Companies in the food and beverages sector are often a favorite for investors owing to inelastic demand for many of the underlying products. For many, spending on food and beverages remains relatively consistent in most market conditions, which also tends to lead to fairly predictable trends. In this article, we'll take a look at three charts that highlight strong uptrends suggesting that now could be the ideal time increase exposure to food and beverage stocks.
Invesco Dynamic Food & Beverage ETF (PBJ)
The most popular exchange-traded product that is used by active traders for gaining exposure to food and beverage companies is the Invesco Dynamic Food & Beverage ETF (PBJ). This niche fund comprises 30 U.S. food and beverage companies that are principally engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies.
Taking a look at the chart, you can see that the bulls recently pushed the price above the resistance of an influential trendline (shown by the blue circle). The breakout is important to traders because it could be enough to trigger a bullish crossover between the 50-day and 200-day moving averages at the $32.26 level in the coming days. A bullish crossover between the two long-term moving averages would be used by followers of technical analysis to mark the beginning of a long-term uptrend.
Hormel Foods Corporation (HRL)
With a weighting of 5.26%, Hormel Foods Corporation (HRL) represents the largest holding of the PBJ ETF. With a market capitalization of approximately $23.5 billion and more than 20,000 employees, Hormel represents one of the most significant food stocks in the public markets. With a main focus on meat products, the company is often used as a barometer for weighing macro-level supply and demand.
Taking a look at the chart, you can see that the stock is trading along a well-defined upward trendline. Notice how the dotted support level has propped up the price on each attempted pullback since early 2018. This is the type of behavior that traders will expect to continue into the future, and many will likely use the trendline as a guide for placing buy and stop orders. Purchase orders will likely be placed as close to the trendline as possible to maximize the risk/reward, and most will likely only consider selling should the price fall below the long-term support of the 200-day moving average ($40.86).
PepsiCo, Inc. (PEP)
Another popular food and beverage company that may catch the eye of active traders is PepsiCo, Inc. (PEP). As you can see from the weekly chart below, the price has recently crossed above a key level of resistance (shown by the blue circle), with no remaining resistance levels standing in the way of a significant move higher. Bullish traders will likely look to place orders near current levels and protect against a sudden sell-off by placing stop-loss orders below the dotted trendline near $120.
The Bottom Line
The food and beverage sector is often underfollowed by most active traders, mostly because they tend to favor more volatile sectors such as technology and commodities. As discussed above, recent price action along with nearby support is creating an interesting buying opportunity across the sector for those who know how to follow the charts.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.