Four Boring Winners for Year-End

The majority of stocks that have done well in the last six weeks have one thing in common: They're the most boring issues gathering dust in my database. Of course, there's another name for these slow but stable winners. They're called defensive issues because they tend to outperform during periods of turmoil and slow growth.

On Monday, I noted the disturbing lack of leadership in the market these days, despite last week's oversold recovery. That might change as buyers come out of their foxholes and bid up more speculative names ahead of the Dec. 11 Federal Reserve meeting. But this positive rotation hasn't happened yet, except for last Wednesday's one-day wonder.

We saw higher prices across a variety of sectors last week, driven by short-covering and lopsided technicals. But this is a different animal from healthy rotational movement, which requires real buying interest and a thirst for risk assumption. The sad reality is that legitimate upside is still a pipe dream in this twitchy and paranoid fourth quarter.

So here we are, with soaps, colas and paper products leading the charge into year's end. They're not my favorite ways to earn a living, but I guess they'll have to do while the market works through the current strains in the financial system. In any case, these safer instruments should yield steady returns and fewer sleepless nights.

Let's look at four defensive names attracting big money this December. Although just one of these issues is a Dow Industrials component, institutions are parking a ton of capital in the index's defensive names right now, so take the time to check out obvious plays Procter & Gamble (PG - commentary - Cramer's Take) and Colgate (CL - commentary - Cramer's Take).

Pepsico (PEP - commentary - Cramer's Take) has been moving higher in a steady uptrend since 2003. It hit a rally high at $74.24 in early October and pulled back. That decline bottomed out near $70, with the stock jumping back to short-term resistance just a few days later. It moved sideways for another two weeks and then broke out into a new rally leg in mid-November.

The stock has gained just 2 points since the breakout in a pattern that shows a ton of day-to-day overlap. This is common in slow movers and a cause for frustration if you jump in at the wrong time. The best way to trade the stock is to wait for a pullback to rising channel support. The next buy signal should come between $75.50 and $76.

Coca-Cola (KO - commentary - Cramer's Take) is trading at a multiyear high but its independent bottling entity, Coca Cola Enterprises (CCE - commentary - Cramer's Take), shows a more interesting trade setup at the moment. The stock jumped above two-year resistance in July, stalled for three months and rallied to a new high in early November.

The stock then dropped down, tested 50-day moving average support and returned to the high last week. It's spent the last four sessions consolidating its recent gains in a choppy pattern that should give way to a notable breakout in coming days. The next rally leg could lift the stock into "round number" $30.

Altria Group (MO - commentary - Cramer's Take) rallied to a new high at $72.20 in May and pulled back. It tested that level once and dropped into a deep correction. The stock bottomed out during the summer and worked its way back to resistance in a slow grind. It jumped above that level in October and dropped into a sideways pattern before launching higher last week.

The vertical rally confirms the October breakout and sets the stage for a continued uptrend into the first quarter of 2008. The good news is there could be a one- to two-week pullback to support near $74. That decline should offer an excellent opportunity to jump on board this market leader.

Darling (DAR - commentary - Cramer's Take) is a small-cap that provides recycling and rendering services to the food industry. The stock rallied to a nine-year high in July, when it jumped over round number $10. The uptrend then stalled and gave way to a decline that dropped price more than 30% at the August nadir. The subsequent bounce reached the old high in late October.

After another sharp pullback, price is now approaching that resistance level for the third time. This is carving out a bullish cup-and-handle pattern that should give way to a strong breakout before year's end. Upside momentum could develop rapidly once that uptrend is underway and lift the stock into the mid-teens.

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At the time of publication, Farley had no positions in any of the stocks mentioned in this column, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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