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Big Lots Delivers, Target Trips and Chemours is Back In The House…

By Linda McDonough on March 12, 2018

Despite the averages showcasing some pretty bullish numbers, there are still some pockets of discontent in the market. Most notable is the harsh treatment stocks are receiving with less than stellar earnings reports.

I specifically note Target (NYSE: TGT) which reported a solid quarter on March 8. Like many other big-box retailers, Target got knocked down 5% on a slight earnings miss. Add it to the list of Walmart (NYSE: WMT) and Costco (NSDQ: COST), retailers that were hit hard on the news of mixed quarters.

See below for my detailed notes, but I see the Target situation as very different from Walmart and Costco. Both of those companies missed earnings and revenue expectations and offered lower than expected guidance for 2018. Target’s guidance is inline with expectations and incorporates higher spending to keep sales sliding in.  I think Target is a great buy here but of course, that won’t help our calls that expire this week.

Investors seem to be racing from one group of stocks to the next. Fear of missing out on the next bull move is overwhelming the fear of losing money. This volatility is making the timing of options even more difficult.

The trucking group, which had been on a tear, is suddenly out of favor as investors rotate out of transportation stocks. See below for updates on Old Dominion Freight (NSDQ: ODFL) and SAIA Transportation (NSDQ: SAIA), companies whose fundamentals keep improving.

My options recommendations have had some bright spots but overall I’m very unhappy with the performance recently and am dissecting what went wrong and analyzing how to format the options trades to improve their profitability.

Big Lots (NSDQ: BIG) delivered a resounding win for the portfolio. Based on the tough results in our other options trades, I jumped the gun and sold the puts at $5.35 before Friday’s earnings. Those that held on enjoyed a spectacular gain of almost 300%. They are currently trading at $9.90.

The Facebook put trade worked out temporarily but the stock got swept up with the overall market. These puts, along with the Celgene (NSDQ: CELG), the SAIA and the Werner (NSDQ: WERN) calls expire this week.

I am working diligently to find some terrific new trades to repopulate our options and new stock ideas. You likely saw the Chemours Company (NYSE: CC) trade suggestion this morning. Keep your eyes peeled for more that will be published soon.

Around the Portfolio:

Air Transport Services Group (NSDQ: ATSG) saw its target raised to $30 at Cowen. The analyst noted that the current environment remains highly favorable for ATSG and should drive continued demand for 767 assets.

Old Dominion Freight (NSDQ: ODFL) announced increasingly strong freight numbers for February. Tons per day increased almost 18%, an acceleration from January’s 14% increase.

David S. Congdon, Vice Chairman, and Chief Executive Officer noted,

“Our quarter-to-date revenue growth accelerated as compared to the growth rate in our fourth quarter of 2017, as we continue to benefit from ongoing strength in the domestic economy and a positive yield environment. We believe that we can win additional market share in this current environment by continuing to deliver superior service at a fair price, while also investing in the long-term capacity of our network to support increasing customer demand. By continuing to focus on these fundamental principles, we expect to drive further growth in long-term shareholder value.”

Saia Inc. (NSDQ: SAIA) also updated LTL (less-than-truckload) shipment and tonnage data for the first two months of the first quarter. In January 2018, LTL shipments per workday increased 8.9% and LTL tonnage per workday increased 11.1% compared to January 2017. In February 2018, LTL shipments per workday increased 10.6% and LTL tonnage per workday increased 13.2% compared to February 2017.

All three truckers are acting a bit better, giving me hope that the weak hands are done with rotation and those focusing on the strong fundamentals are buying the stocks.

Target’s earnings were a penny less than the $1.38 estimate but revenue beat a bit. The stock sold off sharply, likely due to guidance for the first quarter of $1.25-$1.45. The mid-point of that range, $1.35 is less than the Street’s $1.40 expectation.

The reasons for the slightly less than hoped for earnings are all reasons that make me like the stock even more. Higher depreciation as the company moves to remodel stores faster than expected (remodeled stores drive higher revenue and profits), higher spending on drive-up pickup and e-commerce fulfillment and higher wages to make their workers happy.

All of these are smart business decisions. With most retailers, driving stronger sales is the most critical metric and Target is doing just that with its new brands and smaller stores. I expect the stock to rally as the skeptics are washed out.

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