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Sure, Presidents Day is supposed to celebrate two of the United States’ greatest leaders, George Washington and Abraham Lincoln, but that’s not what usually happens on the holiday.
What comes to mind when you think of this holiday? Sadly after Washington and Lincoln, it’s mattress sales or furniture bargains. (Car sales are off the radar this year, for obvious reasons.) Not very dignified, but that’s just the way it goes.
So, while you relax during this celebration of these and other men who’ve held the highest office in the land, we have a special treat for you — our OptionsZone advisers are offering some of the best deals they see in the stock market right now. (And there are a few out there to be had.)
Read on and check out the picks from our experts — it could be the best deal you get all day!
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Estee Lauder ()
Helping Stressed Americans Fight Signs of Aging
By Nick Atkeson and Andrew Houghton
We are at the start of a new and historic presidency. Americans tend to be optimistic and like to look forward to a better future.
But before we get too far down the road, let’s take one last look in the rear-view mirror. How many times have we looked at the outgoing president and remarked at how fast the office aged him? How gray, old and tired he looks.
The presidency is a tough job. Living through this stock market seems equally tough. We will all need to address the fact we are aging faster as a result of stress. Whether we feel the effects of aging or not, most of us certainly do not want to look like a president leaving office.
Estee Lauder () attempts to address this issue by offering us an array of makeup, fragrance and hair care products in over 140 countries under hundreds of brand names. Trading down 50% from its 52-week high and about 0.4x sales, this leading healer of hard knocks looks good.
Double Your Money Twice Each Month with Nick Atkeson & Andrew Houghton
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Amazon.com ()
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Finding the Way to Profit in Tough Times
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By Chris Johnson and Jon Lewis
Amazon.com () cheap?? The stock is trading in the mid-$60s, and it’s almost doubled off its November low.
That’s true but Amazon has reached far higher — around $100 in October 2007 and $110 going back to 1999. More importantly, AMZN is emerging as a retail leader in a lousy economy. Its Web traffic blew away the competition during the crucial holiday season, and its most-recent earnings number crushed expectations by 33%.
Put simply, Amazon.com has figured out how to grow the top and bottom lines in a terrible environment. What’s more, the Street hasn’t caught on, as only five of 20 covering analysts rate the shares a “buy.”
Get on board before the Street does. If you want to play an option with a long-term view, look at the AMZN January 2010 75 Call () for about 10 bucks.
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Expedia ()
Window-Shopping Travelers Find Other Ways to Go
By Michael Shulman
The pick is Expedia () but keep reading. However, don’t buy it — short it, by buying some puts.
Travel has fallen like a stone and will continue to do so, according to our surveys at ChangeWave. People are going to drive this summer, camp out, hang out with family. And many people, like me, check prices on Expedia and then go directly to the hotel or airline Web site where it is easier to cancel and there are no or smaller penalty fees, a big consideration in this economy.
Expedia is very dependent on serious travel and whose growth was to be focused overseas. Not any more.
Look at the EXPE puts and LEAPs for January of next year.
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BlackStone Group ()
Heads or Tails, They Win
By Tobin Smith
The TARP 2.0 Plan is out and guess what? The Treasury department is going into business with hedge funds and private equity firms! The new game is called TALF and it’s a no-lose proposition for the hedge funds and private equity players who are chosen.
This a slam-dunk deal for the former Masters of the Universe. Treasury will guarantee high double-digit returns on the paper they buy and repurchase any of the paper that goes bad.
Heads they win … tails they win.
Publicly traded BlackStone Group () is one big beneficiary. BX has come down from it’s $30 IPO price and $45 value just less than a year ago. Yet they have almost $900 million in operating cash flow and a billion-dollar market cap.
They will be big players in this new TALF. It’s an easy double into next year as the plan rolls out.
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Costco ()
Everything You Want on Sale — Including the Stock
By Nick Atkeson and Andrew Houghton
In his1992 campaign to oust President George H.W. Bush, Bill Clinton declared, “It’s the Economy, Stupid.” President Obama, with his attention riveted on the economy, declared “Yes We Can,” and went ahead and placed earnings limits of $500,000 on executives at financial firms that receive bailout funds.
A $500,000 annual salary is a great income. One might think that earning $500,000 would mean you do a majority of your shopping at Neiman Marcus, Tiffany’s or Saks. But the truth is when you own a multimillion-dollar home, send your kids to private schools, vacation at Four Season Resorts and pay your club memberships — what’s left is a trip to Costco () to buy the basics that really support your life.
