Back on March 9th we took a look at the underperformance of Consumer Staples stocks, but specifically focused on Philip Morris International (PM), suggesting:
The recent rise in interest rates clearly have stocks like PM, with near 4% yields, look less attractive. And it places greater emphasis on valuation, with PM’s trading at about 20.5x expected 2018 eps growth of 7%. Not egregious, but couple that with fewer smokers, and a shift towards vaping it might make sense to extinguish this butt.
The one year chart showing the recent bounce of off 52-week lows, and today’s pause (possible failure) at the one-year downtrend and this could shape up as a good short entry point.
Well, the stock did, in fact, fail at the downtrend last month and this morning’s earnings that came in below expectations have caused the stock to crater 13% this morning. Here was the trade idea from March 9th:
So what’s the trade? The next identifiable catalyst for shares of PM will be their Q1 earnings on April 19th, the day before April expiration.
If you are inclined to play for a move below the February lows in the coming months the following defined risk strategy might make sense:
TRADE IDEA: PM ($108.75) BUY JUNE 105 / 95 PUT SPREAD FOR $2
Buy to open 1 June 105 put for 2.90
Sell to open 1 June 95 put at 90 cents
With the stock trading $88, the June 105 / 95 put spread detailed above is worth the full width of the spread and makes sense to close the position and book the nearly $8 gain with two months to expiration.
Action: Sell to close PM June 105 / 95 put spread at $10