Step Into Caleres Now, Walk Off Wealthier Later

In our high inflation world, it's great to find a stock that offers much more value today for pretty much its price from eight years ago. Footwear designer and retailer Caleres ramped up sales, cash and earnings tremendously since the end of fiscal 2014 as detailed below. Total shares outstanding were trimmed by almost 14% as well, using internally generated funds. Amazingly, continuous shareholders have not benefited at all. Their loss is your gain if you are establishing positions today. This is the perfect set up for a huge catch-up move higher. From fiscal 2014 through fiscal 2019, CAL was a steadily profitable. EPS only varied from $1.72 to $2.21 and the dividend, which is not management's focus was merely held unchanged. Traders paid calendar year top ticks to own CAL during that six-year period ranging from $32.28 to $41.09. The stock's average P/E over that stretch ran about 13.9-times. Covid-induced, government-imposed physical store shutdowns caused a fiscal 2020 loss. That tanked the shares momentarily all the way down to $3.10 per share during March 2020. I took a major position back then, knowing CAL clearly had earnings power of at least $2 per share once the shutdowns ended. I have not sold one CAL share since, but have added more. It remains my single largest dollar position in my personal accounts. Fiscal 2021 showed all-time record results by a wide margin. EPS reached $4.29. The shares responded well, hitting $29.36 in November of 2021 ahead of spectacular Q3 and Q4 results. 2022's crazy market action, though, sent CAL back down to sub-$18 again in March, providing yet another chance to get in at an incredibly cheap valuation. After a bounce, CAL went back towards $20 again in June 2022 as the broad market hit what was likely the final bottom of this bear market. What is CAL really worth? Assign a normalized multiple to this year's estimate and you come up with a 6-month target price north of $60. That is not far-fetched. Remember, CAL routinely hit $32 to $41 on EPS less than half of what is now in effect. Caleres' low P/E and high volatility (beta: 1.65) make it a fast moving stock. When the market's mood brightens up CAL is likely to take off to at least $50 - $60 in very short order. Yahoo Finance calls CAL undervalued, but offers a very conservative 12-month goal price of just $36. Total return to that very modest expectation would still be over 40% if it takes a full year to play out. Most of us would gladly settle for that type of return on our entire portfolios. Note, too, that analysts have been raising their estimates for CAL over the past 90 days, rather than trimming them. Independent research house Morningstar list CAL as neutral yet sees present-day fair value as $33.73. That, too, appears way too low. Even so, that suggests a 30% upturn simply to correct for it undervaluation. FastGraphs service comes to price target more in line with my own. They call CAL's normalized P/E as 13.42-times, a tad below my pre-Covid number for them. Use FastGraphs' multiple and you'll calculate target prices of $58.51 by next winter and north of $63 by February of 2024. No matter who you think is going to be the most accurate it is clear that CAL deserved to be much higher than its current quote. Option traders could benefit via short sales of CAL's Feb. 17, 2023 expiration date naked puts at $22.50, $25 or $30 strike prices. Actual quotes on those, with CAL at $25.91, are shown below. Worst-case, forced purchase prices dropped to either $20.10, $21.50 or $23.60 respectively. Being forced to own CAL at any of those price points appears quite attractive. So does seeing them expire worthless, while pocketing from $240 to $640 per each 100-share commitment. Do those juicy put premiums mean somebody knows something bad is about to happen? Nope. Check out the call premiums on way out-of-the-money Feb. 17, 2023 expirations. Option buyers were ponying up $2.65, $1.45 and $0.85 to take a shot at big gains if CAL does what I think it will over the coming 6.5 months or so. Buying shares outright offers unlimited upside plus a 1.08% yield while you wait. Selling naked puts should work out well but the most you could make is keeping 100% of all premiums received up front. Buying calls is a risky business, but less so than all those lottery players were taking on hoping to cash in on last week's big jackpot.

Step Into Caleres Now, Walk Off Wealthier Later

If you play it correctly, this stock is the epitome of 'getting something for nothing.' Let me show you how.

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