With the reopening well underway and summer around the corner, TradingAnalysis.com founder Todd Gordon is betting on one staples stock to surge.
Constellation has already outperformed the staples this year. The stock is up 10% in 2021, below the 12% gain in the S&P 500 but above the 3% increase for the XLP consumer staples ETF. It is one of the top performers in that ETF.
Gordon says the stock could benefit from broad tailwinds in the rotation away from high-growth tech stocks.
“We’re seeing more rotation into the value sectors like staples, like energy, like financials, like some industrials,” said Gordon. “We’re seeing a pretty good tick up in yields.” He said U.S. Treasury yields are pressuring tech stocks and higher beta stocks, “causing this rotation back into the older economy value plays which could be with us here for a while.”
Value stocks are favored for their relative cheapness compared to the rest of the market. Growth stocks, many of which are in the tech sector, are those investors are willing to pay a premium on for their potential.
“The other thing I would mention is as we’re coming into the summer season, as the population is getting vaccinated, as people are coming out from indoors, as people are ready to resume normal life, I think summer celebrations might be on,” said Gordon. “We could get a boost there.”
Constellation’s portfolio includes beers Corona and Modelo, wines such as Kim Crawford and spirits including Svedka Vodka.
Gordon says Constellation’s technical setup also looks strong. He tracked a breakout above 2017 highs that then failed to move above the high $230s a share three times.
“We’re doing three sort of tests, almost the fourth test, trying to poke free through that resistance level,” said Gordon. “When the market tries something three and four times, usually it gets it, if it really wants to get to this $240 mark, I like it.”
Constellation broke above $240 to close Thursday at $241.60. It needs to hold above that level to confirm the breakout. Gordon said a move below $235 would prove a failed breakout that then needs to be retested.
To take advantage of the next big catalyst — earnings are expected on July 1 — Gordon looks to the options market. He highlights one trade — buying the 245 strike with mid-July expiration and selling the 255, a $10 spread.
Disclosure: Gordon holds STZ.