Hi, it’s Liz Brazeal, your Executive Editor – bringing you part two of a very busy trading day with Garrett Baldwin.
If you watch Money Morning LIVE (hopefully you do), you’ve just spent some quality time with Garrett – and you’re about to get another full, free, in-depth trade from him right now.
Well, actually two. They’re both transport stocks, and they’re poised for upside over a couple of different time frames.
Garrett (who is VERY tall, by the way) has been hanging around our office talking about commodities and supply chain for almost as long as I can remember. When he hopped on the phone to talk me through these trades, I could HEAR his eyes lighting up. “Oh, I like Douglas Dynamics,” he said.
If you’re a “depth” trader, you’re also going to enjoy Garrett’s deep dive into the charts on Douglas Dynamics (PLOW). And you’ll be happy to do what he recommends: buy and hold.
If you’re a “flex trader” – more interested in quick results – you’ll like what he’s doing with a couple of detailed, fast-moving options recommendations on CSX Corporation (CSX).
And one of those setups could make you 100% or more.
Garrett’s Depth Trade: Buy And Hold PLOW for A Ride into The $50s
We’re coming up on harvest season (and no KAREN, that doesn’t mean it’s time to drink your pumpkin spice just yet). What it does mean is that nationwide, more and more trucks have to be on the road shipping produce.
Douglas Dynamics, which is one of the premier outfitters for work truck equipment, slots right into that yearly need.
Combine that with oversold conditions and a relatively solid balance sheet…and Garrett sees a move from last week’s low of $33 up to $50 or more, over the next few months.
Actually, who am I kidding. I’m Karen. I had a pumpkin bagel yesterday. Sue me.
The first thing that Garrett did was pull up a PLOW chart showing a significant pullback to all sorts of key levels. “You can see the technical indicators bottoming out with the price the other day,” he said. Click To Enlarge
He then started spouting facts VERY quickly.
- In technicals land, 20-day moving average looks likely to cross back above the 50-day MA (the golden cross, always a positive sign)!
- Three of his favorite momentum indicators just hit their respective “oversold” thresholds as well: the RSI (Relative Strength Indicator) and the divergence low on the ULT indicator both dropped to 30, and the Money Flow Index (MFI) just hit 20.
- In the fundamentals department, the F Score is at 7 (strong cash flow) and the Z score is at 3 (solid financial positioning). ( Garrett’s actually got a great F and Z score cheat sheet right here if you’d like to take a longer look.) Earnings quality is rising, margins are good, free cash flow is returning capital to investors. All good.
Bottom line, Garrett sees this as a longer-term, “reversion momentum” trade that could tilt gradually up into the $50s. He recommends that you buy it with a very tight trailing stop and wait for the rebound.
|Action to Take: Buy and hold Douglas Dynamics (PLOW). Employ a 7% trailing stop.|
Unfortunately for the speed demons among us, PLOW doesn’t have liquid options. (I heard an audible “ARGGH” when we got to this point of the phone call.)
So Garrett pulled out a couple of fast-moving trades from another transport company: one of his old stalwarts, CSX. He says he’d want to own this stock long-term anyway, but there’s also some juicy options pickings to be had here.
Garrett’s Flex Trades: Grab Triple Digits with Options on CSX
CSX is a name that comes up a lot on Money Morning Live – you may have heard Mark Sebastian discussing it last week. It’s a railroad company that doubled its profits in Q2 as it hauled 27% more freight than a year ago. And it should start hauling even more this harvest season – since supply chain issues in Iowa mean more railways will be used to move grain this year.
(I told you Garrett geeks out about supply chains a lot.)
If you’re a “flex” trader, you’re more turned on by fast results than by in-depth processes. That means at this point in the story, you’re likely champing at the bit.
Fine, fine, options it is.
Wherever possible, I’ll try to work with the experts to get you two versions of each trade idea – a more complex or risky one for experienced traders, and a simpler or less risky one for newbies.
I like to call these “Dollar Slots” and “Nickel Slots.” You know which type of player you are.
The “Nickel Slots” play here requires Level 1 clearance – you’re selling a cash secured put. This play doesn’t expire till November, so you’ll be in it for awhile.
You could make $150 on this play, but keep in mind – this is really just an entry into the stock. We’re not doing this because we want to make money on the option; we’re doing it because we want to purchase the stock for less.
Always remember that put-selling on a stock you’d like to own is a win-win: if the option stays out of the money (OTM) through the expiration, you can collect that initial premium – but if it moves into the money (ITM), you’ll buy the shares at the put strike and own a great company.
The “Dollar Slots” play is more speculative – if you have a bigger risk and reward appetite or just feel a little braver after a great lunch. (If you’re in Baltimore, I recommend Miss Shirley’s.) It’s a November call spread that could return 100% or better.
Your maximum risk for this play is $42 and your maximum return is $125, so you’re still not breaking the bank. Here’s a look at the full chart. Click To EnlargeImage: Risk-reward graph for CSX calls
The probability of profit on this is 27%, so it is a gamble. But let’s be real. You’re a gambler at heart, at least a little bit. Aren’t you?
As always, be mindful of your own risk tolerance and don’t bet more than you can afford to lose.
|NICKEL SLOTS Action to Take: SELL-to-OPEN the CSX January 21, 2022 $32.5 PUT (CSX220121P00032500) at $1.60 or better. Enter as a Good-til-Canceled (GTC) order.|
|DOLLAR SLOTS Actions to Take: BUY-to-OPEN the CSX November 19, 2021 $35 CALL (CSX211119C00035000). Pay no more than $0.80. And SELL-to-OPEN the CSX November 19, 2021 $36.67 CALL (CSX211119C00036670). Pay no more than $0.40. Enter as a Good-til-Canceled (GTC) order.|
Garrett also wants me to remind you that going to November here encompasses CSX earnings. You’ll want to be out of the spread (the Dollar Slots play) BEFORE earnings. Be nimble and ready to exit on economic weakness.
We’re likely to send you a reminder right here in Trading Today, because we’re nice. But set an exit reminder for yourself, too.
As always, don’t forget to keep an eye on our open portfolio here in Trading Today – these trades will be there waiting for you.
I’ll see you back here tomorrow with a free options trade from Mark Sebastian – same time, same place.
November 12 2021