Doughnut Dollars: Bernie Bets on Krispy
01/03/2003 12:00 am EST
In addition to his expertise in fundamental and technical analysis, options expert Bernie Schaeffer has developed a proprietary system called Expectational Analysis, a sentiment-based approach that involves the study of the beliefs and convictions of the market. He combines these disciplines in order to predict future stock price movements. For his top pick for 2003, he looks at Krispy Kreme.
"Krispy Kreme Doughnuts (KKD NYSE) is our top pick for 2003. Our contrarian approach consists of going long on stocks with low expectations amid a positive fundamental and technical backdrop. The low expectations signal an eventual source of buying power, even though a stock may be in an uptrend. Krispy Kreme matches this criterion.
"Krispy Kreme has outperformed the S&P by 500% since its initial public offering in early 2000. The company has huge earnings growth with earnings consistently exceeding analyst estimates. Krispy Kreme has further growth potential as the company expands into new States, as well as expanding overseas. In addition, its business is not materially impacted by a weakening economy.
"Meanwhile, there is huge short interest in the stock, and this short interest will eventually be a source of buying pressure. Finally, there is light analyst coverage and very few analysts have 'buy' ratings on the issue. This creates an opportunity for rallies as more coverage is initiated."