Monday, February 6, 2012

THO: On the move

Thor Industries Inc. (THO) makes recreational vehicles and small to mid-sized buses. Its products are household names for the on-the-move crowd: Airstream, CrossRoads, Dutchmen, Champion, General Coach, ElDorado California.

The obvious observation is, this Jackson Center, Ohio, company is going places. (Insert groan.)

But let's look at the chart.

From an all-time high of $59.99 in 2007, THO fell to a recession low in March 2009 at $9.54, and then rose to $36.49 in March 2010. At that point, THO ran into trouble. It corrected in an extended zig-zag that resulted in a lower low, but not a lower high. In other words, the correction is flat on the top but rising on the bottom.

After hitting that higher low of $19.20 in August 2011, the stock again began to rise, hitting a leg-up high of $33.40 today.

The topside resistance level is $36.85.

It's a curious chart, one of 28 additions today to Zacks top-buy list. It had the most bullish chart of them all, which may say more about the Zacks selection than the merits of Thor. (My essay "10,000 Charts" sets out my screening technique.)

The chart tells me this: 
  • There has been strong upside momentum since mid-December.
  • The most likely resistance point is $36.85. That's 10% away from today's high and makes for a nice profit.
  • Post-recession, the stock is in an uptrend.
  • For all time, the stock is in a downtrend.
So despite its strangeness, THO makes an attractive play, just based on the chart. I could see it as a bull play up to $36.85. If it breaks past resistance, I add to the position for even more profit. If it falls from resistance, then I set up a sideways play, such as an iron condor, to capture the fifth leg of a sidewinder.

THO's financials are also attractive. Return on equity is a healthy 13% -- not growth stock territory but it indicates an efficient management. And it has no long-term debt, which shows not only that the company has good management but also that it has enhanced ability to weather crises.

 Institutions own 80% of the stock -- people who analyze for the big money think well of Thor. And yet, the stock is cheap. It takes only 63 cents of stock to control a dollar's worth of sales.

The stock is moderately liquid, with average volume of 435,000 shares. The options selection is a bit limited, with nine strikes available for March. Open interest near-the-money is in the three figures, but then drops off quickly.

Implied volatility stands at 47%. It rose from a low of 30% in late January, but has fallen from its end-of-January high of 49%. Given that rise, I would play this as a long position, with an opening debit.

THO announces earnings on March 5. It will next go ex-dividend on its quarterly payout, worth 1.82%  annually, sometime in March.

Decision for my account: I've opened a bull call spread that expires in March, long the $30 call and short the $35 call.

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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