Deep In The Money Calls With Jon Najarian
Shopping for a New Play
Our stock pick for today is Kohl's (KSS:NYSE), a high- quality retail name that has experienced a nice pullback and is more likely to bounce than fall further.
This company was well run before last year's financial panic, and it's just as well managed now. Kohl's has masterfully navigated this downturn, maintaining a steady flow of customers and improving margins while also keeping a tight rein on inventories. The company reaped the benefits of this strategy in the third quarter, when profit rose 21% year over year despite revenue climbing only 6.5%.
Kohl's also benefits from product mix as it has begun selling more private-label brands such as Simply Vera Wang and Dana Buchman. Because the company cuts out the middleman and a lot of the marketing expense inherent in consumer goods, Kohl's can sell this merchandise at steeper markups than other items. The trend is in the right direction on this front as well, with private-label brands accounting for 45% of revenue, up 2.7 percentage points from a year earlier.
Kohl's latest news was less than perfect: October same- store sales rose at a slower-than-expected 1.4%. A week later, the company issued fourth-quarter guidance that was below analysts' forecasts. But that doesn't bother us. For one thing, the shares were already drifting lower after peaking at $60. Plus, we don't believe management has any reason to overhype its strengths heading into the Christmas shopping season.
Unemployment remains high nationwide and the entire retail industry is readjusting its strategy and adapting its merchandise to deal with the changing economic backdrop. The company knows it's better to guide lower now and beat later than to overpromise on its outlook. We think most investors realize the same this about Kohl's and will give also give the company the benefit of the doubt.
This is especially true now that the shares have pulled back to the $54 area, which is more or less the same level where they peaked in 2008. The stock has had a nice run higher and is now finding support at old resistance, which is bullish.
We would look to buy the April $45 calls (KSSDI) for $10.70 or less in the next three sessions. Once you own them, set a limit sell order for $3 above your entry price.
Turning to some of our other positions, we remind everyone that we've put a $4 stop loss on the Alcoa (AA:NYSE) January $9 calls (AAAK) to protect principal. We're also adding a $14 stop-loss on the Joy Global (JOYG:Nasdaq) April $43 calls (JQYDW) because sentiment seems to be weakening in the coal space.
We expect a further bounce from Biogen Idec (BIIB:Nasdaq) as there is nothing new about all the concerns about its multiple sclerosis treatment, Tysabri. We think the stock will probably bounce toward $48 before running out of steam. We'd look to buy more of the January $40 calls (IDKAH) for $5.90 or less in the next three sessions, which would lower the cost basis to $8.55. Programming a sell limit order for $8, will allow you to recover most of the capital you've invested.
We hope everyone has a great day of trading and a terrific weekend.
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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11/06/09 - 09:38 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 | |
|---|---|---|---|---|
| 10,318.16 | 1,091.38 | 2,146.04 | 33.56 |
Oil *
77.53
|
|
DOWN
14.28
|
DOWN
3.52
|
DOWN
10.78
|
UP
0.07
|
10 Yr
3.36%
SPDR Gold
112.94
|
|
-0.14%
|
-0.32%
|
-0.50%
|
+0.21%
|
Data delayed 20 minutes |
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