EOT Trade Alert – November 28, 2012

| November 28, 2012

November 28, 2012

Trade Alert:

   Buy CAB January 2013 $50 Calls at $1.30 or better

Company Background:

Cabela’s (CAB) is the “World’s Foremost Outfitter” of hunting, fishing, camping, and related outdoor merchandise.  The specialty retailer and direct marketer sells their goods in 40 retail stores in North America as well as catalogs and the internet.

Short-Term Catalyst:

CAB reported lackluster earnings last month.  Their stock quickly dropped 17% after coming up a penny short of the 61 cents analysts were expecting.

Analysts were looking for earnings growth of nearly 30% over the same quarter last year.  But CAB’s earnings only grew by 27% year over year.  That’s all it took to knock CAB down after reaching a new all-time high.

Obviously, CAB was priced to perfection.  And when they couldn’t deliver a perfect quarter, the stock has taken a beating.

Here’s the thing…

CAB isn’t a busted growth stock.  They’re still growing earnings at a phenomenal rate and they’re expected to continue growing at nearly 17% per year.  That’s a huge advantage over the competition that’s expected to grow at 14% per year.

What’s more, their next generation stores open for the full quarter outperformed their legacy stores by a wide margin last quarter.  And they’re going to incorporate the new store concepts into their older stores going forward.

Put simply, the expansion of their new store concept will likely fuel faster than expected earnings growth.  That’s music to growth investors’ ears!

And to top it off, CAB’s chart indicates the stock is primed for a rebound.

As you can see in the chart below, CAB’s recent selloff sent the stock down to support of the long term uptrend.  And the stock has been moving modestly higher since reaching this level.

Let’s buy call options on CAB to pocket some quick profits as it regains its bullish momentum.

Trade Details:

Underlying Stock Symbol: CAB
Current Bid-Ask Price: $1.15 – $1.20
Option “Buy Up To” Price: $1.30
Break-Even On Stock At Expiration: $51.30
Maximum Risk Per Contract: $130

Exit Strategy:

CAB is trading at $47.25 per share.  Resistance levels will be at $53.00 and again at $56.00.  Remember, we want this stock to move higher.  Support levels will be at $43.50 and $41.00.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

About the Author ()

Comments are closed.