Friday at last. Friday at last!
March’s PCE number came out Friday morning. The Federal Reserve uses personal consumption expenditures to gauge personal consumption price growth in a specific period. In March, the PCE rose 2.7% from a year earlier in MarchThe, suggesting that inflation won’t disappear without a fight. That, in turn, suggests interest rates will remain higher for longer.
The markets won’t like that news. The S&P 500 is down 0.46% in pre-market trading. It will end the week in negative territory if it stays there throughout the day.
In yesterday’s options trading, there were 636 unusually active options on the day--Vol/OI ratios of 1.25 or greater and expiring in 21 days or later--with 35 stocks offering investors at least four options.
Here are three stocks I like from the bunch.
Have an excellent weekend!
GE Aerospace
GE Aerospace (GE) is the new “GE” now that CEO Larry Culp is finished with his slice-and-dice job at the former industrial conglomerate. Boy, what a job it’s been.
GE stock is up 58% in 2024 and 104% over the past 52 weeks. More importantly, it’s up 188% since Culp was named CEO on Oct. 1, 2018, more than double the S&P 500.
In March, Barron’s published an article entitled How Larry Culp Saved GE by Breaking It Up. It encapsulates the intelligent move GE’s board made in hiring the former Danaher(DHR) CEO.
Barron’s contributor Al Root wrote, “The future looked bleak for GE in October 2018. John Flannery had just been removed as CEO after a year at the helm. Profitability was declining. GE Capital was losing money. The acquisition of Alstom’s power business had proven disastrous. …”
“Worse still, its massive debt load—some $112 billion, excluding cash and insurance liabilities—was growing more unwieldy as free cash flow deteriorated, resulting in downgrades from the major credit-rating firms and a slashing of its dividend to a penny per quarter.”
Fast-forward to 2023. Culp created three public companies: GE Aerospace, GE HealthCare (GEHC), and GE Vernova (GEV). There were other moves which I won’t get into. Ultimately, he reduced its gross debt by over $100 billion.
If you had 99 GE shares on Jan. 3, 2023, the day before completing its spinoff of GE Healthcare, today, you would have 99 GE Aerospace shares, 33 GEHC shares, and 24 GEV shares.
That’s a pretty good deal. What GE shareholders do with GEHC and GEV is up to them. However, they shouldn’t sell GE Aerospace shares. It’s the best part of the former conglomerate.
As for yesterday’s unusually active options from Thursday, the Sept. 20 $180 call is an excellent buy. With 147 days to expiration, the 3.3% down payment is very reasonable. The delta of 0.33692 means you can double your money by selling the call before its expiry with a $17.67 increase (11%) in its share price over the next 21 weeks.
Carrier
Carrier (CARR) had one call that was unusually active on Thursday.
Carrier is a sensible long-term investment for anyone who thinks climate change is real. It provides commercial and residential HVAC products.
On March 5, it announced the sale of its Industrial Fire business for $1.43 billion, part of its move to focus on HVAC.
“Today's announcement represents the latest step in Carrier's ongoing portfolio transformation, following the recent acquisition of Viessmann Climate Solutions and the recently announced agreements to sell Carrier's Global Access Solutions business to Honeywell for nearly $5 billion and its Commercial Refrigeration business to Haier for $775 million,” the company’s press release stated.
“Carrier continues to prepare for the last of its four announced business exits – its combined commercial and residential fire businesses.”
Focus is good. The transformation is a big reason its stock is up 48% over the past year. It’s got a great future.
The call in question from yesterday was the Sept. 20 $67 strike with a $2.00 ask price. The 3% down payment is reasonable. Based on the closing price of $59.81, its share price has to increase by 16% for you to consider exercising your right to buy 100 shares of Carrier stock. Alternatively, you can double your money over the next 147 days with a $6.45 (11%) gain.
I like this one a lot.
DraftKings
DraftKings (DKNG) is synonymous with sports betting in this country. It currently holds a 37% market share of the U.S. online sports betting market, up from 31% in June 2023 and 28% a year earlier.
Watching the NFL Draft last night, it was clear the interest in sports, and more specifically, sports betting, is not going away. While the competition remains fierce, DraftKings, using a real estate example, has priceless Park Avenue properties that will continue to grow in value.
Of the 29 analysts covering DKNG stock, 27 rate it a Buy (4.72 out of 5). Their target price of $50.25 is 19% higher than where it’s currently trading.
DKNG comes with the most significant risk/reward proposition of the three stocks.
The Jan. 17/2025 $70 call has a down payment of just 1.8%, or $128. It expires in 267 days (38 weeks), which gives it plenty of time to appreciate by 73%. It only needs to appreciate by $7.80 (19%) to double your money by selling before expiry.
If you’re an aggressive investor, this is a compelling bet.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
