The stock market has been on a rampage for almost two years, and
now some investors are fishing for value in names that have been
left out of the rally.
optionMONSTER's Heat Seeker tracking system has recently detected
fits of bullishness in companies such as RadioShack and SuperValu.
The S&P 500 is up 23 percent in the last year, but those stocks
have lost 20 percent and 45 percent of their value over the same
RSH has struggled for relevance since the late 1990s, and was
caught flat-footed as Apple's suite of hot gadgets took the
consumer-electronics market by storm. For a while, investors had
hoped for a buyout, but when that didn't materialize management
resorted to buying its own shares back--but with little effect.
By early February, the stock had returned to levels last seen in
October 2009. But it established a slightly higher low and started
climbing. Investors snapped up the February 16 calls and the March
17 calls looking to ride it higher. Since then it has consolidated
and is now potentially positioned to fill a bearish gap that
occurred on Jan. 24 (see chart).
SVU has struggled with a heavy debt load dating back to an
all-timed purchase of Albertsons stores in 2006. Margins in the
grocery business were collapsing at the time because of increased
competition from big-box retailers such as Wal-Mart. It gapped
lower on Jan. 11 after cutting guidance and proceeded to test
levels last seen during the first term of Ronald Reagan's
About three weeks later, the Heat Seeker lit up with call activity
and the stock rallied more than 10 percent. It then pulled back but
began pushing higher again last week.
Auto-repair chain Midas has also languished for years and failed to
go anywhere since the stock market bottomed in March 2009. However,
it has been making slightly higher lows, the most recent of which
came last week.
Then on Thursday, stock volume was far above average, and Heat
Seeker detected the purchase of more than 6,000 June 7.50 calls.
The stock ground higher for the next 90 minutes, and then rallied
by more than 12 percent in the final half-hour of trading. MDS has
pulled back slightly this week but retained almost all those gains.
GameStop has also been hated by investors worried it will lose foot
traffic to Internet-based games. It rebounded by more than 25
percent between mid-October and early 2011, but then got mauled
after reporting a weak same-store sales number on Jan. 6.
GME continued to push lower until it, too, established a higher
low--its fourth in the last 12 months. This time, the March 20
calls lit up and GME started to push higher. Short interest is a
hefty 25 percent of the float so bears may look to cover, and the
company's enterprise value is less than 4 times EBITDA, which could
attract some value investors.
Pete also spotted activity in Frontline's February 27.50 calls for
$0.20 to $0.30 late last month. The next day, the tanker stock
ripped higher and those contracts had more than tripled to over $1.
The activity has been followed by occasional buying in the
ocean-shipping sector, where companies such as DryShips, Overseas
Shipping, and Diana Shipping have drifted lower for months and have
fallen back to about the same levels that they saw in early 2009.
I am long SVU and WMT.
(A version of this article appeared in optionMONSTER's Open
Order newsletter of Feb. 16.
Chart courtesy of tradeMONSTER.)
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