Defensive Gem: Colgate-Palmolive (CL) Q3 earnings withstand downturn

Colgate-Palmolive (NYSE: CL - option chain) shares are trading higher today after the company reported a third-quarter profit of $499.9 million, or 94 cents per share. CL's adjusted profit of 99 cents per share beat analysts' estimates by a penny. CL got a boost in the quarter from higher sales combined with price increases. Today's earnings demonstrate that in fact CL is still the kind of company you can afford to keep in your portfolio during rough economic times. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on CL. If you are looking to get some downside protection but still cash in on the nice dividend CL pays, then a covered call might be a good idea.

CL opened this morning at $64.01. So far today the stock has hit a low of $62.57 and a high of $65.50. As of 12:25, CL is trading at $63.58, up $3.58 (5.9%). The chart for CL looks bullish and S&P gives CL a positive 5 STARS (out of 5) strong buy ranking.

For a bullish hedged play on this stock, I would consider a February covered call at the $60 level. A covered call is an options position that combines the purchase of stock with the sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.3% return in just three and a half months as long as CL is above $60 at February expiration. Colgate-Palmolive would have to fall by more than 13% before we would start to lose money. Learn more about this type of trade here.

CL has not been below our break-even point around $56 except for a few days out of the past year. CL is expected to pay a dividend in late January.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in UPS.