Stocks reversed course on Monday and handed back half their Friday gains amid a hellacious sell-off in crude oil futures and energy companies.
The declines in master limited partnerships (MLPs), an asset class that is bought primarily by retail investors for income, were so severe that they likely generated margin calls at brokerages nationwide. When investors who have bought such stocks on credit are asked to put up more collateral, they very often sell other stocks in their portfolios to gin up the funds — and that can sort of spiral out of control.
The big news development of the session was news that K-cup coffee maker Keurig Green Mountain Inc (GMCR) was the subject of a $13.9 billion buyout by private equity firm JAB Holding. That represented a 78% premium to Friday’s price, which suggests the stock was severely undervalued. The deal is not subject to financing conditions and is expected to close before the end of March. The Coca-Cola Co (KO), which holds a 17.4% stake in GMCR, supports the deal.
This is the kind of deal that really gets value buyers’ hearts pumping. If GMCR can go out for a 78% premium, what about all the other undervalued stocks out there? Just the thought of having a stock gap 78% on you is enough to give short-sellers second thoughts as well. As a result, this sort of deal making can help put a bid under markets.
With that in mind, let’s go after one of this year’s recurring bullish trends.
While spending is down at department stores and specialty retail chains, spending on experiences and travel is up. Airlines are among the leading beneficiaries of this trend, and their fundamental performance is being enhanced by the windfall decline in fuel prices. Many U.S. domestic airlines such as Hawaiian Holdings, Inc. (HA), Southwest Airlines Co (LUV) and Alaska Air Group, Inc. (ALK) are already soaring to new highs. One that is just getting going again is JetBlue Airways Corporation (JBLU).
JetBlue shares tend to fare well in December, rising 5.1% on average over the past 14 years. In 2011 and 2012, in similar circumstances, the shares were up 18% and 12%, respectively, in the month. I’m not looking for that much of a move, but half would be nice.
JBLU gapped up on Monday and exceeded its recent pullback stemming from September. Let’s take a seat. Buy JBLU at $26.20 limit, good till canceled. If filled, set up to sell half at initial target $27.85, and hold the rest for further profits.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation.
