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- Experts think online shopping will grow even faster because of the shutdowns stemming from the coronavirus, and Goldman Sachs is naming the companies it expects to benefit first.
- Strategist Vishal Vivek tells investors that a series of nine single-stock options trades can help them benefit from companies that are already seeing their online sales rise, and limit the potential downside as well.
- His picks involve several dominant restaurants and retailers — but not Amazon.
- Visit Business Insider’s homepage for more stories.
With about 95% of Americans ordered to shelter at home and many businesses closed, the shift to online sales is happening faster than ever. And Goldman Sachs Equity Derivatives Strategist Vishal Vivek says he’s found a smart way for investors to take advantage in the newly inaugurated earnings season.
“We expect investors to increase focus on upside potential for these names, as management teams detail their new initiatives to increase wallet share in the online space,” he wrote in a note to clients.
Vivek’s strategy involves trading away a small amount of a stock’s potential upside in exchange for limiting possible losses. He’s applying that to a series of companies with critical online sales initiatives, as they could convert their coronavirus-connected gains to a long-term edge.
“We recommend investors buy call spreads on these stocks to accentuate upside within a range, as management teams focus on these e-commerce initiatives on their earnings calls,” he said.
He’s presenting detailed trades for two companies. For Chipotle Mexican Grill, which reports its earnings on April 21, he says, Goldman’s analysts believe online takeout orders started climbing in mid-March and consumers are strongly motivated by restaurant rewards programs. Chipotle has a large one of those.
Vivek says options prices imply Chipotle will move 13% after its earnings, well above the average move of 8% up or down after its last eight reports.
That leads to a recommendation that investors buy the CMG $770/830 Jun-20 monthly call spread, recently offered at $35.10.
Meanwhile Target might prove to be a good deal because options prices are falling and its stock has lagged the market so far this year. Vivek says it looks like its e-commerce sales were strong in March and its mix of necessities and grocery items will lead to strong sales over the long term.
“The company is competitive with Amazon on price and delivery speed,” he added. So he suggests investors buy the $105/$115 Jun-20 monthly call spreads recently offered at $4.85 ahead of its May 20 report.
The rest of his seven recommended trades are as follows:
Options trading 1. Walmart
Earnings report: May 19
Trade: Buy the WMT $130/$140 call spread expiring in June 2020, recently offered at $3.75
Options trading 2. Nike
Earnings report: June 25
Trade: Buy the NKE $85/$90 call spread expiring in June 2020, recently offered at $2.70
Options trading 3. Starbucks
Earnings report: April 28
Trade: Buy the SBUX $72.50/$77.50 call spread expiring in June 2020, recently offered at $2.75
Options trading 4. Domino’s Pizza
Earnings report: April 23
Trade: Buy the DPZ $360/$390 call spread expiring in June 2020, recently offered at $17.10
Options trading 5. Tractor Supply
Earnings report: April 23
Trade: Buy the TSCO $90/$97.50 call spread expiring in July 2020, recently offered at $4.70
Options trading 6. Advance Auto Parts
Earnings report: May 20
Trade: Buy the AAP $110/$120 call spread expiring in June 2020, recently offered at $6.70
Options trading 7. Wingstop
Earnings report: May 6
Trade: Buy the WING $100/$110 call spread expiring in June 2020, recently offered at $6.50
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