Wednesday, February 22, 2012

CAB: Outdoors gear (and a Bargain Cave!)

Cabelas Inc. (CAB) sells fishing, hunting, camping and other outdoorsy gear at 31 stores, all but one in the United States, as well as through its catalog and web site.

It's big. It has a lot of stuff. And what's not to like about a store whose web site features a "Bargain Cave", with prices up to 70% off.

CAB had the most bullish chart of 11 stocks added today to the Zacks top buys list. ECOL was the runner-up. DTG and VAL completed the final four.

Cabelas, based in Sidney in the lonely reaches of western Nebraska,  is a retail business dealing in things people can live without, so the question behind the company, as with any such retailer, is when will Americans again embrace the fun part of living and resume shopping 'till they drop.

CAB's normal mode of trading is to stairstep, so it's hard to pinpoint where the current leg up began.

Perhaps Jan. 9 at $24.39 is the best choice. Prior corrections had shown significant declines, but all the corrections after that date have been short and sideways.

The Jan. 15 earnings announcement, showing the company exceeding estimates by 7%, produced an openng gap, an intra-day rise of more than $2, and a day of follow-through spanning a dollar, bringing the price to an all-time high last Friday's high of $33.86. The two trading days so far this week have been in a sideways range.

Return on equity is running at 13%, and long-term debt is high, at 187% of equity. Institutions own 69% of the shares -- not in the top ranks of institutional ownership.

And the stock is cheap; it takes only 80 cents in shares to control a dollar in sales. Perhaps CAB's shares could find a place in the Bargain Cave.

Average volume is a million shares a day. Even so, the options selection is a bit sparse and bid/ask spreads are wide. Open interest, near the at-the-money mark, is in the triple digits, but it quickly falls off to zero in the outliers.

Implied volatility, although high in absolute terms, at 47%, stands near six-month lows. That level implies that the price will close, a month from now, between $37.78 and $28.82

The next earnings announcement will be sometime in May.

Decision for my account: I'm passing because of the wide bid/ask spread on the options. If I were interested in long shares at this point, I would take the play. A cautious trader will wait for a breakout above the sideways pause -- a break beyond $38.86 -- before opening a position.

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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