"Early Bird Retail Basket"
10/28/2005 12:00 am EST
"We want to get ahead of the game and do our Christmas shopping early by positioning ourselves in our ‘Early Bird Retail Basket Trade’," says Bryan Perry. Here, the trading expert offers a package of four retailers, each focused on a different specialty sector.
"One of the most compelling developments among all the chaos in recent trading is how surprisingly strong sales have been at some of the specialty retailers. We saw very strong same-store sales figures out of a host of companies, which really raised a lot of eyebrows. Most of the best names have been hit pretty good, and some of my favorite names are back down to compelling entry points.
"Four subsectors where unabated spending rules include luxury goods, video games, online purchasing, and home improvement. Thus, I recommend going long four well-known retailers that all have excellent upside potential, given their most recent sales trends and forward guidance. I've structured this trading strategy so that you can buy any combination of the above names or even the whole basket, if you like. My preference is that you spread your capital and risk among the four names and get involved in all four subtrends.
"Coach (COH NYSE) has pulled back from $36 to $31 and is sitting right
on its 200-day moving average. The company is set to report earnings Oct. 25,
and I believe—like
Ralph Lauren and Tiffany's—
it too will guide higher going into
the holiday season. Shares of Coach should trade back up to my price target of
$36, for a projected gain of 16% by year-end.
"GameStop (GME NYSE), through its recent acquisition of Electronics Boutique, is now
the world's largest video game retailer. I believe that with the rollout of the
new Xbox and Sony's Play Station Portable, in addition to all the new titles
available, holiday game sales will once again be robust. Here, too, the stock
has pulled back from its recent high of $37 and now sits at near-term support at
$31, where it currently trades. I believe the stock will trade back up to $37,
my price target, where we can book a profit of 19%.
"We are also looking at two situation where we recommend call options. We recently profited nicely from call options on Amazon.com (AMZN NASDAQ). The stock has since pulled, where I recommend getting back in, specifically with the Amazon $43.50 calls. I think Amazon.com shares can trade up to at least $50, representing a 64% gain in the calls.
"Last, but certainly not least, is Lowe’s (LOW NYSE). We like the Lowe's April 55 calls, currently offered at $10.30 per contract. The stock broke out of a quadruple-top at $60 back in July and recently tested that breakout level. M technical work suggests the stock could trade as high as $72 during the next three to four months. That would represent a profit of 65% for those holding the calls."