Shares of Owens Corning (NYSE: OC) have been battered recently following an earnings report that was definitely disappointing. But while Hurricane Florence is expected to batter the East Coast over the coming days, home building stocks such as Owens Corning should feel the benefit of rebuilding process.
Given that OC stock is at the lowest levels from both a price and valuation perspective over the past several years. now is an opportune time to
Click to Enlarge Earnings for Q2 came out July 25 and missed on both the top and bottom line. EPS came in at $1.17 per share, well below the consensus estimate of $1.44. Revenues, however, missed only slightly at $1.82 billion versus expectations of $1.87. OC stock was clobbered on the news, shedding nearly 8.5%.
That massive drop brought the P/E ratio for OC stock down to just 14 and near the lowest levels in the past four years. Owens Corning stock is getting too cheap to pass up, especially given the likely increases in revenues and earnings following the destruction caused by Florence.
Click to Enlarge OC stock is looking better from a technical perspective. Owens Corning bounced off the recent post-earnings lows at $56 before heading sharply higher. Shares are also trading just below the widely followed 50-day moving average. A break past that level could propel shares sharply higher. Money flow has also turned higher, another positive sign.
The options market is also indicating that OC stock may be ready to run. A large player bought over 4,000 Oct $60 calls and another 3,500 Oct $65 calls on Monday. This type of unusual option activity is usually a sign that a big hedge fund or institution is positioning for a move higher in the underlying stock.
The big-time call buying also drove up implied volatility (IV) in OC options from 25 to nearly 27, making them comparatively more expensive. So to follow along bullishly with the call buyers, but also hedge just in case, a covered call strategy makes sense.
OC Stock Trade Idea
Buy OC stock and sell OC Oct $60 calls for about a $58.30 net debit.
Ideally OC stock closes above $60 at expiration and the stock is called away for a 2.9% overall gain. The short call provides a roughly 4% downside cushion to OC stock.
Tim may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his option-based strategies can go to https://marketfy.com/item/options-and-volatility.