It's No 'Surprise' That Mom and Pop Investors Got It Wrong

Monday's Wall Street Journal reported that individual investors pulled out about $31 billion from equity mutual funds and exchange-traded fund over the six weeks ended on Feb. 9. That represented the longest consecutive period of net withdrawals since last summer. The cumulative dollar amount was the largest since February of 2016, as the S&P 500 got off to its worst start to a calendar year in history. There is nothing that makes people more fearful than seeing their account balances go down week after week. Ironically, their behavior -- yanking funds away from managers who might otherwise want to buy -- is self-fulling. Big withdrawal requests dictate funds sell shares to get the cash needed to pay departing shareholders. I added the year-to-date results for the S&P 500 and Nasdaq Composite indexes through Monday to show just how wrong they were. Those who sold in despair were not around for those excellent early year rebounds. The chart below show they made the same error in the first six weeks of 2016 as the broad market tanked badly. From Feb. 15, 2016 through the rest of that year the S&P 500 gained about 18% and the Nasdaq Composite rose by around 22%. What is the key takeaway? It is OK to feel bummed out like everybody else. It is not OK to act like them. Now we will move on to a way to position yourself for future gains. Jack-in-the-Box is a proven long-term growth stock. The shares set a record high of $124.50 in May of 2021 as stimulus checks, and child tax credits, flowed into consumers' hands and then into their bellies. Fiscal 2021 EPS hit a record, at $7.19. That year could not be repeated in fiscal 2022, which ended last Sept. 30. EPS dipped to $5.82. That still represented JACK's second-best year ever. Fiscal 2023 is now expected to show growth again, followed by even better results going forward. The Del Taco acquisition closed in March 2022. Since then many company-owned units have been converted to franchises. More are scheduled for that treatment as well. That frees up capital and leads to higher net profit margins. Store remodels which emphasize drive-throughs, while eliminating in-store dining, will reduce labor costs. Calendar year EPS should reach $6.10 or so. fiscal 2024 EPS (ends Sept. 30, 2024) could easily hit $6.65. What is JACK worth?.67% From 2013 through 2022 its typical P/E ran about 20.2-times. A normalized yield was around 1.67%. As of Valentine's Day those figures sat at just 13.1-times fiscal 2023 earnings along with a well above normal 2.28% yield. Apply a 20-times multiple to 2023's full year earnings and you come with a year-ahead price target of $122. That implies 12-month total return potential north of 56%. My goal price is not far-fetched. JACK fetched to ticks from $93.10 to $124.50 during each of the eight years stretching from 2015 through 2022. Only 2021 showed EPS that were better than what is now on tap with JACK only trading near $79. Research house Morningstar calls the stock undervalued and sees present day fair value as $84.74, ahead of the projected profit rebounds. Yahoo Finance agrees that JACK is undervalued. Its fiscal 2023 and fiscal 2024 estimates are slightly lower than Value Line's. Even so, 20-times its 2023 estimate would still take JACK back up to $110.20, delivering over 41% in total return. Option-savvy traders can nibble at the edges of JACK's potential while also availing themselves some decent downside protection via selling naked puts out to Jan. 19, 2024. Actual pricing on those, with JACK at $79.14, is shown below. Worst-case, forced purchase prices dropped to between $67.10 and $72.50. Maximum gains on these, or any other option sales, always equals keeping 100% of all premium dollars received up front. In these examples that would be $790, $1030 or $1250 per each 100-share commitment. Those are nice amounts to earn if the puts written end up expiring worthless, as I expect they will. Buy some JACK shares, short some puts or consider doing both. JACK is a component of my Dandy Dozen Portfolio for 2023.

It's No 'Surprise' That Mom and Pop Investors Got It Wrong

But I've got a sweet stock with a menu full of 'options' to play to make things right.

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