Thursday, February 16, 2012

BEAM: Spiritual trade

Beam Inc. (BEAM) is the old Fortune Brands Inc.

When I saw the ticker, I figured it had something to do with huge cranes moving weighty chunks of iron into place. It turns out that it is Beam as in Jim Beam whiskey, one of many well known brand names held by this Deerfield, Illinois company.

Besides Jim Beam, the company owns Maker's Mark and Canadian Club whiskeys, Courvoisier cognac and Sauza tequila.

The old Fortune Brands had its fingers in a wide selection of pies: Staplers for the office, hole punchers, golf gear, cabinetry, faucets, padlocks and booze.

Last year Fortune decided to go lean. It sold everything except its liquor products, and remains as a totally spiritual component of American commerce.

The new BEAM, then, is company that lacks a long history. Despite the established nature of its product line, its chart is that of a start-up.

It opened on Oct. 4, 2011 at $43.55 and since then has stair-stepped higher.

The most recent leg up began at $50.49 on Jan. 5 and hit an all-time high today of $55.85 (so far).

There is a lot to like about the chart. The price is in blue-sky territory, although that means less for a chart with so little history. The volume has risen with the price. Even the steep macro corrections have managed to stay with higher lows rather than taking out prior lows.

BEAM had the most bullish chart of 16 selected at random from 675 large-cap companies. HSP was the semi-finalist. BF/B and NUE completed the final four.

The analyst consensus on BEAM is mid-term neutral, and that's not surprising. Return on equity is just 3%, and the debt is on the high side, at 47% of equity.

Institutions are staying away -- they have no significant positions -- yet the price is high. It takes $3.65 in stock to control a dollar in sales.

The stock on average trades 777,000 shares a day, which is liquid. There is a good options inventory, with open interest mainly in the three figures and concentrated within a few strikes of the at-the-money point.

The bid/ask spreads start getting very wide very quickly as the strikes move beyond the money. That really makes BEAM less attractive to me. Given a choice, I always go for the narrow spreads.

Implied volatility began rising on Feb. 9, from 19% up to the present 23%. Today's level remains well below most of the past six months. At that level, there is a 68.2% chance that the stock will be trading between $59.96 and $52.58 a month from now.

Earnings are scheduled for May 2. The stock goes ex-dividend sometime in May for a quarterly payout yielding 1.47% annualized.

Decision for my account: A smooth and mellow chart, but I see problems beyond the candlesticks. The option bid/ask spreads are wider than I like, and the lack of institutional ownership is also a negative. What do the big guys know that I don't? The stock is expensive at more than three times sales. 

Despite the attractive chart, I'm passing on BEAM, the stock. Even so, Beam, the whiskey, will remain one of my favorite tipples, with a place of honor in my liquor cabinet.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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