Hormel Foods Corp (HRL) appears to be on the cusp of a price surge.
Up until recently, the Minnesota-based food company had been in a steady downtrend over the past two years.
[hana-code-insert name=’adsense-article’ /]The overall battering of the defensive food processing industry and packaged food space, divesting of the company’s Farmer John’s product line, and the fluctuations in protein prices were the main reasons for its decline.However, the winds of change have now arrived, and the stock seems to be well-placed for a bullish move in the short- to medium-term.
During the past 3 months, HRL has already surpassed the S&P 500’s average return of 11.6% by posting gains of 16.7%.
The Dividend Champion had a stellar Q4, beating both earnings and revenue estimates.
Bullish Move – Chart Indications
HRL’s chart shows multiple indications for an upward surge in the short- to medium-term.
#1 Downtrend broken in Weekly Chart: When checking the weekly chart (shown below), we can see that the long-term downtrend line has been broken and the stock is now moving up.
The ideal point of entry is on a pull-back to the weekly downtrend line again for the retest of the breakout before the stock resumes the uptrend.
#2 Positive indicators in Daily chart: In the daily chart shown below, there are many positive indicators.
- Upcoming bullish MA crossover: This is a clear bullish indicator as soon as the crossover happens.
- Support at the base of the triangle from which breakout occurred: The base, indicated by dotted blue line is the ideal entry point for the trade based on the daily chart. This is the price point wherein the breakout from the triangle occurred.
- Multiple other supports: There is a gap support at $33.90 and $33.30. The 50-day MA also acts as a support.
Recommended Trade (based on Weekly chart)
If you want to get in on this trade, purchase shares of Hormel on a pullback to $31.50. Our target price is ultimately a retest of the 2016 highs at $42-plus, so take profits if shares hit $42. To limit risk, place a stop loss at $30.
Our target potential upside is 33.3%.
For a risk of $1.50, our target reward is $10.50, making this a 1:7 risk-reward trade. In other words, this trade offers 7x more potential upside than downside.
Recommended Trade (based on Daily chart)
For those with more of an appetite for risk, and who would like speedier entry, purchase shares of Hormel on a pullback to $35.20. Take profits if shares hit $42. To limit risk, place a stop loss at $33.85.
Our target potential upside on this trade is 19.3%.
For a risk of $1.35, our target reward is $6.80, making this a 1:5 risk-reward trade. In other words, this trade offers 5x more potential upside than downside.
Risks to Consider
HRL could sell-off for reasons like weakness in the market as a whole, additional sell-offs in the Food Processing industry sector, dependence on strength of the dollar, and legal entanglements related to international shipments.
Good trading!
Tara
P.S. Please keep in mind that these trade ideas are for information purposes only. We’re not registered financial advisors and these aren’t specific trade recommendations for you as an individual. Each of our readers have different financial situations, risk tolerance, goals, time frames, etc. You should also be aware that some of the trade details (specifically stock prices) are certain to change from the time we conducts our analysis… to the time we publish it… to the time you’re alerted about it. So please don’t attempt to make any of these trades without first doing your own due diligence and research.
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