Deep In The Money Calls With Jon Najarian
Shopping for a New Play
Our stock pick for today is Target (TGT:NYSE), a retailer that's been working through old inventories and is positioned to excel this holiday season -- even if it's even if it's weaker than the company's performance in previous years.Target's fiscal second-quarter results demonstrated the kind of performance they're capable of delivering in this tighter consumer-spending environment. Earnings came in at 79 cent per share (EPS), crushing crushed the 66-cent EPS consensus forecast. Management accomplished this by making smart cost reductions and pushing the company's operating margin to 7.64% of revenue. Few analysts thought this level was possible given Target's broader decline in sales and inventory reduction at the company.
Unlike many companies we've discussed, Target's overall inventories have increased in the past year, climbing to $7.5 billion in the fiscal second quarter from a year earlier. However, when you factor in the opening of 71 new stores, inventories fell to $4.3793 million per location from $4.4375 million.
Leaner inventories are going to be especially important this holiday season because nobody wants to be stuck with extra merchandise and face the hefty writedowns retailers have been swallowing for the past two years. CEO Gregg Steinhafel commented on this in Target's last same-store sales release, saying the company was entering the holiday season with "very clean inventories."
All of these actions have allowed Target to thrive in a weak retail environment without stellar sales growth. However, some analysts raise the possibility that Target could boost its revenue line by aggressively wooing Wal- Mart (WMT:NYSE) customers into the holiday season, competing directly on price.
Finally, we like how Target shares have been performing of late. The stock has been consolidating above its 50-day moving average and is holding support at a previous high from mid-September. We think the stock will keep climbing into the holiday season and will work its way toward $55 or $60 from its $49.70 close on Friday.
We believe the April $43 calls (TGTDQ) are the best way to play the name. We'd look to buy them for $8.40 or less in the next three sessions and to sell them for $1 over the entry price.
Regards,
Pete Najarian
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DISCLOSURE: At the time of publication, Pete Najarian held no positions in stocks mentioned.
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11/13/09 - 10:13 AM ESTPete Najarian is the author of TheStreet.com Deep In The Money Calls (the "Product"). Mr. Najarian a professional investor, noted media analyst and speaker, and co-founder of optionMONSTER®.
Mr. Najarian is not restricted from owning individual securities or options. In addition, certain of TheStreet.com, Inc.'s affiliates and employees may, from time to time, have long and short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in TheStreet.com Deep in the Money Calls and may take positions inconsistent with the views expressed.
Please note that any trading ideas suggested in the Product prior to April 24, 2009 were recommended by Mr. Lenny Dykstra prior to the launch of the Product. Any trading ideas suggested in the Product between April 24, 2009 and May 13, 2009 were recommended by Mr. Jon Najarian.
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| Dow Jones | S&P 500 | NASDAQ | 10-Year Note | |
|---|---|---|---|---|
| 10,464.40 | 1,110.63 | 2,176.05 | 32.79 |
Oil *
78.36
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UP
30.69
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UP
4.98
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UP
6.87
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DOWN
0.38
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10 Yr
3.28%
SPDR Gold
116.62
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+0.29%
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+0.45%
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+0.32%
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-1.15%
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