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Category: Super Stock (Page 1 of 9)

Major Drop in Rite-AID!

There has been a huge sell-off in Rite-Aid (RAD).  A few days ago it was trading at over $4.50 but now it is trading close to $3.80 with more downside expected.  I would not recommend purchasing this stock anymore.  However, there is a great volatility which means there is also great option value in the stock.  Earnings is expected to be on 4/25/17.  This is a serious date that will move Rite-Aid violently up or down.

How to play?

I wouldn’t recommend purchasing the stock.  There’s too much variables in play that can cause this to move higher or lower that would end up making you sell.

Instead, I recommend looking at the August and October Strike price at the $4 or $3.50 to do a naked put.  I see this playing out in two ways.  In scenario one, you will get a nice premium when it sells at $6.50.  You will have collected it when you sold the naked put and now you will be happy that you are done with the stock.  In scenario two, the stock drops further and you end up owning the stock.  In this scenario, you will need to have enough reserves to make sure you can purchase the stock.  Scenario two will require patience and a long-term view that Rite-Aid will go up in the future.  A great earnings report will help prove scenario two as well.

I wouldn’t recommend you getting into this stock today.  I think it is better to give the weekend to plan your attack and due diligence.  Then you can execute your strategy on monday before earnings.  For those that are more conservative, wait until earnings comes out before making your play.  It might end up making more sense to play options after earnings comes out with the volatility playing to your advantage as well.

Disclosure: I do own RAD naked puts at $4 strike currently.

 

 

MMmm… Burgers…. to the Habit

I mentioned in the past article that HABT was a nice pickup at $15.75.  Even before that it had a bottom in the $13.20 but we cannot be all fortune tellers and we need to use the knowledge of both fundamentals and technicals to make our trades.  Now, HABT is trading at at high $17s and I still think it is a great time to get in.

For those that are more conservative, I would wait for the dip.  I cannot tell you I expect a dip to even come with a double-bottom already in place.  For the buy and holds, I expect this to return nicely.  You already saw that Panera Bread was recently bought out for $7 billion dollars to be brought into a privatize institution.

Now is the Right Time for Rite-AID

I’ve been reading about the merger between Walgreens (WAG) and Rite-AID (RAD) since last year.  I never was too interested in taking a position in this merger & acquisition candidate but with the recent sell-off the risk vs. reward is much better now.  I am also more confident in seeing a happy-ending to this scenario.

Originally, Walgreens was going to purchase Rite-Aid at a all-cash offer of $9 per share.  At that time, Rite-Aid was selling for over $6-7 which offered a nice 10% return to investors.  However, FTC didn’t like the deal and told Walgreens that they had to sell more stores to Fred or they won’t allow the purchase to take place.  Walgreens already said agreed to sell 800 stores to Fred.  FTC wants them to sell at least 1000 stores.  This also means that Walgreens will give less cash to Rite-Aid.  After hearing about this news, many investors holding Rite-Aid for over a year awaiting the merger and others holding the stock option gave up and sold their shares.

Now, the current price of Rite-Aid is around $4.50 (give or take a few cents) and Walgreens is planning to give $6.50 to $7.00 cash per share depending on the number of stores they need to divest to Fred.  There are a few different ways to take advantage of this opportunity.

First, Walgreens is actually in a better position.  They can get rid of more stores that they do not want.  Fred is happy to take over these stores since they want smaller stores that Walgreens would consider smaller towns that they are happy to give up and give less money to purchase Rite-Aid.

Second, Rite-Aid stock price is very undervalued now that even other acquirers should start throwing a deal out on Rite-Aid if Walgreens fails to acquire the company.  Rite-Aid does have a lot of debt but for the right investor they could use that debt as a write-off and still win at the current stock price.

