Strategies for Investors
If you are long FDO stock, it’s probably best to hold on, as speculation of a sale continues to push the stock price higher. As you can see from the accompanying chart, on Monday morning, FDO stock was re-testing the recent highs around $70, and more of that can be expected in the days ahead. It is also likely that a purchase of FDO and its stock would be at a price several dollars above that level.
Chart courtesy of Stockcharts.com
But keep in mind that FDO stock is technically overbought at the moment, with an RSI reading of more than 79. That means that any bad news about a possible sale could quickly trigger a huge decline in the price. Therefore, a prudent hedge against a long position might be a small purchase of some inexpensive Puts. The July Puts with a $64.50 strike are bid/ask right now of $0.50/$0.85.
If you are long with either Dollar General or even Dollar Tree Stores (DLTR), it would be wise to keep a close eye on the scuttlebutt you may hear over the next few weeks. I don’t think it would help either company or their stocks to purchase FDO in its present condition. In fact, as a short-term play, I would short whoever buys FDO. Obviously companies believe that such a purchase will help them in the long term, and while that may be true, in the short term, such a purchase may negatively affect their bottom line.
One way or another, whatever happens in the next month or two will be quite interesting, and as the drama unfolds, investors would be wise to pay close attention to all of the exciting news releases by and about Family Dollar Stores.
Ethan Roberts does not own shares of any of the companies mentioned in this article