Campbell Soup Stock Could Post Impressive Returns

Campbell Soup Company (CPB) shares fell to a six-year low in January, with shareholders hitting the exits after endless quarters of slumping profits, but the stock is now exhibiting unusual strength. This buying pressure looks like institutions rebuilding positions at a rapid pace, forecasting much higher prices in the coming months. There's plenty of potential upside if this bullish tape continues, with the stock trading nearly 30 points under 2016's all-time high at $67.89.

The canned food king has spent the first months of 2019 looking for ways to increase shareholder value, reacting to criticism by activist investor Dan Loeb. His Third Point hedge fund won control of two board seats in October, increasing leverage over the sleeping giant. Management has responded by putting unproductive divisions and older plants up for sale while establishing a renewed focus on core brands. 

Campbell Soup sold salsa maker Garden Fresh Gourmet in February, just a week after announcing the closure of the refrigerated soup plant in Everett, Washington. The company has also put Boathouse Farms and Australian cookie maker Arnott's on the block while working hard to integrate the 2018 Snyder's Lance acquisition. Mondelez International, Inc. (MDLZ) expressed interest in Arnott's and Danish butter cookie maker Tim Tam in March, while The Wall Street Journal just reported that Campbell Soup is nearing a deal to sell Boathouse to a group of investors.

A multi-year uptrend topped out in the lower $20s in 1991, giving way to a pullback that found support in the upper teens. The stock turned sharply higher in 1994, entering a powerful trend advance that continued into the 1998 high at $62.88. That marked the highest high for the next 18 years, ahead of a sell-off that accelerated into a full-blown downtrend at the turn of the millennium.

The decline ended in 2002 after completing an Elliot five-wave pattern, giving way to an uptick that posted respectable returns throughout the mid-decade bull market. Buying interest waned in 2007 after crossing the 50% sell-off retracement level, yielding a downturn, followed by a failed breakout attempt just a few days before the October 2008 crash. That event dumped the stock to a six-year low in March 2009, marking the lowest low in the past decade.

A weak recovery wave reached a 12-year trendline of lower highs in 2012, generating an immediate breakout and steady uptrend that finally reached the 1998 high in February 2016. It broke out in the second quarter, but buying interest failed to develop, yielding a double top pattern that failed the breakout in August 2017. The stock has lost substantial ground since that time, carving a long series of lower highs and lower lows. 

The decline reached the .786 Fibonacci retracement level of the 2009 into 2016 uptrend in May 2018, triggering a failed bounce followed by a successful test at support in February 2019. The subsequent uptick has now reached within a few points of the August high, with a rally into that level needed to complete a double bottom reversal. The stock is now trading above the 200-day exponential moving average (EMA) for the first time since 2017, adding to growing odds that the downtrend has come to an end.

The on-balance volume (OBV) accumulation-distribution indicator ended a multi-year accumulation phase in 2016 and turned sharply lower into the fourth quarter of 2018. The bottom then dropped out, dumping OBV to a five-year low, ahead of an intense buying wave that has lifted the indicator to an all-time high even though the stock is trading relatively close to a six-year low. This unusual strength indicates that institutions are buying positions aggressively in expectations of much higher prices as a result of Loeb's activist pressure.

Campbell Soup's accumulation readings have hit all-time highs even though the stock is trading near a multi-year low, setting up a potential buying opportunity.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.