It’s getting tougher and tougher to find quality earnings plays these days for options trading investors. This is definitely the earnings doldrums, and next week’s holiday-shortened schedule is barren. So we’re forced to reach out to the following week to find an attractive play in J.M. Smucker (NYSE: SJM), the company with the best address around (One Strawberry Lane).
SJM reports before the bell on June 9, with analysts expecting a one-penny drop in EPS from a year ago. Given that the company has averaged around 13% EPS growth during the past three quarters, expectations are muted at best. What’s more, the stock has performed well after recent reports, averaging a gain of more than 4% on the day of the past four releases.
SJM has been tearing it up on the charts lately, gaining 25% since its February low. That compares very favorably to the 3% gain logged by the broader market, using S&P 500 Index Options (CBOE: SPX) as a proxy. The stock is currently pulling back to its 10-day moving average after logging an all-time high last Friday. The 20-day has also been instrumental in the stock’s current rally.
Sentiment toward SJM is muted at best. Analysts are clearly skeptical, with fewer than half (six of 13) rating the shares a “buy.” That seems rather guarded for a stock on a major rally, so we could see some upgrades in the near future.
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SJM is hardly an exciting stock. But its current rally is noteworthy, especially in a market that has gone nowhere in three months. Earnings may not result in a huge surge (although 4% in a day is perfectly fine with us), but they shouldn’t interrupt the uptrend either. Let’s give this stock some extra time to let the rally play out. Buy the SJM July 75 Call for around $3.50.
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