Ok, let’s look at the returns.  At a price of $4.60 and a cash out of $6.50,  you are getting $1.90 per share giving you a return of 41%!  That’s great!!  However, if you want to get even more leverage and play a little safer as well, you can sell naked August 2018 Puts at a strike price $4 for around $0.65 so you would get a nice $650 for 10 contracts.  At worse case, the stock drops and you have to purchase at $4 but you already have $.65 so your stock basis would actually be $3.35.  I think this gives you plenty of wiggle room to wait until the stock price appreciations.

I think Walgreens or some other acquirer would be interested in this company.  I also think Rite-Aid can run on its own and figure a solution to get the price higher.  Either way, I feel the current price is a good one to get into Rite-Aid.

Disclosure: I do have naked puts in Rite-Aid currently and plan to purchase some stock for a long-term play.

Upcoming Super Stock: The Habit

My first visit to the Habit Burger Grill was in Santa Barbara, CA.  At that time, they were not publicly traded.  They weren’t located in multiple states.  They were the local favorite joint for luncheon.  Every table was taken.  They always had a line out the door.  The reason: they have great burgers and they give a lot of value for the price.  You can get a restaurant quality burger at a fast food price.  You can get restaurant style onion rings and french fries which means fresh taste and bigger portions.

The Habit (HABT) is now publicly traded and they are in multiple states.  They are planning to open multiple stores every year.  Consumer Reports rated them “Best Tasting Burger in America.”  They became a publicly traded company over 2 years ago.  Their stock price was over $40 in the first year.  Now it trades undervalued at $15.75.  It was at a low $13.20 within the past 52 weeks.

I believe this stock has hit the bottom.  People loves their burgers but they do not love the stock.  It is at a price where it has no where to go but up.  It might take many years for it to appreciate but you can already see within the past couple weeks that investors are starting to build positions in the company.

Disclosure: I am long HABT and plan to purchase more in the future.

Cheap Price to Get into the Future Uranium Boom

You may have noticed my most recent posts (new highs and bullish view) have been regarding Energy Fuels (UUUU).  You should be able to read those two posts to see why I’m bullish in this stock company.  The price is currently at $1.90 which is really cheap.  Technically, there is a lot of volume in this stock and I believe it is being accumulated slowly by bigger hedge funds.  President Trump has mentioned that the USA needs to become a strong player in the uranium market for both military and for clean energy.  It still plays well into carbon emissions as well.

Disclosure: I do own shares in UUUU.

Fannie Mae – Return > Risk

This week has shown quite a lot of volatility in US’s main housing mortgage companies Fannie Mae and Freddie Mac.  I, in particular, look at Fannie Mae as it is a bigger of the two companies but both have been taking big swings to the upside and downside recently.  FNMA, Federal National Mortgage Association, recently this month almost as high as $4.50 but this week recently dived as low $2.50.  The recent drop was from a court case that showed the appeals court upheld a decision to deny hedge funds the right to challenge government-sponsored enterprises’ (GSEs) net worth sweep.

There is still a lot of work going into this case.  FNMA sits at $3.07.  If this ends up being bullish, it could bring FNMA at least 5x the current levels.  You also have the risk of losing all $3.07 as well.  There is plenty of risk in this one but you will have lots of angry people if the government does not do this one correctly.  FNMA is a major part of the 30 year mortgage that would essentially go away if the company wasn’t recapitalized properly.

I wouldn’t put too much in this trade but I do think you can put a little here and end up with a nice capital gain or a small capital loss at the end.

Bullish on Energy Fuels

This is a relatively small-cap stock that has tons of potential.  The risk versus reward is definitely worth the purchase.  The company is Energy Fuels Inc (UUUU) which is a USA based Uranium company.  Technically, it has had nice volume the past few months.  It has formed a nice V-indicator and its time for it to push the boundaries off the $2.50 price which it currently sits at this time.

