Part 5

After analyzing the performance of the ETF pair (XLP-XLV), we have picked the two best stocks from each ETF that we believe have the chance for performing well in the near future and that would give a chance for our followers to maximize their profitability.

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.

By looking at the daily chart, one could see that the PG stock bottomed out from the $94.34 lows on the 23rd of March when the coronavirus correction was over and has been extremely bullish ever since. We have seen it break a few key resistance levels to the upside, such as the $100, $112 and the $127 to reach the $141.70 highs on the 3rd of September where the market peak was. That represented a 50% increase on the stock in less than 6 months!

Since then, PG has followed the overall market sentiment and the short-term profit-taking correction and that has led to a short-term bearish movement towards the $135. In fact, the price managed to reach an all-time high at the $141.70 in early September and traders have been very bullish towards the stock in the past few months because of the essence of the products the company offers and the fact that those products are always of high demand even during such economic slowdowns.

In fact, the first key support mark on the chart is at $127 and we are expecting lots of buying pressure to take place at that point. The 50% Fibonacci retracement level stays exactly at that point and is giving lots of further bullish signals at that level. In fact, a drop towards the $127 would represent a 10% correction from the highs and would be more than enough of a motivation for traders to start buying at that level and maximize their profitability to the upside.

Chart: Procter & Gamble (PG)

will start buying PG at the key support mark at $127 where lots of buying pressure is expected. In case the price drops further we would be looking to add more to our long positions at the next key support at $122, which would give us a chance to get a better average price and make higher profits to the upside. Our first take profit target would be set at $135, followed by the longer-term target at $141 where we would be selling our positions and wait for another profit-taking correction to benefit from.

Merck & Co. Inc. (MRK)

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.

Company Background

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.

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, one could see the huge bullish rally on the MRK stock since March when the price bottomed out from the $65.25 on the 23rd of March and has been extremely bullish ever since. In fact, MRK managed to reach the $87.80 highs on the 3rd of September, representing an increase of 35% in less than 6 months. The recent profit-taking correction that occurred in the past week has sent the stock down from the $87.80 highs towards the $83 lows. Yet, we believe further corrections on the stock are quite limited taking into account the strong support mark at $82.60 where lots of buying pressure is expected. In case the price breaks that key support mark, it is likely to face more buying pressure at the next support at $80 where traders will be looking to buy more of the stock and make high profits to the upside.

Therefore, we remain bullish on the stock and believe that profit-taking correction is giving us a great entry level for our long positions and will take advantage of it in order to maximize our profitability to the upside.

Chart: Merck & Co, Inc.

We will start buying MRK aggressively at the first key support mark at $82.60-$82.70. Should the price drop further we will be interested in buying more at the next key support at $80 where a lot more buying pressure is expected. Our first profit-target is at $86.50, followed by the next target at $91 below the $92 resistance.

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.


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