As Chris Orr told us last week, we should start preparing for winter to ramp up. Because it’s about to get cooold.
Overall, it’s been a rather mild start to the snow season compared to the past two years, despite the heavy piles of snow that have been dropping in the Rockies. And that has had an impact on one of our positions: Polaris Industries (NYSE: PII), a leading maker of off-road vehicles and snowmobiles.
Polaris took a tumble today when it preannounced tepid results because of weaker-than-expected sales. Our options are down sharply. But we have seen this before in our positions — down sharply for whatever reason, only to resume the trend. Polaris, in fact, has had a few such years in the past, yet still managed a strong climb into the spring. That’s why we own March options.
So do not worry about Polaris just yet. I am watching this position and I will make a call on it later. But for now, the decline doesn’t disturb me because the cold-weather trend is set to ramp up — and we could see that play through the sentiment for Polaris’ shares.
The approaching cold weather should also benefit our position in Columbia Sportswear (Nasdaq: COLM), a leading retailer for winter clothes. It’s also down at the moment. But as Chris Orr stated in his winter forecast, this season is going to be on par with the last two strong winters — which means the next few months will see a real chill sweep through. Though winter came earlier for the western half of the U.S., the eastern half will be getting its dose of winter storms starting this week.
Here’s what Chris Orr sees on the horizon:
In the Northeast, the first wave of winter weather will hit this Friday and last through Sunday. Another wave will arrive just in time for Christmas and last a couple of days. Then another one will hit on New Year’s Day. By January 7, the East Coast will not remember the mild winter weather it was experiencing just a few weeks ago as the blistering cold winter storms leave their mark.
As for the western U.S. — including California, Washington, Oregon, Nevada, Arizona, Colorado and Utah — it’s all running 10 to 20 degrees colder than the last two years (and 5 to 10 degrees colder than normal).
That plays its part in increasing winter sales.
Both Polaris and Columbia should benefit from the mammoth winter storms that are about to hit. This is particularly good news for Polaris.
Once investors see that this winter is still going to pack a punch for the Northeast, investors should move back into Polaris and Columbia Sportswear — and our underwater positions should resurface. If not, I will update you.
That’s why we’ll sit tight for now.
And always remember that we can have 100% losers on some trades — but it’s the string of winners we regularly accumulate that more than compensate for the occasional losers.
Let’s be patient for the moment and see how investors react to the steady flow of winter weather that’s about to hit the Northeast.
Until next time, good trading…
Editor, Precision Profits