Friday, July 7, 2017

Technical updates – Colgate and HUL

Why do I like FMCG stocks? Predictability of earnings. Plus the fact that most companies are almost debt free, generate huge cash flows, pay regular dividends and grow steadily whether it is a bull or a bear cycle in the market.

But aren't they expensive? Sure they are. So are BMW cars and Harley Davidson motorcycles. Just as you can (and probably do) buy expensive vehicles using EMIs, you can buy expensive FMCG stocks using SIPs.

Colgate and HUL - two of the better known stocks in the FMCG sector - gave very little capital gains for nearly 18 of the previous 24 months. But they have 'caught fire' during the past 6 months - thanks to demonetisation and GST. 

The balance of power is shifting from the unorganised to the organised sector. The FMCG sector will be one of the biggest gainers of this shift. If you have avoided the sector because it is 'too expensive', it is time for a rethink.

Colgate


Colgate's stock has tested the patience of long-term investors. But long-term investors know the benefit of patience.

After moving sideways in a broad range of about 200 points - giving longer term trading opportunities, the stock has rallied sharply to close at a high of 1128 on Jul 3 '17.

Overbought technical indicators that showed negative divergences by failing to touch new highs with the stock have triggered some profit booking. The dip is providing an entry opportunity.

HUL


HUL's stock moved sideways within a 160 points range - testing the patience of long-term investors. But their patience has been well rewarded. 

The stock rose sharply to close at a high of 1124 on Jun 21 '17. But all four daily technical indicators touched lower tops. The combined negative divergences led to a correction down to its 20 day EMA, which has provided good support.

The stock can correct/consolidate a bit more. 

The best way to accumulate HUL is to spare 10K or 20K from your monthly savings and just go on buying for the next 5 years. (I can assure you that it is better than paying EMIs on a BMW or a Harley - both of which are depreciating assets.)

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