Wal-Mart’s stock (WMT) has been stagnant for the last several years. A large part of Wal-Mart’s problem stems from the company having saturated the rural and suburban U.S. with stores and having a need to find other avenues for revenue growth.
This pretty much leaves Wal-Mart with urban and foreign alternatives for store expansion. Wal-Mart has some foreign expansion initiatives, Mexico, South America, for example and has joint venture agreements for expansion in China, but foreign expansion can be a difficult endeavor, especially if a company is used to having its trucks use the expansive interstates of the U.S. and then suddenly find the country it’s trying to expand into doesn’t have a highly developed highway system.
Additionally, Wal-Mart has faced resistance from some urban communities in the U.S. when desiring to expand into their neighborhoods and in some cases has been outright rejected.So what is Wal-Mart to do about its expansion conundrum? One thing Wal-Mart might consider is purchasing or merging with another retail company with a heavy urban retail presence and adding “Sam’s” personality to the mix. Wal-Mart’s brand or image as a low-cost discounter pretty much rules out going upscale, like Macy’s for example.
But how about merging with JCPenny (JCP)? JCPenny has over a 1000 stores with a large presence in urban areas. Wal-Mart could convert underperforming JCPenny stores to Wal-Mart stores and there should be lots of synergy between the two retailers with Wal-Mart’s distribution expertise and JCPenny’s fashion know-how. With a trailing twelve months P/E ratio of 14 and a P/S ratio of 0.8, JCPenny looks like a real bargain.
OK, enough of the crystal ball stuff. The price of oil and the price of gasoline at the pump have decreased significantly in the last couple of months. This means the money shoppers would have spent at the pump can now be spent at the retail store, so a covered call strategy for retailers makes a lot of sense in this environment. We executed a search for covered call investing opportunities in retail using PowerOptions SmartSearchXL Internet based stock options search tool on October 6, 2006 and found the following potential covered call strategy stock options investment opportunities (all stock options expiring in November):
|SmartSearchXL Covered Calls on October 6|
|SHLD||162.16 (-1.28)||KDUKL||06 NOV 160.0 (44)||9.10||5.60||4.50||4.50|
|JCP||69.95 (-0.47)||JCPKN||06 NOV 70.0 (44)||2.95||4.20||4.40||4.50|
|SHLD||162.16 (-1.28)||KDUKM||06 NOV 165.0 (44)||6.50||4.00||4.20||6.00|
|SHLD||162.16 (-1.28)||KDUKK||06 NOV 155.0 (44)||12.30||7.60||3.40||3.40|
|TGT||58.20 (-0.48)||TGTKY||06 NOV 57.5 (44)||2.55||4.40||3.30||3.30|
|JCP||69.95 (-0.47)||JCPKU||06 NOV 67.5 (44)||4.50||6.40||3.10||3.10|
|SHLD||162.16 (-1.28)||KDUKN||06 NOV 170.0 (44)||4.40||2.70||2.80||7.80|
|SHLD||162.16 (-1.28)||KTQKU||06 NOV 150.0 (44)||15.90||9.80||2.60||2.60|
|WMT||48.35 (-0.06)||WMTKW||06 NOV 47.5 (44)||2.00||4.10||2.50||2.50|
|TGT||58.20 (-0.48)||TGTKL||06 NOV 60.0 (44)||1.30||2.20||2.30||5.40|
Sears (SHLD) returned several stock options positions with higher potential returns; mostly a result of its stock having a lot of volatility in recent months and Wal-Mart returned one stock options position with lower potential returns, mostly a result of its stagnant stock price over the last few years. Potential returns range from around 2% almost up to 8%, not bad for an investment of only 44 days.
The search results illustrate the reason the covered call investment strategy is considered conservative (see “Aggressive Strategy for the Conservative Investor” for more information). All of the positions have “downside protection”, i.e., the stock can decline in value and the covered call position can still remain profitable. The search results also illustrate the reason the covered call investment strategy is considered aggressive; as one of the SHLD positions has a potential return of 7.8% in 45 days in the event the respective stock option is assigned.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a covered call investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing covered call stock options positions.
[tags]stock options, option income, Wal-Mart, Sears, JCPenny, covered call investment strategy, covered call investing[/tags]