Gama Gana: This industrial stock reporting Friday could indicate an economic slowdown. How to trade it

Senin, 08 Juli 2024

This industrial stock reporting Friday could indicate an economic slowdown. How to trade it - CNBC

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With earnings season kicking off, we'll break down an industrial stock reporting Friday and how to trade it. Earnings season occurs four times a year when many publicly traded companies release quarterly earnings reports, providing investors with detailed financial information such as revenue, profit, earnings per share, and other vital metrics. Historically, Alcoa Inc. marked the start of earnings season, being one of the first major companies to report results. However, in recent years, large financial institutions like JPMorgan Chase, Citigroup, and Wells Fargo have often been the first to release their earnings reports, signaling the start of earnings season. All three are reporting this week, and while their results will be closely watched, these stocks have typically shown modest movement on earnings, with JPMorgan Chase averaging a 2% move over the past decade and Citigroup and Wells Fargo slightly higher at 2.5% and 2.4%, respectively. On the other hand, Fastenal (FAST) has an average earnings-related move of more than 4.3%. It has underperformed the S & P year-to-date, down nearly 2.5% and declining more than 20% since the late March highs. FAST .SPX YTD mountain Fastenal vs. S & P 500 Fastenal is a U.S.-based industrial supply company that primarily deals in the distribution of fasteners, including screws, nuts, bolts, and related hardware, as well as a wide range of industrial and construction supplies. The company operates through both physical store locations and online platforms, serving a diverse customer base, including manufacturing, construction, and maintenance industries. Economy barometer Fastenal holds a unique position in the market. Its products, used across various industries, offer a comprehensive view of economic activity. The company's sales data, reflecting real-time demand for industrial and construction supplies, is closely linked to economic health. Increased purchases of fasteners and related products usually indicate heightened production and construction activity. With its widespread locations, both in the United States and internationally, Fastenal's performance also provides valuable insights into regional economic conditions. The recent weakness in Fastenal's stock price is a reflection of near-term challenges from soft manufacturing markets. While last week's non-farm payroll data seemed positive at a high level with 206,000 new jobs, a deeper analysis revealed that 82,000 were in the healthcare sector, and another 70,000 were government jobs. Manufacturing jobs fell by 8,000, contrary to expectations of a modest increase, further contributing to the challenges faced by Fastenal. Topline revenue growth is less than 4%, which is in line with GDP growth, and margins have remained steady at just over 15% over the past several years. EPS growth has significantly lagged behind overall earnings growth for the S & P, making it difficult to justify the company's 29x earnings multiple, which is a premium compared to the S & P 500 (~23x forward earnings) and its peers (~20x forward earnings). The most recent 13F filings from March 31st show that many hedge funds reduced or unwound their positions in Fastenal during the first quarter. Those who did so may be waiting to repurchase at previously attractive levels, but we're not quite there yet. The trade Given the expectation that the stock is unlikely to rebound on earnings, a calendar spread could be a suitable trade. Fastenal, due to some corporate actions, has unusual front-month strikes. For example, the first out-of-the-money put strike expiring in July is the $62.12 strike puts, priced at $1.25/contract as of last Friday. This premium could help finance the purchase of longer-dated November $62.50 puts, whose mid-market price was $3.25. This trade would capitalize on the typical 'volatility crush' following an earnings report, offering a potentially profitable strategy. A crucial public service announcement: when executing spreads like these, calculate the mid-market price and use limit orders. The bid/ask spread for the front-month options was ~.10, while the November bid/ask spread was .30, making the effective bid/ask spread on the spread .40. The mid-market price on the spread is $2.00, while the ask is $2.20, a 10% difference. Using limit orders is particularly important when the bid/ask spreads are wider, as they are here. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL'S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.

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This industrial stock reporting Friday could indicate an economic slowdown. How to trade it - CNBC
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Senin, 08 Juli 2024

This industrial stock reporting Friday could indicate an economic slowdown. How to trade it - CNBC

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