EOT Trade Alert – June 29, 2011
June 29, 2011
Trade Alert:
Buy MAR January 2012 $37 Calls at $2.80 or better
Company Background:
Marriott International (MAR) operates and franchises hotels and other lodging under various brand names around the world.
Short-Term Catalyst:
Forget everything you’ve heard about the slowing economy. It’s time to invest in consumer discretionary stocks. And right now MAR looks like it could make a huge run higher.
Here’s why…
It’s no secret that demand for Marriott’s hotel rooms is driven by consumers’ ability and willingness to spend money. The trick is understanding what certain leading indicators tell us about consumer spending.
By deciphering data on consumer confidence, personal income, and employment, you can forecast consumer spending. And knowing how much money consumers are going to spend in the future is the key to MAR sinking or soaring.
Right now there’s one overriding factor that will fuel consumer spending growth in the short term. Simply put, it’s falling energy costs.
The price for a barrel of West Texas Intermediate crude oil has plunged from a high of nearly $114 on April 29th to around $90 today. That’s a massive 21% drop over the last two months.
As a result, gas prices are falling sharply as well. And the less money consumers spend at the pump, the more leftover to spend on everything else.
And that’s just the tip of the iceberg for Marriott.
You see, gas prices are a major factor in how much vacations cost. And ultimately, it impacts how many people travel for pleasure. The recent drop in gas prices is expected to cause an additional 2% to 3% uptick in the number of travelers.
It’s those same consumers at the margins who can afford to travel with the lower gas prices that will drive revenue and earnings growth. And more revenue and earnings are just what investors need to see in order to drive MAR’s price higher.
What’s more, MAR has a solid technical setup.
Right now, MAR is bouncing back from oversold conditions. It’s shaping up to be a bullish reversal pattern. Let’s grab call options on MAR now to profit as it charges higher.
Trade Details:
| Underlying Stock Symbol: | MAR |
| Current Bid-Ask Price: | $2.55 – $2.65 |
| Option “Buy Up To” Price: | $2.80 |
| Break-Even On Stock At Expiration: | $39.80 |
| Maximum Risk Per Contract: | $280 |
Exit Strategy:
MAR is trading at $35.81 per share. Resistance levels will be at $40 and again at $45. Remember, we want this stock to move higher. Support levels will be at $32.50 and $30. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
Chart:
Category: EOT Trade Alert
