Step Right Up
We told you we would try and find a stock that is reporting next week that may be set up for an upside swing. Now remember this is not rocket science it is a guess from yours truly based upon a quick peel of the onion to see what could happen. One comment by the CEO that indicates a cloudy future can erase all the good from a good earnings report. With that said if you play, only use the Vegas Money.
BOBE Bob Evans Farms, Inc., a full-service restaurant company, owns and operates Bob Evans Restaurants and Mimi's Cafes in the United States. The company also sells retail gifts, food items, and other novelties in its Bob Evans Restaurants and seven Bob Evans Restaurants & General Stores. As of April 30, 2010, it owned and operated 715 full-service restaurants, including 569 Bob Evans Restaurants in 18 states and 146 Mimi's Cafs in 24 states. The company also owns and operates SWH Custom Foods, a prep kitchen in Fullerton, California, that prepares muffin mixes, dressings, sauces, and soups for Mimi's and third-party restaurants. In addition, it offers food products, which include fresh, smoked, and fully cooked pork sausage, and hickory-smoked bacon products, as well as convenience food items in the refrigerated and frozen areas of grocery stores, such as mashed potatoes, macaroni and cheese, microwaveable sandwiches, and main dish entres to retail and foodservice customers under the Bob Evans and Owens brand names. The company was founded in 1953 and is headquartered in Columbus, Ohio.
What can I tell you, well I'll tell you a Bob Evans story at the end of the post tonight. The stock is trading at 30ish. Target prices are in the 30-36 dollar range. Cash flow is pleasant, revenue and operating margins are a little weaker than then peers which makes this pick a bit precarious, but we like what we see. They have very little debt and a great regional brand. The price to book is a very low 1.4 meaning the cash out value of the company is about 21 bucks. It converts about 5.4% of its revenue into cash flow which is one of the best in the sector. It has a 2.7% dividend yield which kind of throws it into a value play as much as a short term earnings play.
They are do to report on Tuesday the 7th and are hoping to hit 68 cents a share income. With the cash flow being so healthy and a low P to B, we are thinking a beat of 70 or more could provide a nice bump to this stock.
Here is a couple of ways to play it. Go long knowing a misstep by the CEO could correct down a point or two, but a beat with positive comments could move this toward its target price of 35. Even if it got you half way there, a $2.50 gain would be an 8.3% return. The other option would be an option play, but they are really UGLY. There is no volume on the contracts and the spread (the difference between the bid and ask) is huge. Here is an example you can buy the June 18 30 dollar contract at 1.30 but the you have to dump it for 80 cents. It would take a big move to make the risk worth it. Even looking at the reverse (selling the PUT) does not make sense.
We said we would put our money where our mouth is so we are going long on BOBE for a quick turn next week.
Another possible gamble is PLL Pall Corporation manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. The company's Life Sciences segment offers technologies that facilitate the process of drug discovery, development, regulatory validation, and production used in laboratories, pharmaceutical and biotechnology industries, food and beverage industry, blood centers, and hospitals at the point of patient care. It also provides medical products that enhance the safety of the use of blood products in patient care and help control the spread of infections in hospitals; and cell therapy products, which enable technologies for the regenerative medicine market. In addition, this segment sells filtration and purification technologies and engineered systems used in the development and commercialization of chemically synthesized and biologically derived drugs and vaccines; and provides validation services to drug manufacturers, as well as offers laboratory products for use in drug discovery, quality control testing, and environmental monitoring applications. Further, it serves the filtration needs of the food and beverage market. The company's Industrial segment provides enabling and process enhancing technologies for the industrial market. It offers filtration and fluid monitoring equipment to the aerospace industry; and filtration and purification technologies for the semiconductor, data storage, fiber optic, advanced display, and materials markets, as well as a suite of contamination control solutions for chemical, gas, water, chemical mechanical polishing, and photolithography processes. This segment also provides various technologies to producers of energy, oil, gas, renewable and alternative fuels, electricity, chemicals, and municipal water. The company was founded in 1946 and is based in Port Washington, New York.
At face value this is an ugly stock. It is a 40 dollar stock selling for 54 a share. It does not have much debt, but except for a couple of company press releases we can't see anything about this stock to support the current P/E of 24. If they miss this has a lot of downsize potential. WE ARE PLAYING WITH FIRE on this one boys and girls. Do not try this at home. We are thinking a bearish play. Your choices are to sell the stock short (we do not suggest this), sell the June 18, 55 dollar call option for 1.00. Or buy the put option (we do not like this because the spread is too big.)
There you go. If we spot more over the weekend, we will let you know.
