Can You Catch a (Stock) Train That Has Already Left the Station? Yes.

People were so negative near the end of last year that they refused to buy great stocks at fabulous valuations. The final bottom was set on Oct. 12, 2022, exactly three months ago. Typical strong market seasonality said stocks were likely to rise in the fourth quarter. Many traders, though, said 2022 would prove to be an exception. Here is proof that they were very mistaken. As of the close on Tuesday the Dow Jones industrial average was up a cool 15%. The S&P 500 had gained almost 10% and the Nasdaq Index had rallied by around 4%. All three indexes added to those gains on Wednesday and Thursday, as I am writing. Many individual stocks have done much better. Two of my favorite names back then were the footwear companies Wolverine Worldwide and Caleres . From a Dec. 20, 2022 intraday low of $9.60 WWW climbed to as high as $13.25 intraday on Thursday. That $3.65 per share surge represents a cool 38% move in about three weeks, plus one 10 cent per share dividend. At $9.60 WWW yielded 4.16% and sported a trailing price-to-earnings of about 6.6-times 2022's expected earnings. The shares offered investors exits points between $21.70 and $44.70 at some point during every calendar year since 2011. There was no reason to believe you would not get another chance to sell at double to triple from last December's nadir. Caleres rose from a Dec. 20, 2022 intraday low of $19.45 to as high as $22.98 during the Wednesday session. Those lucky enough to have caught the bottom were up 18.1% on paper three weeks later plus a seven-cent dividend. CAL had traded as high as $31.13 as recently as mid-August 2022. It was still hovering north of $28 just ahead of the Thanksgiving break. There was no bad news to justify 37.5% plunge from August to December. Read my previously published articles on those stocks for more details on why I love them so much. Anyone who did not buy last December missed the chance to buy both WWW and CAL at ridiculous lows. Option writers, though, can still lock in worst-case purchase prices at those December levels or even lower via short sales of naked puts. The data below show WWW's June 16, 2023 expiration date $10, $12.50, and $15 strike price puts and their actual prices as of Jan. 12, 2023 with WWW at $13.14. Worst-case, if exercised prices dropped to $9.30, $10.95 or $12, even though WWW had already rallied by about 35%. WWW's June 2023 $10 puts, the most conservative of those strikes, only committed to owning WWW at net cost that had not been available since 2009. Ten contracts sold for 70 cents per share would have brought in $700 with almost no chance of loss, based on the past dozen years' trading. At that if put price the yield would be 4.3% and the trailing price-to-earnings would tally just 6.4-times. Value Line says WWW's 10-year median multiple has been 17-times earnings. Owning WWW at $10.95 or $12.oo would have left you with a solid stake in a stock that had not been at either of those levels for even one day from the start of 2010 right through most of last December. The CEO, CFO and a corporate Director all bought shares on the open market on Dec. 14, 2022, at an average price of $10.47 per share. Even they could not foresee the even lower low that came less than a week later. They are all happy now, though, with WWW trading north of $13 . Caleres' recent fall to south of $20 was equally absurd. It has bounced back nicely since then but remains severely undervalued. Record EPS nicely above $4 per share appear on tap in both the current and following year. At its Jan. 12, 2023 quote of $22.55 CAL still sells for less than 5-times earnings versus a historically normal 13.3-times. It yields 1.24% right now. Rather than focus on having missed buying sub-$20, why not short some one-year puts to capture great premium income up front while only assuming the risk of buying below last month's lowest tick? Selling naked puts mean committing to own CAL at net exercise prices running form $15.20 to $19.60 if you are eventually put the stock. Margins of safety on those trades represent the downside protection from the current price to the if exercised prices based on the strike prices employed. There are just two possible outcomes on those transactions. If the shares close at, or above, the strike price selected you will keep all premium income and see the options, and your obligation to stand ready to buy, expire worthless. That is the best-case scenario for any option writer. If the shares close below your selected strike prices, you will be obligated to buy, but at prices which appear incredibly cheap barring any unexpected disasters between now and expiration day. Put writing, done correctly, is a low-risk proposition. The main error traders make is committing to buy more shares than they could reasonably afford to pay for in a worst-case scenario. Reverting to even a 10-times multiple would send CAL up to the mid-$40s. My goal is not far-fetched. CAL changed hands above $41 back in 2018 on final EPS of $2.21.

Can You Catch a (Stock) Train That Has Already Left the Station? Yes.

Let me show you how with Wolverine Worldwide and Caleres.

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