These Three Plays Look to Outshine the Rest in the New Year
As we head into the end of the year, it’s good to look back on the things that happened this year.
First up, I’m watching Quidel Corp. (QDEL), a leading maker of rapid tests, including for COVID-19, that are used at the point of care or sold for home use.
On Thursday, QDEL announced it had agreed to purchase testing company Ortho Clinical Diagnostics Holdings for $6 billion. Ortho’s in-vitro diagnostics are used by hospitals, clinical labs, and blood banks.
Before Thursday’s announcement, shares of QDEL had risen more than 34% since December 13, 2021, as demand for rapid tests surged in the face of the Omicron variant.
After Thursday’s announcement, shares of QDEL plunged more than 15% when trading opened in New York.
Based on Omicron and the shortage of rapid tests, I was already watching QDEL. Thursday’s pullback gave me the opportunity I was waiting for.
At this point, I like buying the QDEL March 18, 2022 $155/$160 Call Spread for $2.00 or less. Plan on exiting the QDEL March 18, 2022 $155/$160 Call Spread for a 100% profit or if shares of QDEL close below $130.00
Next up, I’m watching CarMax, Inc. (KMX), the Richmond, Virginia-based used vehicle retailer.
On Wednesday, the company released quarterly results that beat estimates as robust demand and pricing for used cars offset higher costs.
For the quarter, revenue grew 65% to $8.5 billion, beating estimates of $7.378 billion. On the bottom line, earnings climbed 15% to $1.63, easily beating estimates of $1.45.
Furthermore, we saw a huge increase in sales for the company. Retail used unit sales grew 16.9%, same-store unit sales grew by 15.8%, and wholesale units grew a whopping 48.5%
Those are all great numbers, but the stock had actually dropped 6.66% on the day by the end of Wednesday’s session.
At issue was the thought that KMX hadn’t been aggressive enough during the recent automobile shortage. The company only opened one dealership during the last quarter.
I’m not going to second guess management here in this column. Instead, I’m simply going to focus on “when” I would like to establish a position in KMX.
Over the last four months, the company has bounced off support at $122.00 on two occasions. That’s where I want to target the stock.
If shares of KMX trade down to $122.00 by January 7, 2021, I like buying the KMX February 18, 2022 $125/$130 Call Spread for $1.85 or less. Plan on exiting the KMX February 18, 2022 $125/$130 Call Spread for a 100% profit or if shares on KMX close below $117.00.
And finally, I’m watching Paychex, Inc. (PAYX). On Wednesday, the human resources (HR) and payroll processing company easily beat second-quarter estimates and hiked guidance.
The U.S. economy added 210,000 jobs in November. That’s a positive signal for HR and payroll stocks such as PAYX, but it was before the discovery of Omicron which threatens to derail the economic recovery from the pandemic.
It’s too early to know how much damage omicron could have on the economy and HR providers such as PAYX.
We know that the pandemic accelerated the digital transformation of the HR space, which has been good for PAYX.
For the quarter, revenue grew 13% to $1.109 billion, above estimates of $1.062 billion. On the bottom line, earnings rose 25%, to $0.91 per share, well above estimates of a 9% increase to $0.80.
Prior to Wednesday’s news, the stock formed a base since mid-October. Still, after announcing the Q2 results, the stock jumped 7.1% in Wednesday’s session and added another 2.8% in early Thursday trading.
That’s a good sign, but I want to see shares pull back and fill that gap before committing any capital.
If shares of PAYX trade back down to $130.00 by January 7, 2021, I like buying the PAYX March 18, 2022 $130/$135 Call Spread for $2.45 or less. Plan on exiting the PAYX March 18, 2022 $130/$135 Call Spread for a 100% profit or if shares of PAYX close below $123.00.
Let me know what you’re watching this week. Drop me a line
at email@example.com and tell me all about it.
Until next time,