Global consumer staples giant Unilever (NYSE:UL) has been having a rough run lately.
On Friday, shares of the London-based company dropped nearly 1%, as hedge funds continued unloading their holdings in the global food giant. Apparently, hedge fund sentiment is bearish on the stock which "has returned -7.4% since the end of June (through 10/22) and underperformed the market."
In addition, New York State's pension fund, the third-largest US public pension fund, said it will divest its Unilever shares in response to one of the company's brands, Ben & Jerry's, announcing it would no longer sell its ice cream to Jewish settlements in the contested West Bank, a form of boycotting Israel over the Israeli-Palestinian conflict.
The multinational company hiked prices an average of 4% in the last quarter, its highest level of increases since 2012, citing the supply chain crisis.
However, having neared yearly lows—the stock closed yesterday at $53.77, barely 3.5% above its 52-week low—shares could be attractive for passive income investors given it pays a $2.03 annual dividend for a 3.8% yield.
As well, it's unclear how, or if, the company's price hikes will have an impact on profits. Unilever produces essential goods and globally recognized brands such as Dove beauty and personal care products, Persil laundry detergents and Hellmann's mayonnaise, staples consumers seem unable to do without. That's likely to keep sales robust.
In addition to Unilever being a potentially defensive investment, from a technical viewpoint, now may be an ideal buying opportunity, especially from a risk-reward perspective.
Unilever's stock may now be forming the second right shoulder of a massive H&S continuation pattern since October 2017, signaling a trend reversal could be at hand.
Trading Strategies
Conservative traders should wait for the H&S to complete and assert its long-term trajectory.
Moderate traders would risk a long position if the price confirms support.
Aggressive traders could enter a long position now, accepting the higher risk that goes along with the higher reward they seek. A coherent trade plan is crucial. Here's an example:
Trade Sample
- Entry: $53
- Stop-Loss: $52
- Risk: $1
- Target: $60
- Reward: $7
- Risk:Reward Ratio: 1:7