How much value do you place on consistency? On trend? On history? It's challenging, because every one of those can change on a dime, especially when we are discussing markets. O'Reilly Automotive (ORLY) has offered consistency post-earnings -- and we've seen a stronger auto trend early in this earnings season, which should put this one on the radar.
Credit Suisse is cautious on the auto parts sector, but chatter from companies in the group suggest stable and strengthening trends. Also, you can't underestimate the buybacks in this group. Autozone (AZO) is constantly buying back shares, and ORLY has a $7 billion authorization in place. I repeat, $7 billion.
Let's be realistic about this, though. Authorization versus actual repurchases are two very different things. Still, the company has repurchased nearly $6 billion of its own stock since 2011. Given it has a market cap of $26.5 billion, it's easy to see how these buybacks are decreasing float, squeezing shorts, and putting a floor under EPS. I'd expect to see additional authorization announced either this quarter or next.
Normally, I avoid stocks into earnings or play them through earnings. Unfortunately, with ORLY, you can drive your recently repaired car through the option spreads. Even if the straddle, priced around 5.5%, is attractive, your exit from the trade could be painful. It's a bit frustrating, given history for buying a straddle favors a trader. Over the past two years, ORLY would have given a straddle owner a chance for a profit every time -- assuming the same 5.5% pricing. We've seen a move of at least 5.5% either intraday or over the 21 days every time. I should preface that by saying that some of these moves were at or just above 5.5%, so timing has been everything. Attractive in theory, but not really tradeable, in my view.
Instead, I'd rather just look at buying a small stock allocation into earnings. This is aggressive, so perhaps I should repeat the phrase "small." ORLY has posted a green open eight of the past nine reports, closing green seven times. Given the past action, I would target selling one-third on the open if we are green, then sell another one third if the stock is up 5% at any point during the day. Finally, I would close the position near the end of the day. There hasn't been enough consistency with the post-earnings market action after the first day to use this as anything more than a trade, at the moment. I would look at $265 as a full stop and $270 as a partial stop.
The market is a bit weak this morning, with ORLY trading down a couple of dollars, which puts me in the camp of buying near the close rather than early in the morning.