Trade Alert: Capture This Unique Multi-Seasonal Trend
If you’ve followed Precision Profits for a while, you’ll recognize the company in today’s trade: Briggs and Stratton (NYSE: BGG), a leading manufacturer of small engines.
Right now, we have a great opportunity to profit from its clear multi-seasonal uptrend — one of the strongest that I’ve seen. To ensure that we get the most out of that trend, we’ll be using a new strategy I’m excited to share with you, but let’s put a pin in that for the moment.
First, the recommendation…
Clearly, Briggs is a seasonal company: Its shares have a history of rallying going into both winter and spring. In fact, over the past five years, investors have sent the stock climbing anywhere from 17% to 41% from November through April. And that’s mainly due to the company’s diverse offering of seasonal products. While its winter rally comes from its snowblower and generator sales, its spring climb comes from strong lawn-mower sales.
Basically, every strong winter the company gets the best of both worlds: First, it benefits from severe snowfall, and then as that snow starts melting, it gets a boost from folks looking to resuscitate frozen lawns, golf courses and the like.
As you know, we’re in for a snowy winter in many regions of the U.S., so this trend is only going to be spurred onward. But here’s a little update from Chris Orr:
The Mid-Atlantic and Tennessee Valley will get more than the typical amount of snow, which will help Briggs and Stratton. But the company will also benefit from above-normal snowfall across Europe. There hasn’t been much snow there the last two winters, so the excess snow this winter will significantly help sales.
And today is the ideal time to hop on Briggs’ trend because the stock is at cheap levels. On October 29, Briggs and Stratton released its quarterly earnings, which missed expectations, and the stock saw a bit of a sell-off the following day. The company attributes its miss to the strong dollar (since 30% of its revenues come from international sales) and lower oil prices, which slowed orders for a company it acquired early last year, Allmand Brothers.
Despite the missed earnings, Briggs is maintaining the guidance laid out last quarter for 2016.
So, considering Europe is about to experience a snowier winter than it’s used to — giving international revenues a bump — and this is going to be a blistering winter in the States, there’s no reason Briggs’ historical trend won’t repeat itself.
Here’s how we’re going to benefit:
Action to take: Set a Good ‘Til Canceled limit order to buy to open the BGG April 2016 $17.50 call option (BGG160415C00017500) at $1.25. At last glance it was trading at $1.15. If your order is not filled by my next dispatch, I will update you on what to do next.
Please note: This trade is similar to the ones we made on National Beverage (Nasdaq: FIZZ) and Toro (NYSE: TTC): It’s an ordinary call option recommendation … but we will be among the first traders to place an open order. That just means there aren’t any open positions at the moment, so we’re essentially establishing the market. I’m recommending a fair price, but it may take a bit longer than usual to get our orders filled. If our trades don’t execute, I will adjust our limit price accordingly.
Now let’s get into the unique aspect of this trade. Today, we’re adding two additional orders to our initial order. I will follow up on Thursday with the rationale behind these new orders (which we’re going to start using with all of our trading), but all you need to know now is that this strategy will protect us from any sharp swings in volatility that lie ahead.
So, once your order is filled, set these two orders with your brokerage firm:
- Set a Good ‘Til Canceled limit order to sell to close half of your position in the BGG April 2016 $17.50 call option (BGG160415C00017500) at $2.50.
- Set a Good ‘Til Canceled stop-loss to sell to close ALL of your position in the BGG April 2016 $17.50 call option (BGG160415C00017500) at $0.50.
The first trade allows us to collect a 100% gain in the event of a quick and unexpected spike that happens before I can get a trade alert to you.
The second order, the stop-loss order, will allow us to preserve some capital instead of allowing a losing position to expire totally worthless.
But I’ll explain more about this new strategy on Thursday, so stay tuned. For now, let’s capture Briggs and Stratton’s strong multi-seasonal trend by buying April calls.
Until next time, good trading…
Editor, Precision Profits