Colgate-Palmolive Company (NYSE:CL) with its market capitalization of $63.70B is a consumer products company whose products are marketed in over 200 countries and territories throughout the world. Colgate holds about half of the toothpaste business globally; in fact, only about 18% of its sales come in from North America. Colgate operates in the same industry with the likes of other conglomerates such as Procter & Gamble, Reckitt Benckiser and Unilever among others.
Colgate Breakout in Sight
I started the options trading coverage this week with the options of stocks that are on the verge of a breakout and I am exploring the possibility of a potential breakout in the shares of Colgate today. Shares of Colgate reached an intraday high of $71.01 yesterday before it closed with 0.63% gains. Yesterday’s closing price marks a 15.40% premium to its 52-Week low of $61.53 and to mark a 13.71% discount to its 52-Week of $71.31.
The chart above shows how the shares of Colgate have traded within the last one year. Colgate has key support levels (green line) at $62.50 and at $67: the support levels are the prices from which the stock started another rally after every pullback. The $62.50 support has held for about 3 times and the $67 support has held for about 5 times already.
You will also notice that the stock has key resistance points at $69 and at $71 as shown in the red lines. The $69 resistance stopped the stock’s rally about 2 times and the $71 resistance point has stopped the rally about two times already.
An interesting point to note is that Colgate seems to be setting up support levels at intervals of $4.50 but it is setting up resistance levels at $2 intervals. Hence, a short trade could be entered at $4.50 discount to the Colgate’s current trading price while a long trade could be entered at a $2 premium to the current trading price.
The stock has an RSI of 60.67 (Purple circle); hence, we can technically expect the Colgate rally to continue until the stock is overbought. Below is an important factor that suggests that Colgate is closer to a breakout than a breakdown.
Strategic but Unassuming Growth
Colgate was upgraded to ‘Buy’ rating from ‘Neutral’ rating at Citigroup yesterday as analysts think that the stock has the “best-in-class” earnings growth opportunity. I agree with Citigroup that Colgate is strategically positioned for growth as my analysis of the company’s fourth quarter (Q4 2014) results show.
In the fourth quarter, Colgate reported earnings of $628M or $0.68 per share to surpass earnings of $564M from the same quarter last year. The company’s revenue fell by 3% as the company reported revenue of $4.221B compared to $4.361B from last year.
However, I am impressed by the fact that earnings came in at $0.76 on a currency-neutral adjusted basis to beat the consensus estimate of $0.74 per share. Interestingly, organic sales net sales excluding foreign exchange, acquisitions and divestments) were up 6% while organic sales in emerging markets was up 9.5%.
More so, the company’s market share is improving across all segments as toothpaste market share climbed to 44.5% for the quarter, its manual toothbrushes market share climbed 33.4%, and its mouthwash market share now stands at 16.9%.
How to Trade CL Options
I am bullish about the prospects of Colgate and we can expect another $2 increment in share price to a $73 resistance level if Colgate delivers decent Q1 2015 results on April 29. Hence, I recommend buying the CL May 2015 72.500 call (CL150515C00072500) at an asking price of $1.10.
— Daily Option Alerts