Editor’s Note: We are providing an equity trade for conservative investors and an options trade for aggressive traders.

EQUITY TRADE INSTRUCTIONS

Symbol: PDCO (NasdaqGS)
Limit: Buy below $26
Holding Period: 5 months
Target Price: $31
Target Gain: 19%

OPTIONS TRADE INSTRUCTIONS

Symbol: PDCO190118C00025000
Limit: Buy the Call option below $2.75
Strike Price: $25
Expiration Date: January 18, 2019
Target Gain: 118%

COMPANY DESCRIPTION                     

Patterson Companies, founded in 1877 and headquartered in St. Paul, Minnesota, distributes and sells dental and animal health products in the United States, the United Kingdom, and Canada. The company’s Dental segment offers consumable products, such as infection control, restorative materials, hand instruments, and sterilization products. The company’s Animal Health segment distributes animal health products, such as pharmaceuticals, vaccines, parasiticides, diagnostics, prescription and non-prescription diets, nutritionals, consumable supplies, equipment, and software to veterinarians, producers, and retailers under the Aspen, First Companion, and Patterson Veterinary brands. Link to company website.

TRADE RATIONALE       

Yes, I recognize the inherent risk for easy criticism I am taking by recommending a stock that caters to dogs (and many other animals), but Patterson Companies (NasdaqGS: PDCO) has too many promising attributes for a profitable trade for me to pass it by.

From a fundamental perspective, PDCO earns an IDEAL score of 9 (on a scale of 0 – 10) for its high dividend yield of 4%, growth in operating cash flow, and relatively cheap forward PER (price to earnings ratio).

In terms of technical indicators, its RSI (relative strength indicator) recently moved above 50 and its MACD (moving average convergence divergence) crossed over its signal line. However, the overall stock market is selling off today and dragging PDCO down with it, so this appears to be an opportune time to execute this trade.

Seven months ago, Patterson’s share price plunged 25% when it was named in an FTC Administrative Complaint that it violated federal antitrust laws by agreeing with its competitors not to sell its products to buying groups. The company vigorously denied the allegation and is in negotiation to settle the claim.

Last month, Patterson released its fiscal Q1 results that beat on revenue but missed on earnings. The company is projecting non-GAAP EPS of $1.40 – 1.50 for fiscal 2019, including $0.22 per share of “legal reserve costs” to settle the claim.

Without the potential settlement hanging over the stock, its share price should be in the mid-$30s which is where it was at the start of this year before the FTC complaint was filed. I don’t expect to get back to that level anytime soon, but I believe PDCO will jump up to its resistance level near $32 once the FTC complaint has been settled.