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When the going gets tough, traders tend to move into quality names likely to weather any market storm. This is a tried-and-true principle of investing, and it's actually more common sense than simply investing sense. Monday's crazy day in the financial markets reminded all of us that equity and commodity markets can undergo very heavy selling in a very short amount of time.
Monday's turmoil really started with the huge plunge in gold, which sustained its biggest one-day drop in over three decades. The sell-off has now pushed this commodity into bear market territory, and many are ditching the metal, fearing the onset of global deflation.
That fear also helped to push the stock market sharply lower, as the Dow was down some 150-plus points near day's end. Of course, we all know by now that the explosions at the Boston Marathon exacerbated the selling in stocks by another 100-plus Dow points by the end of the session.
In a testament to the bullish resilience of equities and gold, both saw a nice rebound in Tuesday's trade. Still, the plunge in gold and the sharp selling in stocks reminded us all that tumult is always right around the corner in any financial market.
This reality is why I always recommend having an exit strategy in place via stop-loss orders on all of your positions, and particularly your trading positions. It's never good to wake up and see you're down 10%, 20% or more in a position without having some downside protection.
Second, during times of market nervousness, I think it's smart to rotate some capital into shares of companies that are likely to continue to do well no matter what takes place in the world, because they make things that we all need.
Looking at the headlines today, we see a nice move higher in two blue-chip consumer companies, both of which just delivered encouraging results on the earnings front.
The first is consumer products stalwart Johnson & Johnson (NYSE: JNJ). Now, I typically wouldn't consider a stock such as JNJ to be an outstanding trading vehicle, but so far in 2013, the stock is up more than 19%. Not too shabby.
Shares of JNJ were up about 2% in mid-Tuesday trade. In addition to broader market strength, this was in response to the company's better-than-expected Q1 earnings report.
The company said earnings per share (EPS), excluding special items, rose 5% versus the same quarter last year. The adjusted EPS of $1.44 bested Wall Street consensus by $0.04. Revenue figures also beat expectations, spiking 8.5% to $1.45 billion during the first three months of the year.
Another blue-chip consumer products company whose shares surged Tuesday, due in part to strong earnings, is beverage giant Coca-Cola (NYSE: KO). The stock was up more than 5% midday in Tuesday trade after the Dow component reported better-than-expected first-quarter results.
Earnings, excluding one-time items, came in at $0.46 per share, above the average analyst estimate of $0.45. Revenue of $11.035 billion also slightly beat estimates. Additionally, the company announced its decision to sell some of its U.S. distribution assets to its team of independent bottlers, which was met with a positive reaction by Wall Street.
Like JNJ, shares of KO have been a great trading vehicle in 2013, up more than 16% year to date.
The gains in JNJ and KO show that investors are pouring money into defensive consumer staple stocks while equities continue to trade near new highs. And these quality blue-chip names should hold up during times of tumult, meaning they deserve portfolio consideration by just about every trader.
There's an important change coming that we want you to be aware of.
The tech giant can't seem to do much right in investors' eyes lately, but the charts tell a different story.
We're looking to profit from the market's weak fundamentals and lofty valuations with a simple put option trade.