"Sugar and spice and all things nice" came to mind when I saw last week's rally in McCormick & Co. (NYSE: MKC) following its better-than-expected fiscal first-quarter earnings report Tuesday.
McCormick, which manufactures and distributes spices, herbs, extracts, seasonings and more, posted earnings of $0.62 per share, up 9% from the year-ago period. First-quarter revenue rose 6% year over year to $993.4 million. Analysts were expecting EPS of $0.58 on revenue of $974.5 million.
Management reaffirmed its fiscal 2014 earnings forecast of $3.22 to $3.29 per share, in line with analysts' estimates of $3.27 per share.
Not all consumer staples stocks are created equal, but by definition, demand for their products shows little elasticity, meaning that they're purchased in roughly the same quantity regardless of the economic cycle. This is especially true of spices, as you can only season your food so much.
Boring companies like spice manufacturers also don't have much in the way of news flow, and can therefore trend nicely higher during bull markets, making for a no-hassle longer-term investment. (My colleague Dave Goodboy made a similar point last week, singling out MKC for unique praise.)
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As an active trader, I rarely gravitate toward a stock like MKC for the simple fact that it doesn't offer a ton of movement, but in recent months, there have been plenty of exceptions. And when a stock stages a beauty of a move like MKC did last week, I take notice, regardless of what sector or industry it belongs to.
On the weekly chart looking back to 2008, we see a fairly straightforward and steady rise. What's more important, though, is how the rise was structured and what that says about the current juncture.
A good moving average to use for MKC is the 50-week (or 250-day), which it managed to surmount in September 2009. From there, the stock dipped below the moving average during the European crisis in August/September 2011, before the 50-week again acted as support.
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MKC finally exhausted its multi-year uptrend in May 2013, and has since spent most of its time consolidating the big run up. Through a technical lens, the consolidation took place in a fairly healthy manner and has formed a bull flag pattern.
Last week's rally blasted the stock out of this bullish formation and pushed it back above the 50-week moving average.
On the daily chart below, note that Tuesday's post-earnings rally also pushed MKC past lateral resistance around the $70 mark as the stock gapped higher right out of the gate.
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Momentum now looks good for follow-through buying in coming weeks, and this could push the stock back toward its May 2013 highs.
Action to Take -->
-- Buy MKC at $70 or higher
-- Set stop-loss at $68.70
-- Set initial price target at $75 for a potential 6% to 7% gain in four to eight weeks
This article was originally published at ProfitableTrading.com:
A Stock I Usually Wouldn't Trade Has a Chart Screaming 'Buy'