Americans may be turning to their favorite discount retailer for savings as the oil producing nations of the world extract more money from their pocketbooks. Wal-Mart (WMT) announced today its 3rd quarter profits rose nearly 8% and the company upwardly adjusted their earnings predictions for the year.
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An audio podcast of this article is available at: poweropt.com/podcasts/2007_11_13_WalMart.mp3
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Today, the stock is up over 5% on the news. Events leading to the increase in profitability include: International sales increasing 17%, domestic profits rising 11%, and the company installed new IT solutions to more tightly regulate inventory to reduce inefficiencies.
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Analysts were especially dazzled by the gains squeezed from inventory management techniques. Inventory have risen only 2.7% as sales this year have risen 9%. Tightly controlling inventory reduces the number of items the store has to mark down and sell for little profit or a loss. This may trouble consumers, but through this practice the company is closer to ensuring it makes a predictable profit on every item it sells. In the end, a more consistent profit margin may mean lower prices for consumers across the board.
Other Recent Wal-Mart News:
Forbes, until today, had been primarily focused on Wal-Mart’s lackluster performance of late and Chinese toy recalls. Other news outlets also painted a similarly grim picture coming into the earnings announcement today. Although, Forbes still is predicting Wal-Mart’s earnings results won’t excite investors in the long term.
Other news, which is positive for bullish investors, is the company is repurchasing stock in significant quantities. The company repurchased around 63 million shares this quarter. During the current fiscal year, Wal-Mart has repurchased over 110 million shares.
The Competition:
Target (TGT) exceeded its earnings estimates in October and announced their plan to increase profitability over the Christmas season without slashing prices. Their plan is to offer limited quantities of special inventory (Like a re-release of the much loved ‘tickle me Elmo’ doll) at limited time prices.
Costco (COST) saw same store sales gain 9% in the month of October. This, similar to the Wal-Mart rationale, may be due to consumers seeking bargains as their pocketbooks are increasingly constrained.
Potential Trades:
Now is the time in the blog where we turn from the news and events to illustrate how reasonable option trading opportunities can be identified in just a few clicks by turning to the wonderfully constructed search engines at www.poweropt.com. It’s almost as easy as asking, “I like Wal-Mart; I wonder what the covered calls for the month of December would return?”
Well, in the following search we asked the question of PowerOptions‘ search engine and received the following results. We also asked the engine to include Wal-Mart’s competitors in the search.
| Covered Call Search on Wal-Mart and their Competitors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Symbol | Stock Price |
OPTION | Strike Info |
Option Bid |
Net Debit |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
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| WMT | 46.17 (+2.85) | WMTAW | 08 JAN 47.5 (67) | 1.4 | 44.77 | 3 | 3.1 | 6.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WMT | 46.17 (+2.85) | WMTAI | 08 JAN 45.0 (67) | 2.75 | 43.42 | 6 | 3.6 | 3.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| WMT | 46.17 (+2.85) | WMTLI | 07 DEC 45.0 (39) | 2.15 | 44.02 | 4.7 | 2.2 | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BIG | 20.79 (+0.40) | BIGAX | 08 JAN 22.5 (67) | 1.6 | 19.19 | 7.7 | 8.3 | 17.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BIG | 20.79 (+0.40) | BIGLX | 07 DEC 22.5 (39) | 1.2 | 19.59 | 5.8 | 6.1 | 14.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NDN | 9.56 (+0.47) | NDNAB | 08 JAN 10.0 (67) | 0.75 | 8.81 | 7.8 | 8.5 | 13.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FDO | 24.39 (+0.88) | FDOAE | 08 JAN 25.0 (67) | 1.75 | 22.64 | 7.2 | 7.7 | 10.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TGT | 58.92 (+2.29) | TGTAL | 08 JAN 60.0 (67) | 4 | 54.92 | 6.8 | 7.3 | 9.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TGT | 58.92 (+2.29) | TGTLL | 07 DEC 60.0 (39) | 3.1 | 55.82 | 5.3 | 5.6 | 7.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TGT | 58.92 (+2.29) | TGTAY | 08 JAN 57.5 (67) | 5.4 | 53.52 | 9.2 | 7.4 | 7.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| BJ | 34.77 (+1.27) | BJLG | 07 DEC 35.0 (39) | 2.05 | 32.72 | 5.9 | 6.3 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COST | 67.12 (+1.39) | PRQAU | 08 JAN 67.5 (67) | 3.9 | 63.22 | 5.8 | 6.2 | 6.8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| COST | 67.12 (+1.39) | PRQLU | 07 DEC 67.5 (39) | 3.1 | 64.02 | 4.6 | 4.8 | 5.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DLTR | 29.01 (+0.33) | DQOLY | 07 DEC 27.5 (39) | 2.9 | 26.11 | 10 | 5.3 | 5.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TJX | 30.94 (+1.62) | TJXLF | 07 DEC 30.0 (39) | 1.95 | 28.99 | 6.3 | 3.5 | 3.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FRED | 10.70 (+0.34) | FMULB | 07 DEC 10.0 (39) | 1 | 9.7 | 9.3 | 3.1 | 3.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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[tags] COST, Costco Companies Inc., TGT, Target Corp., WMT, Wal-Mart Stores Inc., covered call investment strategy, investment strategy, poweroptions [/tags]