Avon is still calling

Posted Nov 18th 2009 3:20PM by Joseph Lazzaro
Filed under: Avon Products (AVP), Stocks to Buy

Avon Products (AVP) has broken through key resistance at $33, hence I'm removing my hold on the company's shares, first recommended on May 6, 2009 at a price of $23.12. If you bought in May, you're up about 50%.

Still, it should be noted that this is probably the last opportunity to buy Avon shares and earn an outsized gain during the current economic expansion, as a $50-55 top for AVP is seen.

Avon, the world leader in direct-marketed cosmetics, toiletries, fashion jewelry, and fragrances, posted Q3 EPS of 42 cents compared to the First Call Q3 EPS estimate of 40 cents, and the company's cost cutting efforts should aid the bottom line again in 2010.

Further, although slow GDP growth conditions will keep U.S. revenue gains to modest levels, the view is brighter internationally, where growth should be better than adequate. The First Call FY2009/FY2010 EPS estimates for AVP are $1.72 to $2.21. That 2010 EPS estimate will likely prove to be low.

Technically, as noted Avon's stock chart has cleared traffic at/near $33. Minor psychological resistance will occur at $40; otherwise, the chart is strong.

Stock Analysis: Avon Products is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in AVP now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your AVP position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $24.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: avp