There’s no shortage of big headlines on the calendar. The Fed announces its next rate decision this afternoon, the first decision since September’s rate hike, with the midterm elections arriving next Tuesday. Add in the ongoing Iran tensions that keep pushing oil and Treasury yields around, and it’s easy to see why a lot of traders are sitting on their hands.
I’m looking at it a little differently. Those macro events can move the broad indexes, but they tend to have less influence on a stock like Best Buy (BBY), which is driven far more by its own consumer electronics demand, product cycles and the holiday shopping season. That gives BBY a chance to move in a less correlated fashion than the mega-cap names that have been dominating the market. Finding stocks like this is exactly what the Stock Forecast Toolbox does well. Try it out for free!
Seasonality also works in BBY’s favor. Historically, November has been one of the strongest months of the year for stocks, and the stretch after the midterm elections has tended to be particularly friendly as the uncertainty clears. For a retailer, there’s an extra tailwind, because investors start paying attention to holiday demand well before Black Friday. BBY also delivered an earnings beat and a raised outlook when it last reported in August, which gives the stock a solid fundamental backdrop heading into the holidays. When I ran it through the Toolbox, here’s what the model showed:
The projection points to a target of about $110. To play it, I’m looking at the November 20th $100 call, currently valued at about $3.30. If BBY reaches $110, that call would be worth at least $10, a gain of roughly 200%. I’m not expecting the full move to happen overnight, and I’d be perfectly happy with a double on this one, but the leverage is what makes calls attractive when I have a solid setup and a clear timeframe.
There’s one more detail I like here. Best Buy’s next earnings report is expected the week of Thanksgiving, after this option expires. That means I don’t have to worry about an earnings gap deciding the trade, and I can let the seasonal strength play out over the next few weeks. Of course, as with any outright call, the risk is that BBY stalls below $100 and the option loses its value, so I keep the position size modest.
As a reminder, the Forecast Toolbox doesn’t just give me one prediction every week or every day. It models out high probability moves for most listed stocks in the market. I can check every stock in my portfolio to make sure I’m positioned right when I’m holding my investments, and when I’m looking for a new trade, it provides a filtered list of some of the most explosive setups so I can find the next great idea for my trading portfolio.
Make sure to take advantage of the free 7-Day Trial of the Stock Forecast Toolbox so you can see what it can do for you!
If you have any questions, never hesitate to reach out.
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