Not only to the $500,000-plus crowd shop at Costco, we all do. It is a great retailer that is continuously upgrading the merchandise it sells at incredibly affordable prices. In fact, Costco may be the best-managed major retail company in the market today.
The best price offering at Costco is its stock price. It has been marked down from its 52-week high at $75 to about $45 today. A 40% -off sale on one of the premier American retailers that is rapidly taking share in an array of retail segments (recently grocery, gasoline and consumer electronics) is a good deal.
The company’s FY 2009 earnings are estimated to be $2.67. The stock is trading at about a 16x P/E. With no net debt (cash less long-term debt), selling products we all need to buy at the best prices available and with a top-notch management team, we believe this is one President’s Day sale we should put in our basket.
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Dollar Tree ()
Discount Retailer Selling at a Discount Price
By Chris Johnson and Jon Lewis
With desperate times calling for penny-pinching, and with more and more consumers stretching their precious dollars, deep-discounters are finding themselves in a retailing sweet spot.
Big Lots () was one of the better performers for the first half of 2008 as consumers started feeling the pressure of the slumping economy. Now, one of the most crowded areas in shopping center parking lots is in front of deep-discounters such as Family Dollar and Dollar Tree (). We expect the economy will continue pushing shoppers through Dollar Tree’s doors throughout 2009.
Dollar Tree took an 18% haircut last week on the heels of some analyst downgrade activity. We’re viewing the quick devaluation of shares as an opportunity to enter the discount retailer at … well, a discount.
Those looking to leverage the potential move in Dollar Tree should consider the DLTR August 32.50 Calls () for around $7.
(Note: We currently have as an open position in our service.)
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Netflix ()
Cocooning Americans Put Those Home Theaters to Work
By Michael Shulman
Since they are not traveling as much, Americans are "cocooning" — they always do so during crises. The term "cocooning," invented by a woman with the wonderful name of Faith Popcorn, means people stay at home, entertaining, hanging out, and doing whatever with friends and family.
So they will watch movies. Netflix () is the ultimate cocooning play on the need to for many to rent rather than buy DVDs — especially the new high-definition Blu-ray DVDs.
The stock is on a tear but held up much better than the market when it broke earlier last week. If you buy the stock, sell the calls and don’t be greedy. You can sell the June 42.50 Calls for three bucks or more, giving you a near 20% return if you are called out and some cash to buy puts on the general market if there is a big downturn.
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Enersys ()
In the Right Place at the Right Time
By Tobin Smith
While there are any number of provisions in the American Recovery and Reinvestment Act of 2009 that has the population and some politicians up in arms, the planned federal incentives for the battery sector seem to have broad support and are not likely to change much.
As of Friday afternoon, the U.S. Senate’s version of the legislation included the following provisions that may directly impact the renewable energy sector:
- $14.4 billion for "Energy Efficiency and Renewable Energy"
- $2 billion for grants for the manufacturing of advanced batteries and components
- $4.5 billion for "Electricity Delivery and Energy Reliability"
- $600 million for "capital expenditures and necessary expenses of acquiring motor vehicles with higher fuel economy, including: hybrid vehicles; neighborhood electric vehicles; electric vehicles; and commercially-available, plug-in hybrid vehicles"
One of the only real companies in this game is Enersys (). They have the size and scope to acquire key technologies in this field and make big sales into the battery needs right now.
The $2 billion in grants for domestic battery manufacturing is immense. Grid-based energy storage may also qualify for a portion of the $4.5 billion earmarked for "Electricity Delivery and Energy Reliability."
If you assume that batteries and associated control systems will probably represent one-quarter to one-third of the $600 million electric vehicle acquisition appropriation and recognizes that there will be substantial pressure to ensure the funds are spent on domestically manufactured batteries, the impact on a handful of stocks like Enersys could be immense.
Enersys is a great Presidents Day buy. At four-times cash flow, will be a $10 to $12 stock as the spending wave starts to hit the energy storage biz.
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Rio Tinto ()or BHP Billiton Ltd.()
Making What China Wants
By Nick Atkeson and Andrew Houghton
There are places in this world that do not share our taste for personal debt. They are way under-levered and stimulus dollars placed in these economies go directly into GDP expansion rather than debt reduction. The number one name on this list is China.
The Chinese middle class is now estimated to be between 100 million and 150 million people. The average household income is about $10,000. These families tend to own an apartment and a car, eat out and take vacations, and, most importantly, are familiar with American culture and brands. They want more. But even bigger than the middle class wanting more, are the billion-plus people in China who have yet to join their ranks.
