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A Closer Look at Estee Lauder, Nu Skin, and Colgate-Palmolive

Eyeing potential bullish plays on consumer goods stocks EL, NUS, and CL

by 4/19/2012 1:01:29 PM
Stocks quoted in this article:

Right out of the gate, let's admit that it's hard to get excited about the household goods sector. The production and marketing of consumer staples like toothpaste, cosmetics, and other personal care items simply doesn't lend itself to buzzworthy startups or technological breakthroughs. Maybe that's why the strong price action in this group hasn't attracted too much attention on Wall Street. According to our internal data, no fewer than 92% of household goods stocks are trading above their 200-day moving averages, yet these names have attracted only 51% "buy" ratings from analysts -- epitomizing the lukewarm sentiment toward this outperforming group. This week, let's take a look at the contrarian prospects for sector components The Estee Lauder Companies Inc. (EL - 63.13), Nu Skin Enterprises, Inc. (NUS - 58.35), and Colgate-Palmolive Company (CL - 98.36).

Estee Lauder (EL)

EL has been locked in a steady uptrend since the March 2009 market bottom. Over the past several years, the stock has been ushered higher by solid support at its 10-week, 20-week, and 50-week moving averages. The shares have gained more than 12% so far in 2012, but EL has lately been consolidating some gains below the $64 level. As long-term trendline support catches up with the stock, it could spark a breakout to the upside.

Weekly Chart of EL since April 2009 With 10-Week, 20-Week, and 50-Week Moving Averages

Despite EL's technical prowess, there's still plenty of pessimism surrounding the stock. The Schaeffer's put/call open interest ratio (SOIR) of 1.94 indicates that puts nearly double calls among options slated to expire within three months. This ratio ranks higher than 100% of other such readings taken during the previous year, revealing that short-term speculators are more put-heavy now than at any other time over the past 12 months.

This preference for bearishly oriented options is echoed by EL's 50-day put/call volume ratio of 2.15 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, traders have purchased more than two puts for every call on EL over this time frame. This ratio arrives in the 98th annual percentile, as options players have rarely shown a greater appetite for puts over calls.

Short sellers have also taken an interest in the shares, with short interest rising by 14.8% over the past two reporting periods. It seems that stock and options players alike are placing their bets on an imminent pullback for EL.

There's also room for sentiment to improve among analysts. The equity's average 12-month price target stands at $65.29, implying expected upside of just 3.5% to Wednesday's close at $63.06.

As the stock continues to climb the charts, EL could benefit from a capitulation by any of these remaining skeptics. Traders looking to take part in the security's longer-term ascent may want to consider the July 55 call.

Nu Skin (NUS)

NUS has been on a technical tear, rallying more than 94% over the past 52 weeks. During this time frame, the shares have been pushed steadily higher by double-barreled support at their 10-week and 20-week moving averages. More recently, NUS broke out above short-term pressure in the $55 area, which has since switched roles to serve as support.

Weekly Chart of NUS since March 2011 With 10-Week and 20-Week Moving Averages

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