A Quiet Monday That Wasn't So Quiet -- If You Knew Where to Trade

If you only looked at the major indexes on Monday afternoon, you would have thought not much was going on. The Dow was slightly negative, the S&P 500 was barely positive, and the Nasdaq Index was up less than 0.50%. Under the surface there were some compelling moves. GameStop was certainly being talked about after a painful short-squeeze continued to blow the stock around like a leaf in a tornado. As of mid-afternoon GME had been as low as $61.13 and as high as $159.18 intraday. Who knows where it will finish at 4 p.m. and beyond? Those types of stocks are unplayable, except for ultra-short-term trading. A few of my recommended value stocks were also experiencing substantial moves on Monday. Children's Place , Designer Brands and United Natural Foods all took off in the pre-market session and were still holding onto large gains as the day progressed. All three represent large dollar personal long positions. See my earlier write-ups here on Real Money Pro for why I liked them and how high I feel they can go over time. The move in UNFI has been especially gratifying as I've written about it on multiple occasions. On Aug. 31, with the shares at $17.82, I suggested it could hit $38.55 within 18 months. Monday's high of $32.14 wasn't that far away from my original goal. What happened since last summer to get UNFI moving so well? Fiscal Q4 EPS (quarter ended July 31, 2020) blew way past estimates. So did Q1 numbers from the end of October. Last August, estimates for fiscal 2021 were set at $2.60. Management now sees full year EPS of about $3.30 or so by July 31 of this year. Its recent analyst presentation highlighted the great strides taking place in ramping up sales and earnings while also paying down debt. I see UNFI bumping EPS up to $4 - $7 over the next year or two simply by bringing net profit margins part of the way back towards their old normalized levels. As that earnings growth unfolds, I expect significant price-to-earnings expansion. There's no reason UNFI can't be back above $50 by the end of 2022. The stock's all-time high was $83.90 back in 2015 on final EPS of $2.86. EPS are already higher than in 2015 and appear destined for better. Amazingly, UNFI was still available for under $15 last December and for $16.24 as recently as Jan. 11, 2021. A side kicker, which might really help is the almost 27% short interest. As seen with GME, when heavily shorted stocks start moving up, short sellers suffer. Their buying to cover orders combine with natural demand from momentum buyers and those who simply see value in the shares. That mix can make for sharp upturns like we've seen in UNFI recently. Since Dec. 31, 2020 UNFI is now up greater than 56%. Unlike GME, though, solid fundamentals suggest UNFI has a long way to go. When looking back at my own article from late August I noticed my recommendation to set up Feb. 16, 2021 expiration date buy/write combinations in addition to simply purchasing shares. With just 25-days left until expiration, the best-case scenario detailed below appears very likely to play out. All that is needed is to see UNFI close at $20 or higher on Feb. 16, 2021. The cash-on-cash return if that occurs will be 67.7% for the 0.48-year trade duration, or 141.2% annualized. Readers who have never tried this technique should take the time to learn more about it. Buy/write combinations can morph modest share price movements into exceptional total returns while also providing decent amounts of downside protection. Last August, this February buy/write might have seemed a long way out in time. Time passes quickly, though. Expiration day, and the time to count your profits, is now just days away. Here were the two less-than-optimal other possibilities if UNFI closed between $17.50 and $19.99, or even below $17.50 on Feb. 16, 2021. Any of the mid-case results would still show excellent gains, regardless of where UNFI fell within that $17.50 to $19.99 range. The worst-case scenario would still have protected buy/write combination players from losses as long as UNFI holds above $14.71 on Feb. 16, 2021. My advice is to leave existing buy/write and/or naked put positions in UNFI intact while waiting for the remaining time to expire. Traders who bought UNFI outright without selling any options should also hold on tight. Much larger gains await for those with longer time horizons.

A Quiet Monday That Wasn't So Quiet -- If You Knew Where to Trade

Here are my recommended 'value' stocks that saw substantial moves.

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