53% and Thousands More in Purim Winnings, While the Frenchman From Omaha Sinks (VMI, PTON, GNRC)

If your game is steel pipes and tubes (and who’s isn’t?), then you’re certainly familiar with the irrigation and street-lamp mavens from Valmont Industries (NYSE:VMI).

Omaha Nebraska’s favorite metal fabricators have seen their stock fly of late, on the back of a strong earnings beat and a big deal with the Government of Kazakhstan for farm equipment.

But after a three week, 21% rise through last Wednesday, when the company reported its Q4 earnings, the stock has been sliding sidewise, and it appears the jig is now up.

Time For a Break

Fundamentally, the shares are red overbought –

• P/E is 35.10,
• Price to Book is 4.22, and
• The dividend yield is a paltry 0.78%.
• Earnings per share for the last five years come in at a negative 1.10%,
• Sales over the last five years are negative 2.40%,
• Quarter over quarter EPS are negative 65%, and
• Quarter over quarter sales are negative 64.80%.

And that ain’t right.

But before we get to the trade details, we have two open initiatives to tend.

Wipe ‘em up, brother Matty!

On December 31^st, as the countdown was beginning, we sent you a communiqué called Peleton Takes its Last Spin, in which we urged the purchase of the PTON March 19^th 140/125 PUT spread for $5.80.

And our timing was superb.

As of yesterday’s close, the stock had dropped $25, with the long 140 PUT selling for $16.90 and the short 125 going for $8.05.

And we say it’s time.

Sell the first, buy back the second, and you walk with $3.05 net on $5.80 spent.

And that’s a Batflu hysterical 53% gain in under eight weeks.

Annualized – for those who care for such nonsense – it’s a stump-shaking 318%!

Seven Hundred Ten Dollars in Hand!

Next up was our GNRC trade, which arrived at your inbox this past Monday morning – and it’s already borne fruit!

The missive was called 152% Pocketed – Generational Winnings, and it called for the purchase of the GNRC August 20^th 370 PUT for $57.50 and simultaneous sale of the August 20^th 350 PUT for $44.30 and August 20^th 250 PUT for $10.50.  Total debit on the trade was $2.70.

And today?

The 370/350 PUT spread can be closed for $9.80 (67.70/57.90), and we say do it.

That puts us in a net credit position of $7.10, with an open 250 PUT lying naked and cold in the cellar.

As that option is still $83 out-of-the-money, we see no need to act on it.  Rather, we’ll let time and our original plan (see ‘Rationale’ after the original trade recommendation) work their magic.

And now back to Valmont…

Take a look at the last year’s daily truck in VMI –

To begin, we have negative indications from both RSI and MACD –

1. RSI was highly overbought in the first half of January (in red at bottom), and since then
2. RSI and MACD have diverged lower against price, a clear enough sign that momentum has switched from bulls to bears (in green).
3. Volume spikes at the stock’s all-time high last week point to a possible reversal (in black).
4. And now the downside beckons, with gaps to be filled at 212, 177 and 145 (in blue), while
5. Simple Fibonacci retracement levels (in purple) emerge at the selfsame 177 and 140 marks.

Now, grab a peek at the weekly –

Technically, we have –

1. A weekly overbought RSI signal and subsequent close call (in green), which, combined with the daily overbought, make for an ominous near term prognosis.
2. Price action has now moved into hypoxemic territory (in red), nearly twice the altitude of the bunched moving averages at 135 (in blue).  It’s our experience that price generally gets pulled back in that direction – and often with great force – when such expanses are logged.

And so it is, that we offer you the following to capture great stores of wealth from the coming VMI decline.

May the G-d of Israel be with you.

A Jew and His Gold recommends you consider setting the VMI June 18^th 240 synthetic PUT (sell the 240 CALL/buy the 240 PUT) for $15.50 (11.50/27.00).  Then set a STOP buy order for the shares at $240.

Rationale: the market’s rolling over and VMI appears to have shot its last round.

Despite her strong earnings, investors have decided to leave her crying.

With the shares now at $230.55, the long 240 PUT is already $9.45 in-the-money.

The stock would have to post new highs to see us bought in, and we view that as very unlikely.

Maximum gain is unlimited.

Maximum loss – with proper STOPs in place – is $15.50 (initial debit).

Breakeven arrives at $224.50 – just 2.6% below the current share price.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew