stock rallied from that base in Tuesday trade, indicating further upside. With the relative strength index (RSI) giving a reading below 50.0, the price has plenty of room to move higher and test the early December swing high around $60, followed by the double top that formed between July and August last year. Those who take the trade can manage risk by setting a stop under this month's low at $52.23.

Chart depicting the share price of Monster Beverage Corporation (MNST)

The J. M. Smucker Company (SJM)

With a market value of $13.59 billion, The J. M. Smucker Company (SJM) manufactures and markets branded food and beverage products worldwide. Its two largest business segments – pet food and treats, and coffee – generate over 70% of revenue. Swiss multinational investment bank Credit Suisse upgraded Smucker stock to "neutral" from "underperform," citing improved earnings potential. The bank expects Smucker's earnings to stabilize in fiscal 2020, while the Street projects fiscal 2019 sales growth to come in at 7%. Smucker stock issues a 2.85% dividend and has a YTD return of 28.71% as of April 10, 2019.

The company's share price is up 27.62% from its Dec. 27 bear market low, placing the stock firmly in bull market territory. To add further bullish conviction, the 50-day SMA recently crossed above the 200-day SMA in what technical analysts refer to as a "golden cross" – indicating a new uptrend. Price broke above a tight pennant pattern this week, also suggesting upside continuation. Those who take the trade should set a profit target near the January and March 2018 swing highs. The RSI sits in overbought territory, making this the riskiest trade of the three discussed; therefore, keep a tight stop just below the pennant pattern.

Chart depicting the share price of The J. M. Smucker Company (SJM)
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