Using our new valuation spreadsheet (which we'll make available this weekend), we've identified some of the best and worst values currently available in the stock market.
Note that the population of stocks in our worksheet is from our scan of options offering weekly options with >1% RoR. This means that any stocks which show up in this listing will have good option premium to sell.
Best value:
We currently have bullish positions on a couple of these with ON and CSIQ. This is sorted lowest to highest by P/S ratio so in theory the stocks near the top are some of the better values.
KSS looks pretty solid, this is a company with a $2.47B market cap and $17.5B in sales in FY23... That 8x P/E ratio is also pretty solid. One item to point out is that sales have been pretty stagnant. The idea behind a P/E multiple is that you're paying for growth. KSS has seen a decrease in their sales over the past 3 years, going from $19.4B to $18.1B to $17.5B in FY21, FY22, and FY23 respectively. Net income is growing, but that stalling top-line revenue figure is a little bit concerning. Here are some industry comps:
CFRA has a HOLD rating on the stock as of 3/14, where they reference a $28 price target over the next 12 months. And we don't need KSS to 2x or anything like that. Our strategy is selling CSP's on decent value stocks which we don't expect to collapse much further. So I feel comfortable that these valuation metrics make low $20's a great place to own the stock.
Option premiums are also nice. I like the idea of selling a few 4/19 22p. These will allow you to have an initial breakeven price of roughly $21.55 and can easily double down into the trade if it gets below $20. KSS doesn't have earnings until 5/22 so plenty of time to play it without having to worry about that kind of a binary event.
Worst value:
With the market dipping it can be tough to find some bearish targets to help balance out our portfolio. We still have a few rough ones here.
MAR is an interesting one. Big name company that's been on a decent run over the past year. But current price has made it a little bit overvalued. P/E ratio is baaaaarely overvalued, but the larger P/S ratio combined with a bad current ratio make this one an attractive bearish position for me.
What's a little tougher here is that the option premium doesn't quite cover as much of a move as I would like. For example, it was already at $256 just earlier today.
With that said though, I think taking our typical bearish approach (credit spread, two weeks out) may do us some good here. A 4/26 250/260c for $3.25 looks pretty solid. $325 max profit, $675 max loss. $253.25 breakeven price means we get a little cushion. Spread means we're protected in case it flies off the handle. Additionally the wider nature of the spread should allow us the opportunity to take profits if it moves in our favor.