Philips (PHG) is the fluorescent defensive play

Posted Oct 31st 2007 9:39AM by Joseph Lazzaro
Filed under: Other Issues, Products and Services, Consumer Experience, Stocks to Buy

One wouldn't think a light bulb/electronics company could serve as a defensive play, but that's the case with Philips (NYSE: PHG).

Amsterdam-based Philips is the world's No. 1 light bulb manufacturer and a series of converging events has put the company in an advantageous position.

First, technological advancement has driven down the cost of fluorescent light bulbs, which are substantially more efficient than the incandescent bulbs that have been in widespread residential use for decades. Second, Europe's governing bodies have mandated use of the new bulbs to reduce energy use, and hence greenhouse gas emissions. Third, growing environmental awareness among consumers has substantially increased demand for the bulbs in nations where their use is not mandated, such as the United States. Philips shares closed Tuesday down 36 cents to $40.89.

Philips also has a sizable consumer electronics and appliance business, but the defensive dimension here remains light bulbs The secular trend regarding replacement of incandescent bulbs on efficiency/environmental grounds is likely to stretch into the next decade, and that fact, combined with the company's economies of scale and thorough cost containment, make PHG a prudent play, even if the U.S. economy continues to slow.

[Note: Technical analysis agnostics stop reading here; all others continue.]

Technically, Philips' chart looks adequate. The stock has dipped below its 50-day moving average at $41.91, but the up-trend remains intact, hence the dip can be interpreted as a buying opportunity. Also, PHG's p/e of 10 is a bargain and lowers the stock's overall risk/return.

Stock Analysis: Philips is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 1 year should be rewarded from Philips' shares. Sell/Stop Loss. $26.

Tags: defensive stock picks, DefensiveStockPicks, electricity, energy use, environment, Europe, fluorescent bulbs, incandescent bulbs, light bulbs, LightBulbs, PHG, Philips, technology, United States