Buy Alert: Signet Jewelers (SIG)
TRADE INSTRUCTIONS
Date: November 22, 2017
Name: Signet Jewelers Ltd.
Symbol: SIG (NYSE)
Type: Open
Limit: Buy below $54
TRADE TARGETS
Holding Period: 3 months
Target Return: 9.3%
Annualized Return: 37.2.6%
Target Price: $59
Stop Loss Level: $48
COMPANY DESCRIPTION
Signet Jewelers Limited is a retailer of diamond jewelry. The Company’s segments include the Sterling Jewelers division; the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments; the UK Jewelry division, and Other (the Other segment includes the operations of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones). Link to company website.
TRADE RATIONALE
It isn’t often that our Rapid Profits Matrix assigns a near-perfect score to a stock for both its value and growth metrics, but that’s what happened when shares of Signet tanked after reducing guidance for the fourth quarter at the start of this week. After closing at $75.84 on Monday, SIG traded as low as $52.50 on Tuesday before stabilizing around $53 today.
From a value perspective, SIG is now priced at slightly more than 7 times reduced forward earnings, and only 0.5 times sales. As for growth, its yield-adjusted PEG ratio of 0.5 suggests it is oversold despite its reduced profit outlook.
Of course, it doesn’t take much to send a retail stock reeling these days, but a drop of that magnitude is extreme. Even still, with so little momentum behind retail stocks it will take more than a reversion to the mean to get SIG moving back up the charts.
I think that could be better than expected “Black Friday” sales for retailers reported next week. Given the very low expectation set by virtually every retailer that gave forward guidance for holiday sales, anything better than a washout should push the entire retail sector higher over the next month.
If I’m wrong about that, I still don’t see much more downside risk left in the stock. But it may take confirmation of decent Christmas sales to push it back above $60, which is why I am putting a three-month target hold on this position.
NOTE: This stock is optionable.
Stock Talk
Dan Keith
Random FYI for those looking at options. The APR 20th 2018 35-45 put spread sold for 2.05 credit for me. That represents $200 profit for each $800 committed or 25% upside assuming it does not fall below 45 before Apr 20th.
I thought it was a nice addition to buying the stock normally. Thoughts?
Rick
Pros – positive seasonality to APR (7 out of 10 years)
Stock can drop over 10% and still stay out of the money
Risks – long term on the spread – almost 5 months
But overall nice trade
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MarkS
Dan Keith, thanks for the idea. Entered the same trade today for NC $2.52.
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Rick
Bought SIG Jan18 $50 Call at $5.50 sold a Dec18 $60 Call at $1.24 – so net Debit of $4.26 with a chance to sell a Jan 18 call before expiration.
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Janis Bell
Are Black Friday sales reports supporting this hypothesis of a surge? I read that Amazon took close to 50% of all sales this weekend.
Jim Pearce
I’m not predicting a “surge” in sales by SIG (and most other bricks & mortar retailers), only that sales will come in better than the very pessimistic forecast for them. Although SIG dropped 6% on Friday on the expectation of poor Black Friday weekend sales, it has regained nearly half that amount this morning suggesting sales were not as bad as feared (the statistic I saw is that Amazon accounted for 45 – 50% of all ONLINE sales, but not half of all sales).
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Jim Pearce
I know some of you have pretty nice gains in some call options on SIG, so I want to point out that it releases its holiday sales figures this Wednesday morning (https://finance.yahoo.com/quote/SIG/press-releases?p=SIG). The stock has spiked higher over the past week, presumably in anticipation of better than expected results so up to you if you want to hang on to those options through Wednesday when the actual results will become known.
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Guest User
Amzn was mentioned in this chain of email. In addition it was indicated as one of your five items predictions for this year. The stock has been on a surge are there any rational behind 16 to 30 daily moves for the past few days?
Jim Pearce
Possible this rumor (https://www.investingdaily.com/personal-finance/articles/40668/target-moves-higher-on-takeover-talk), which a Forbes analyst believes could be equally beneficial to Amazon: https://www.forbes.com/sites/chuckjones/2018/01/08/buying-target-increases-amazons-eps-by-5-to-8/2/.
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