BJ's Wholesale Club Inc. (NYSE: BJ) shares are rising today after reporting this morning that its fourth-quarter profit rose to $50.2 million on strong January sales and lower costs. The company posted earnings of 80 cents per share on revenue of $2.48 billion, topping analysts' predictions for earnings of 74 cents a share on sales of $2.46 billion. BJ's also said it expects first-quarter same-store sales to rise 4 to 6%. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BJ.
After hitting a one-year high of $39.15 in July, the stock hit a one-year low of $26.36 in January. BJ opened this morning at $35.04. So far today the stock has hit a low of $34.62 and a high of $37.17. As of 12:20, BJ is trading at $36.00, up $2.72 (8.2%). The chart for BJ looks neutral and improving while S&P gives BJ a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider an April bull-put credit spread below the $30 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just one and a half months as long as BJ is above $30 at April expiration. BJ's would have to fall by more than 15% before we would start to lose money.
BJ hasn't been below $30 since January and has shown support around $31 recently. This trade could be risky if the US economy get weaker in the coming months, but even if that happens, this position could be protected by the support the stock might have formed over the past month between $30 and $32.
Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BJ.
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Reader Comments (Page 1 of 1)
5-09-2008 @ 4:18PM
mike D said...
BEWARE of how BJ's deals with customers.
I was just told by BJ"s corporate "NOT OUR PROBLEM" after a 46" plasma TV failed under warranty.
I've been calling the mfg. for 7 weeks trying to get this resolved. Still no response. So I called Bj's.
BJ's could care less about customers. They told me...you deal with the mfg not us we only sold it, even after their vendor blew me off.
People should know how BJ's really operates when it comes to big ticket items.
Is this a company to buy stock in? Poor customer service will always come back to bite!