Part 1

The stock market has restarted its strong uptrend after the correction caused by the coronavirus outbreak. Thus, investors are looking forward to bringing the biggest stocks to higher levels in the near future.

After analyzing the performance of the ETF pair, we pick the two best stocks from each ETF that is believed to have the highest chance for beating the market in the current environment.

One of our top stock-picks from the XLP for the month of June is:

Procter & Gamble Company (PG)

Our first stock pick from the Consumer Staples Select Sector SPDR Fund (XLP) would be Procter & Gamble Company (PG). The company has got a big role within the XLP with its 16% weight, making it the ETF’s biggest holding.

Company background

Founded back in 1837 by William Procter and James Gamble, the company is an American multinational consumer goods corporation, headquartered in Cincinnati, Ohio. The company is specialized in a wide range of personal and consumer health, personal care and hygiene products. P&G markets its products in over 180 countries around the world, primarily through mass merchandisers, membership club stores, grocery stores, drug stores, distributors, department stores, e-commerce, pharmacies and others. The company has been a leader in the sector it operates for a long time now. In fact, the great financial success of P&G has also been based on the products it sells – basic necessities, such as beauty and hair care products (conditioners, shampoos, styling products), as well as antiperspirants, deodorants, as well as cleansing and skin care products.

Furthermore, the company offers grooming, as well as health care, fabric and home care, baby, feminine and family care products. In other words, due to its huge portfolio of non-discretionary products, the company tends to perform quite well even during tough times, such as economic slowdowns or crises, together with healthcare crises, such as the COVID-19. P&G is one of those companies that will continue doing well simply because customers need to buy their products for their day-to-day life.

Thanks to its huge portfolio of basic necessities, the company has become a global leader in the sector it operates and it is expecting to remain a key player in the sector in the future. It has managed to keep its financials quite strong over the past few years and that has also been among the biggest reasons for investors’ high buying interest towards the stock.

Technical analysis

By looking at the daily chart, we could see the huge bullish rally that has occurred since the 23rd of March when the price was trading at the $94 lows to reach the $125 highs 4 weeks later. Since then, there has been a correction towards the $111 lows where lots of buying pressure has taken place and the price has managed to bounce back up towards the $120 highs. Due to the strong bullish rally in the past 2.5 months after the huge sell-off that was caused by the COVID-19, the price has seen some profit-taking correction lately, sending it towards the current levels at $115. We remain bullish on the PG stock and believe all these profit-taking corrections are giving us great opportunities to buy the stock at a good discount, which would in turn give us a chance to maximize our profits to the upside. Moreover, the technical indicators have remained very bullish and are following the strong uptrend that has occurred on the stock since the 23rd of March.

The daily chart shows that the price is currently testing the first key horizontal support line at $115, which actually matches with the strong diagonal support at that mark. Even if it manages to break that support it would be heading towards the next strong support mark at $111.60 where lots of buying pressure has occurred in the past and we believe the recent correction would motivate investors to start buying at that support level, which would give them a chance to make high profits to the upside.

Chart: Procter & Gamble (PG)

We will start buying PG at the first key support at $115. Should the price break that strong support mark it would be heading towards the next strong support at $111.60 where we will be buying the stock even more aggressively in order to get a better average price and further maximize our profitability to the upside. Our initial profit-taking area is staying at $120, followed by the next target at $126 where we will be fully cashing in our profits and waiting for another pullback on the stock so we can buy it again at a nice discount and further maximize our profitability to the upside. 

One of our top stock-picks from the XLV for the month of June is:

Merck & Co, Inc. (MRK)

Company background

The next stock-pick for today would be Merck & Co, Inc. The company plays a major role within the XLV and it is the ETF’s 3rd biggest holding with its 6% weight after Johnson & Johnson’s 10% and UnitedHealth Group Inc.’s 7%.

In other words, Merck’s performance is quite important for the overall returns of the XLV and it is a stock worth analyzing.

Founded back in 1891 in the United States, Merck & Co, Inc. is one of the leading pharmaceutical companies in the world. In fact, Merck is the seventh largest pharmaceutical company in the world by both market capitalization and revenue.

Current Position – Financial Performance & Technical Analysis

By looking at the company’s financials, we could see a very strong performance over the past few years. Merck has kept on increasing its revenues and profits and has at the same time managed to keep its long-term debt quite low. Its current debt to equity ratio is 0.82. In fact, its net profit has tripled over the past 3 years, which has allowed the company to pay a nice dividend of over 3%. Its current return on assets is 17%, while the return on equity figure shows the impressive 52%.

The company has managed to continue paying dividends to its shareholders even during the COVID-19 pandemic. It paid $0.61 per share in March, followed by the same payment in June. In fact, this has shown investors that the company’s management remains positive for the company’s overall financial stability and the expected financial performance for the next few months. Actually, this is extremely important as investors look for such indications and signals given by the management and that also determines the future share price performance. The company is in a very stable sector where even during such tough pandemic times customers will keep on buying its products as they need them for their day-to-day lives. In other words, that has been the reason why Merck has performed quite well even during the pandemic in the past few months. The 2nd quarter earnings report came out in the end of April, showing that Merck has earned $1.26 per share in the first quarter, while the expectations were for $1.34 (-5.83%). In fact, the company still delivered an earnings growth compared to the last quarter of 2019 where it reported $0.92 per share. In other words, Merck managed to increase its earnings during the pandemic and that has been extremely positive for its share price performance afterwards.

By looking at the chart, we could see the massive appreciation on MRK between the 23rd of March when the price was trading at the $65 lows to the 27th of April when the leading pharmaceutical stock reached the $85 highs (30%), followed by a profit-taking correction towards the current levels at $76. It was only logical to expect a profit-taking scenario after the massive bullish appreciation before that. The technical indicators had gone close to the overbought territory and started giving selling indications. Yet, they have already gone down towards the oversold area and are about to start crossing up and give bullish signals again. The daily chart also shows the strong support mark at $76 where lots of buying pressure has been taking place every time the price reached that level in the past. Furthermore, it has been failing to break that strong support mark now for over a month since the 7th of May and investors have been actively buying at that level, which has been leading to massive appreciation towards the $83-$85 mark afterwards. The daily candle on the 12th of May shows clearly how the price only touches the strong support at $76 and starts bouncing immediately – a clear indication for a lack of further selling activity at the moment. Moreover, the 50% Fibonacci retracement level as well as the lower Bollinger band line are matching perfectly with the support at that level and giving a lot more bullish indications.

Therefore, we remain very bullish on the stock and believe the current levels are giving us a great entry for our buy positions where we will be able to maximize our followers’ profits to the upside.

Chart: Merck & Co, Inc.

We will start buying MRK aggressively at the $76 support. Should the price drop further we will be adding more to our buy positions at the next strong support at $72-$73 where we will be able to improve our overall cost basis. Our initial profit taking area is set at $82, followed by the longer-term target at $88-$90 where we will be fully cashing in our profits and waiting for another great entry level for our long positions on the stock.

We at Dow Experts enjoy analyzing the market and helping our followers maximize their profitability by following our trading and investing ideas, which are always supported by our rational investment approach.

In order to further provide our followers with a strategy on how to fully capitalize on the above-described patterns and correlations, we analyzed the performance of some of the biggest companies within the SPY and XLY that have a big impact on the overall performance of the two ETFs.

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