Sleep Better, Reduce Volatility With These 3 Stocks
Volatility as measured by the CBOE Volatility Index may be getting ready to bottom out like we saw around March 16 and into early April of this year.
The VIX can stay low for weeks at a time and then suddenly begin to spike. As you may know, the VIX has been called a “fear index.”
In truth, the VIX is a measure of the market’s perceived volatility in either direction, downside and to the upside. It was designed to move with the options premiums on both puts and calls.
Let’s face it, although this is a holiday-abbreviated week in the U.S. with lower-than-normal trading volume, there are a large number of unresolved threats that market participants skittish now.
There’s the questions concerning Europe’s massive financial woes, China’s seemingly flatter economic growth, and then there’s the ongoing slowdown in the USA.
None dare call it a recession , let alone a Great Recession.
But Monday's numbers from The Institute for Supply Management’s Manufacturing Index did come in lower than expected in June. This signaled a contraction in the sector for the first time since July 2009. Yes, and when it comes to a slowdown in manufacturing, we are not alone.
Both China and the European Union manufacturers are no doubt preparing for an increased slowdown and for China, a diminishing demand for their products from exporting nations. Then there’s the onset of the next round of quarterly earnings report coming faster than many realize.
Reuters reported Monday that Morgan Stanley has said that second-quarter earnings season is likely to disappoint when it debuts with Alcoa next week.
“By now it is clear that the U.S. earnings season will be softer than was forecast a couple of months ago,” wrote the firm’s U.S. equity strategist, Adam Parker, in a research note. “We would not be surprised to see negative pre-releases this week or notably weak guidance for October beginning the following week.”
So it looks like the June gloom is going to spill into July. The good news is we may see some good companies whose stocks have been lifted to unsustainable heights finally see price levels subsiding.
A good example is Church & Dwight, which hit a 52-week high on Monday and is trading at over 25 times current earnings and 21 times forward earnings. That appears to be a lofty level for a company that sells baking soda, pet care products, condoms, and an assortment of personal care items.
Look at the one-year chart of Church & Dwight and you won’t be surprised why I think it’s poised for a pullback to at least its 200-day moving average or somewhat below that level.
One company that has finally cooled down and looks tempting is Clorox. At $72 a share it is yielding a delectable 3.55 percent dividend. Looking at its chart and 200-day moving average, you can see that twice since the beginning of May 2012 the stock penetrated below or touched that seemingly magical 200-day moving price average that currently rests around $68.
If an investor could patiently wait and buy at that level, the yield-to-price on the dividend bumps up to 3.76 percent.
On May 2, 3, and 4, we saw the intraday price of Clorox slide below $67, so it’s not unreasonable to expect a better price in the weeks ahead.
One of Jim Cramer’s recent recommendations to his Action-Alert-Plus subscribers is another dividend darling that may be good to accumulate on pullbacks.
I’m referring to General Mills, which like Clorox has already reported last quarter’s earnings and has slipped below its 52-week high price of $41.06.
At its closing price on Monday of $38.98, it is sporting a dividend yield of 3.39 percent. Its one-year chart has its 200-day moving average now appearing to be an upside resistance level.
If it retests its June 27 low of $36.75 and a trader happened to have a buy-limit order in at that price, the yield-to-price moves up to a more attractive 3.59 percent.
Both Clorox and General Mills are trading at much more modest price-to-earnings ratios then Church & Dwight. They’re also trading at a lower price-to-sales ratio then Church & Dwight.
During times of high anxiety and tumultuous worldwide financial headlines, stocks like Clorox and General Mills make for a safer bet with their generous yields.
The stock of companies like Church & Dwight and Kimberly-Clark, which hit its 52-week high on Monday as well, make good candidates for the wish-list of growth-with-income investors who like to buy quality at more affordable prices.
—By TheStreet.com Contributor Marc Courtenay
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TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks. At the time of publication, Marc Courtenay had no positions in any securities mentioned.