Food and beverage stocks tend to be looked to by long-term investors and active traders during periods of market uncertainty due to the nature of the underlying businesses. Regardless of the state of the economy, people will spend money on essential products such as food and beverages, which can tend to act as a natural hedge against market volatility.
This inelastic nature of the products can be found in the predictable or cyclical nature of many of the underlying businesses in the food and beverage industry. In this article, we'll identify how this sector is gaining momentum and could be poised for a move higher over the weeks or months to come.
Invesco Dynamic Food & Beverage ETF (PBJ)
Investors who are interested in gauging the overall direction of the food and beverage sector are encouraged to analyze exchange-traded products such as the Invesco Dynamic Food & Beverage ETF (PBJ). As the name suggests, the holdings comprise businesses that are engaged in the manufacture, sale, or distribution of food and beverage products. This also includes agricultural products and products related to the development of new food technologies.
Taking a look at the weekly chart below, you can see that the price has been trading within an established pattern over the past several years. The recent breakout above the dotted trendline will likely be used by those that follow technical analysis to mark the beginning of a major move higher. The recent retracement toward the newly formed support level could be an ideal time to enter a long position based on the risk-to-reward ratio.
The Simply Good Foods Company (SMPL)
For those who follow the tenets of trend trading, one of the holdings of the PBJ ETF that could be worth a closer look is The Simply Good Foods Company (SMPL). As you can see below, the price has been trading within a confined range for the past 12 months, and the recent pullback near the upper trendline suggests that the price could be poised to retest the other support levels between $22 and $22.71.
The converging of the trendline will also be of specific interest to traders because, once the price moves beyond one of the levels, the long-term trend would be likely poised to follow. Long-term bulls will most likely want to place stop-loss orders below $22 or $20.29, depending on risk tolerance, and add to their position should the price break above the recent swing high near $25.
Flowers Foods, Inc. (FLO)
Another holding of the PBJ ETF that could garner the attention of active traders is Flowers Foods, Inc. (FLO). As you can see from the chart, the price of the stock has been trading in a step-like fashion for most of 2019.
The recent move above the dotted trendline sets up traders with clearly defined levels for placing buy and stop orders. Those who are willing to accept more risk will want to set their stop-loss orders below one of the lower trendlines or the 50-day moving average (blue line), which has also proven to be quite influential over the past several months.
The Bottom Line
Many of the stocks within the food and beverage sector have been trading within sideways channels over the past several years. However, based on the charts discussed in the article above, it appears as though the sentiment could be changing and that now could be the ideal time to increase exposure to food and beverage companies.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.