The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Monday, March 15, 2006
Email – #307
Regards, Karim Rahemtulla
Our Target position is profitable after a strong rally the
other day. However, a stock market rally does not change the fact
that Target is not a growth stock anymore. Its sales are up
slightly and it faces lower growth this year than last year.
Meanwhile, it still sports a 20 P/E, which is indicative of much
higher growth than it is currently enjoying. Add to this the
hyper-competition from Wal-Mart, which is trying to move into
some of the more upscale brands and concepts put forth by Target;
the slowdown in consumer spending that will occur as the housing
boom slows; and the continued high energy prices, and you still
have a recipe for slow growth.
But we also need to protect our capital in the event the rally
continues. Target shares (NYSE: TGT) face significant resistance
at the $56 level. If they break through, the shares will likely
go higher and cause us some pain. Use a CLOSE of $56.10 or higher
as a signal to sell the January 2008 $50 put options (WDH MJ). Of
course, I will also send out an alert if this happens. 