Grab Tyson Foods, Inc. Stock While the Market Makes Up Its Mind

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TSN - Grab Tyson Foods, Inc. Stock While the Market Makes Up Its Mind

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Tyson Foods, Inc. (NYSE:TSN) reported earnings this morning and traders punished the stock by 5% on the headline. (TSN has since recovered and is trading flat.) A meat packing business, even one as big as TSN is as far from tech as one can get. So usually these are boring stocks but not when they miss on the bottom line.

This morning management delivered a miss on top and bottom lines so Wall Street is expressing its disappointment. After the headline grows cold, the stock will eventually find footing and therein lies my opportunity today.

Boring stocks often make for easy knives to catch. Experts blame rising costs as the reason for the earnings miss but  I also worry that the sales miss is not a function of costs. So there is reason to worry. So I will use TSN options to implement my strategy where I can leave some room for error. If I buy TSN shares today I’d be at risk right here and now.

Fundamentally, TSN has a price to earnings ratio of 9 and that is cheap in absolute and relative terms. So owning shares at a discount from here will not likely be a grave financial faux pas. This is important to my strategy.

TSN stock came into this earnings headline down 16% year-to-date but still in line with the SPY in the last 12 months. So clearly the investor concern is a recent worry and can linger a few more weeks.

Technically, the stock is approaching long-term pivot levels and those often act as support when a stock is in trouble. I see two such zones for Tyson Foods stock — the first starts at $60 and the second starts at $52 per share.

I am fairly confident that even if the TSN stock price goes against my trade, I will be able to manage out of TSN stock for profit in the long run.

Wall Street experts agree as the stock is trading well below the analyst expectations. This raises the threat of downgrades and that would bring about another wave of selling. So this is another reason why I prefer selling downside risk in TSN than buying the shares outright.

Nevertheless, even if TSN stock is not the most exciting to trade but its value makes it an easy bet. I get long into value for the long term and value will prevail for easy profits. Click here for a detailed review of the stock and for an ongoing free copy of my weekly newsletters.

The Trade: Sell TSN Jan 2019 $50 put and collect $1.00 per contract to open. I have an 85% theoretical certainty that I retain maximum gains. Otherwise, I will accumulate losses below $49.

Selling naked puts is daunting. Those who want to mitigate that risk can sell spreads instead.

The Alternate Trade: Sell the TSN Jan 2019 $55/$52.50 credit put spread where I have about the same odds of winning, but with much smaller risk. Yet the spread would yield 7% return on risk if successful.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on twitter and stocktwits.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/grab-tyson-foods-inc-stock-while-its-on-sale/.

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