My indicators were giving bullish readings for most of the week until yesterday’s big decline, so I want any bullish position to be well considered. This morning, I’m looking at Lakeland Industries, Inc. (NASDAQ:LAKE), the personal protective equipment (PPE) manufacturer.
My indicators were pushing into overbought territory last week while breadth, or the ratio of advancing stocks to declining stocks, was weakening, which gave us a heads-up that the market was potentially ready to pull back.
The S&P 500 Index did break through resistance at 3,130, but it dropped back well below that level yesterday. It also closed below its 200-day moving average, but it looks like it will open back above that level this morning.
With that bounce on the horizon, a bullish trade seems prudent, but because the market did get so overbought, any bullish position needs a fundamental advantage. LAKE has one.
The New Hotspots
PPE has been extremely important during the COVID-19 crisis because medical workers need more than ever.
LAKE has been there to fill the demand. In its first-quarter earnings report, the company beat expectations primarily because of the over 300 new customers, from both medical and industrial settings, the company added during the crisis.
While the reopening economy makes it easy to forget, COVID-19 hasn’t gone away. The virus is still spreading, even as larger cities get their outbreaks under control.
The new hotspots are rural areas. Many lifted their social distancing guidelines earlier than the more affected areas, and others are struggling because of the presence of meat-packing plants, which are known vectors for the spread of COVID-19.
Regardless of why these areas are being hit, it’s safe to say that demand for PPE won’t be dropping off anytime soon. And LAKE is one company that has already seen an uptick in business.
Investors are Still Settling on LAKE’s Price
LAKE reported earnings earlier this week, and as you can see, the stock jumped higher, only to fall. Investors seemed eager to take their profits off the table, and that pushed the stock much lower, though it was still higher than the day before.
Yesterday, LAKE pushed much higher as more concern over the rural spread of COVID-19 built. Investors aren’t settled on LAKE’s “new price” after its earnings report, so some volatility is expected. But because the need for PPE isn’t going to disappear anytime soon, I think investors will push it higher in the short term.
Daily Chart of Lakeland Industries, Inc. (LAKE) — Chart Source: TradingView
I’m recommending farther out-of-the-money options for this position to lower the cost. While the $35 strike price for these call options is very far from LAKE’s current value, all the additional volatility in the market — and all the fluctuation in LAKE’s price — means the stock doesn’t need to cross above $35 for traders to collect a profit.
Buy to open the Lakeland Industries, Inc. (LAKE) Oct. 16th $35 Calls (LAKE201016C00035000) at $1.70 or lower.
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