The Conference Board’s Consumer Confidence Index was extremely low in April, sitting at 86.9. The index was at 118.8 in March. Such a significant decline in consumer sentiment makes WMT’s earnings performance even more surprising, and I think TGT could do just as well.
Reasons to be Confident
Just ahead of tomorrow’s earnings report, TGT extended its $2-an-hour crisis pay boost for employees, and last month, the company noted that online sales increased by 275%.
According to The Motley Fool, TGT’s sales have shifted to lower margin categories, which will act as a drain on its profits. But WMT’s earnings increase was due in part to consumers buying essential items like groceries and cleaning supplies.
WMT CFO Brett Biggs said the company saw a stockpiling surge in March, with delivery and pickup orders peaking after a 300% increase. He also said buying picked up again in mid-April.
With TGT’s online sales increasing, the company seems to have captured some of the same consumer spending WMT tapped into. I would expect its earnings to reflect that, even if they aren’t exceptional.
TGT is expected to report earnings per share of $0.78. WMT had similarly low expectations of $1.12 per share, and its very small $0.06 beat was enough to boost its share price.
If TGT can clear expectations, even by a small amount, it could see more buying.
With this Trade, TGT Doesn’t Have to Head Higher
TGT is closer to its pre-crash prices than most stocks. It cleared resistance in the $120-$121 range yesterday, because investors are buying in ahead of earnings, but even before that, it had been pushing higher faster than most stocks.
If you look at the chart below, you can see that I marked a support level it formed on its way back up. TGT bounced off the $100 level in late April, and then earlier this month, it bounced off its 200-day moving average.
Daily Chart of the Target Corporation (TGT) — Chart Source: TradingView
By selling a put write, you can take advantage of the stock’s bullishness, and those two support levels will act as protection.
Selling options is a great way to earn income because of all the volatility in the market right now, and if you pick carefully, you can limit your risk while earning a decent premium. TGT is the perfect target for this kind of trade, and I’m recommending its $100 support level as a strike price for this put write.
Sell to open the TGT May 29th $100 put at about $0.45.
Note: Be sure you are opening the weekly TGT options that expire on Friday, May 29, 2020.
About Naked Put Writes
A naked put write is a bullish position in which you expect the price of the underlying stock to increase.
InvestorPlace advisor Ken Trester also brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.