Tuesday, April 17, 2012

JBHT: Keep on truckin'

J.B. Hunt Transport Services Inc. (JBHT) runs trucks that carries goods throughout North America. It is one of the largest transportation companies in the United States.

JBHT had the most bullish chart out of 23 stocks added today to the Zacks top-buy list. The paint company Sherman-Williams Co. (SHW) was a very close second.

As manufacturing recovers from the recession, there is more business for truckers like J.B. Hunt. The Lowell, Arkansas company is providing one of the basic services that allow the economy to keep on truckin'.

JBHT's most recent leg up began March 8 at $50.58. The price has risen to a higher high today of $57.43.

Comparing the JBHT and SHW charts was a difficult piece of analysis.

SHW's current leg up began Dec. 16, 2011 at $84.65 and hit a higher high today of $118.44.

Ultimately, I chose between them, based solely on the charts, on these properties:

1) JBHT has had a more recent correction and so may have more potential rise before profit-taking set in. SHW's rise has aged more. Stocks charts aren't like fine wines. Generally, in charts, the younger the better.

2) Although SHW has set higher highs yesterday and today, both days are showing decline intra-day (so far at least in today's trading). JBHT is showing an intra-day decline for today only.

3) JBHT's volume has risen with the rising price, dropping to a lower level only with today's decline. That tells me that sentiment predominates on the upside. SHW started showing declining volume four days ago, despite a rising price.

These charts are are so similar that distinguishing between the them is good exercise for chart readers.

JBHT shows return on equity of 46% but with a high level of long-term debt, amounting to 111% of equity. Institutions own 66% of shares, but the price remains relatively low. It takes $1.42 in shares to control a dollar in sales.

Earnings have grown in four of the last six quarters and was down slightly in the most recent.

Average volume is 1.1 million shares, which is liquid but not highly. The options inventory carries 12 strikes for may expiration, half of them without open interest, with strikes set at $5 intervals.

The bid/ask spread is 5.5% for the at-the-money May calls. Compare that to a 0.7% spread for the S&P 500 exchange-traded fund SPY.

Implied volatility is at 29%, near the six-month low. It has been trending sideways since mid-March. Options are pricing in a 68.2% chance that JBHT will close between $52.60 and $62.26 a month from now, an 8.4% gain or loss.

With implied volatility so low, I would want to structure my position for a net credit.

J.B. Hunt next publishes earnings on July 16. The stock goes ex-dividend in August for a quarterly payout yielding 0.98% annualized.

Decision for my account: I've opened a long vertical (bull call) spread expiring in August, short the $60 call and long the $55 call. One bonus of the current price and volatility configuration is that I was able to structure a position with a 1:1 risk/reward ratio.

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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