NEW DIRECTIONAL PUT PLAYS
Lithia Motors Inc. - LAD - close: 81.86 change: -2.24
Stop Loss: 85.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 384 thousand
Entry on October -- at $---.--
Listed on October 06, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
LAD is part of the services sector. They run one of the largest auto dealerships in the U.S. with 28 brands and over 100 stores. That was before their recent merger news.
Back in June shares of LAD soared on news they were buying DCH Auto Group USA in a deal valued near $360 million. Purchasing DCH will add 27 more locations including some on the East Coast. Earnings are expected to rise about $0.70 a share (a year).
Car sales in the U.S. have been soaring. Consumers have been buying cars at the fastest pace since 2006. So why have auto-related stocks rolled over? It could be multiple factors.
CarMax (KMX), the one of the largest dealer in the U.S. recently saw its stock crash on a disappointing earnings report. The company said they were seeing consumers hit by tougher financing standards, which was impacting sales. If banks are getting tougher on car loans it's going to impact the whole industry.
LAD has had pretty strong revenue growth but now it's starting to face tougher year over year comparisons.
The group did see a bounce last week on news that Warren Buffett's Berkshire Hathaway was getting into the car business. Berkshire is buying the Van Tuyl Group of auto dealers, which is the country's biggest privately owned dealership. Van Tuyl has 75 dealerships, so it's smaller than LAD. What made the auto dealer stocks rally was Buffett's comments that he sees long-term value in the industry and plans to buy more over time. Berkshire certainly has the money to buy someone like LAD (current market cap about $2 billion) but that doesn't mean it's an immediate acquisition target.
Shares of LAD were breaking key support near $75.00 and its 200-dma before the Buffett-inspire bounce. Now the rebound is failing under resistance near $85.00.
Tonight we're suggesting investors buy puts immediately on Tuesday morning with a stop at $85.25.
*Buy puts tomorrow morning*
- Suggested Positions -
Buy the NOV $80 PUT (LAD141122P80) current ask $3.90
Option Format: symbol-year-month-day-call-strike