Seeing Upside in the Beverage Space

 | Dec 23, 2011 | 1:30 PM EST  | Comments
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Stock quotes in this article:

ko

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mjn

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hans

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wmt

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spy

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PBJ

As the year rolls to a close, I'm looking through various sectors to see how they have performed against the overall market over the course of the year. I'm looking for clues as to which areas might be attractive going forward, and also identifying stocks that might be worth owning -- or avoiding -- in 2012.

Today I'd like to examine the beverage space, which has outperformed the overall market, but not by a wide degree. The PowerShares Dynamic Food and Beverage  (PBJ) is a good representative of this sector, and it contains many of the industry's best-known brands, such as Coca-Cola (KO).

PBJ vs. SPY
TradeStation

Unfortunately, PBJ's biggest holding is Mead Johnson Nutrition (MJN), which traded sharply lower yesterday. MJN sold off on extremely heavy volume after Wal-Mart (WMT) pulled its Enfamil product from its shelves because of safety concerns. MJN might be at fault in a tragic case of the death of an infant who consumed Enfamil, or perhaps not -- it's entirely too early to say.

One thing we can say for certain is that after MJN cratered yesterday, falling by nearly 20%, it mounted an impressive comeback to close above its 200-day moving average. Somebody was buying MJN in large quantity at around 2:30 p.m. yesterday, and the stock rebounded sharply off of its lows, as a look at MJN's five-minute chart reveals. Is it possible that Mead Johnson will be exonerated?

MJN, Five-Minute
TradeStation

One of the big winners in the beverage sector has been Hansen Natural (HANS).Hansen manufactures Monster Energy and other beverages in the energy drink space, and the stock has certainly put on a monster performance in 2011. While the major U.S. indices are hovering near break-even for the year, Hansen is up more than 79% year to date. Here's Hansen compared with the SPDR S&P 500 (SPY), which is in negative territory for the year.

HANS vs. SPY
TradeStation

Last night on CNBC's "Mad Money," Jim Cramer compared the viewpoints on HANS from several of my technically oriented colleagues at Real Money, including mine. Of the group, my analysis was the most bullish. In my opinion, Hansen's chart boasts a variety of positives.

HANS Daily
TradeStation

There are four things I like about this chart. First, Hansen is in a nice steady uptrend and has been bouncing off of its 100-day moving average all year. There has been no better entry point for Hansen this year than the 100-day MA, currently $88.20 (black arrows). If HANS falls to that level on light or normal volume, I might take a shot at it.

Second, the stock has consolidated its gains within an ascending triangle pattern (black lines), a bullish pattern which indicates that Hansen should continue to rise after its current consolidation. The upward trend line of the triangle mirrors the aforementioned 100-day MA.

Third, the stock reached its all-time intraday high on Monday when it printed $98.36, and it is flirting with its all-time closing highs. That means that once Hansen gets through this ascending triangle, there is literally no resistance above (although it may encounter psychological resistance at $100).

Fourth, despite Hansen's outstanding performance, the stock is nowhere near overbought. According to the stock's relative strength index (bottom of chart), Hansen is merely neutral. This is because of the orderly nature of Hansen's rise. It keeps coming back to its 100-day moving average, and this is an indication that the stock never gets too far ahead of itself and that the rally is sustainable.

Does this mean that I believe the stock will go higher into perpetuity? Of course not; one of the big challenges that Hansen faces is that its products are aimed at a younger demographic. This means that Hansen's products could simply fall out of style as newer competitors enter the space. It is also a younger product in the sense that energy drinks haven't been popular for that long and could turn out to be a fad.

Of course, if these products fall out of favor, that should be reflected in Hansen's chart -- perhaps before it shows up on the balance sheet.

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