One company is selling the raw materials to the Chinese people to satisfy their rising aspirations.
Rio Tinto () is a mining company in Australia and the third-largest mining company in the world, producing copper, diamonds, coal, uranium, gold, borax, salt, talc and iron ore.
RTP is trading at about $116 per share — that’s down roughly 80% from its 52-week high of $558. Analyst estimates for the company are about $30 per share for fiscal year 2008 ending in February. The stock is trading for price earnings multiple of less than 4x and has a 5% dividend yield.
To trade for such a low multiple is a strong indicator the company has serious problems like too much debt. What makes their problems appear less problematic is Chinalco (largest aluminum mining company in China) has reached a multi-billion-dollar deal to buy assets from and a larger minority interest in Rio Tinto. The proposed transaction may bring as much as $19.5 billion of fresh cash to RTP and create an even stronger bond with their number one customer, China. On the other hand, there is some risk the Australian authorities will reject the deal as they are nervous about too much foreign ownership of Australian assets and the deal itself carries implications for the going concern value of the company that may be less than bullish.
Buy on sale this President’s Day, but recognize that this could be a volatile stock as its debt level is daunting.
For those who would rather just purchase the number one company in this space that is not encumbered by RTP’s problems, take a look at BHP Billiton Ltd. (). BHP is the world’s largest mining company and is also located in Australia. If you believe the world will continue to consume ever increasing amounts of natural resources, BHP presents a very broad exposure to this opportunity. Although not an 80% off sale price, is down 57% from its 52 week highs which is not bad for a President’s Day Sale.
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PowerShares DB Agriculture ()
A Love/Hate Relationship Pays Off
By Chris Johnson and Jon Lewis
The great commodity buying frenzy of 2008 led to a situation that we warned investors to avoid — the dreaded “crowded trade.” That’s when too many investors pile in, leaving little to no buying power on the sidelines to drive prices higher. The stock price is then left to collapse as the crowd migrates out of the position.
is a glaring example of the love/hate relationship that has evolved toward the agriculture sector during the last year. The fund peaked at $43 in early 2008 and was cut in half by December.
We’re taking the current “hate” toward as a signal that the shares are ready to move higher from their current support level at $25. Let’s face it, the demand for corn, sugar, wheat and soy beans (as represented by DBA) will not go away as the population continues to grow. That makes these shares a relative bargain at current prices.
For around $7, the DBA January 20 Calls () would leverage a move in DBA while providing some downside protection.
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Questcor Pharmaceuticals ()
Knowing When the Price is Right
By Michael Shulman
Questcor () is one of those stories that sounds like fiction or a scenario for a Harvard Business School case study — but it is quite real. The company makes a gel approved for use to treat severe multiple sclerosis spasms but drives most of its sales from the gel being used to treat radical spasms in infants.
was losing money each day until it hired a new CEO who jacked the price of the gel sevenfold in the summer of 2007 on the theory even insurance companies won’t let infants die and — voila! — instant profitability.
He has been furiously buying back stock and, more importantly, hoarding cash rather than waste it. The stock is up 25% in the past year, and the company prints cash. In 2008, Questcor gave back almost $50 million to shareholders — mostly in the form of stock buybacks — yet still managed to boost its cash position considerably.
It is slowly pushing new sales for its Acthar Gel, and the stock is worth at least $10 on its own (it is currently at $7 and change) and maybe $12 to $15 to an acquirer.
Based on recent performance, the stock should not trade with the market if and when the market spikes down again. I would buy the stock and immediately write August calls for $7.50 — about a 15% gain if you get called out.
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Proshares Ultrashort Lehman 20+ Year Treasury ()
Too Much Debt for T-bills to Escape
By Tobin Smith
All the borrowing is putting a pinch on Treasury bonds. Instead of issuing $125 billion this quarter, the number is now $494 billion and then even more every quarter thereafter. The U.S. Treasury has to borrow trillions to provide the stimulus cash and cover the spending-to-tax-collection deficits with tax receipts down $88 billion in Q4 and more than $150 billion in Q1 2009 as quarterly estimated taxes and corporate taxes fall off a cliff.
bets against the 20-year Treasury bill, and as it becomes clear just how much new treasury bond issuance is hitting the tape over the next few months, 10-year bonds will return to the 3.75% to 4% rates they held only six months ago.
An investment in under $46 puts you in line for a double to $100 when the next $2 trillion in new debt hits the market during the next 12 months.
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