Fundamentally, the uranium sector is still at a market low on pricing.  It won’t take much to get this going.  Donald Trump tweeted in November that he wants US to ‘strengthen and expand its nuclear capability.’  If Mr. Trump renegotiates NAFTA, it will cost more to import Uranium from Canada to USA.  Energy Fuels Inc would get a nice boost of customers being in USA and, therefore, not being part of the tariff.  You will bet that Mr. Trump will be most bullish on all USA companies and he will give the most benefits to make sure they grow especially if they can offer more jobs.  Also, internationally, if any relations go sour with Russia other suppliers, they won’t want to import Uranium to us.

UUUU is currently at $2.45.  I bought some today.  It is a small cap that DOES have risk but it is worth the reward.

Great Earnings Report, Dividend Increase, and Great Future Growth!

I mentioned Omega Healthcare Investors Inc (OHI) in an earlier post.  It has dropped 5% in the past couple days giving you an opportunity to buy at a undervalued price.  The company posted earnings recently and beat forecasts by 0.40 EPS.  As we know the market is speculative and sometimes not efficient, therefore, the stock dropped from a recent weekly high of $32.70 down to $30.70.

The stock is sitting nicely at low $31s as of this morning and it still gives you a great price to get in.  Remember, you can take further advantage by purchasing through a tax-advantaged account like a ROTH IRA or Traditional IRA.

Best Company to Own in Oil Stocks

The oil stocks have all made a nice bullish rise in the past year.  Part of the reason was the election of Donald Trump and adding the previously CEO of Exxon to his cabinet staff.  This gives investors a more bullish outlet on the oil sector and their oil investments.

This also made huge gains in Exxon Mobile (XOM) and Chevron (CVX) stock price in the past few months.  British Petroleum (BP) also went up but it didn’t have the same appreciation gain.  BP also still wields at 6.7% dividend at the current stock price.  Exxon Mobile and Chevron hold less than a 4% dividend at their current stock price.

You should remember that British Petroleum has finalized the settlement with the government.  They have already sold the necessary assets to make the payments.  They are actually quite conservative compared to the other oil companies which I believe is a good thing as it is challenging to forsee the oil prices going forward.

You might have remembered an earlier blog post that I said BP follows a Plan B strategy.  This means the company believes that oil prices will remain stagnant so they are strategizing their oil investments for low oil prices.  This is counter to Exxon and Chevron which are building their portfolio to account for higher oil prices.

With a nice dividend and a undervalued outlook, British Petroleum (BP) should be on your radar for a nice oil company.  I do believe Exxon Mobile and Chevron (CVX) are a bit overvalued at their current price as well.  I am a holder in Chevron but I will be looking for a time in the immediate future to move some of those holdings to BP where I see much better chance at appreciation in the future.

Stock Market DIP Ahead!

We have had a great bullish market since October.  Many people say the new presidency is part of the bullish market.  I also agree that this is true but I also believe we are due for some correction ahead.  President Trump will have his inauguration on January 20, 2017.  I expect this to get a lot of fanfare as well as many dissidents that would rather oust him from the presidency.  Either way, I feel a correction coming to the market.

Why?

You cannot have a bull market run forever.  When the pigs fly is when they get slaughtered.  I see an interest rate dip and market correct coming at the end of January.

What is the best way to play this?

If you see some stocks that you are interested in, I recommend waiting until the end of January.  Once you see the dip, then you can get into the stocks you want.  I would not recommend buying now where many stocks are at peak highs.  I also would recommend you try to get in the previous dividend stocks that I recommended.

In the long-term, I hope the President Trump does make changes that can help the economy.  This is the main reason he was voted into office.  There were many unemployed citizens that are looking for work.  He also suggested ways to bring companies monies back into the USA.  These are all things that should spur the economy and bring more jobs.  It’s a lot more challenging that I believe and he has a lot to juggle.

I know the government has stated that they will raise interest rates three times in 2017.  I highly doubt this will happen.  The economy is still in the doldrums and it will take time to get the economy going again.  With these concerns, I still believe Bank of America (BAC) will be a good long-term play.  The market will give you some nice dips to purchase BAC and I expect end of January will be an opportune time.

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