We buy more shares of this mall retailer on omicron trough
Matthew Mitchell, center, chats with customers as Sierra Phillips adjusts a denim display at the American Eagle / Aerie store in downtown Easton in Columbus, Ohio on May 15, 2020.
Andrew Spear | The Washington Post | Getty Images
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After receiving this email, we will purchase 250 shares of American Eagle Outfitters (AEO) at around $ 22.85. Following the transaction, the Charitable Trust will own 4,950 shares of American Eagle. This purchase will increase AEO’s weight in the portfolio from approximately 2.63% to 2.77%.
Retail stocks take a hard hit Wednesday in reaction to the weaker than expected November retail sales report. The downward movement confirms and worsens the big selloff the group experienced in Monday’s session, which may be linked to concerns that the fast-spreading omicron variant will prevent shoppers from visiting the mall and stores for the remainder of the holiday season. Investors are taking a more defensive stance when it comes to retail, which is why we’ve seen heavy inventory turnover at department stores and specialty retailers like American Eagle Outfitters and buying interests in companies like Walmart (WMT).
But consider this: Due to this week’s drop, AEO is now trading at levels the company hasn’t seen since February. This round trip comes despite all of the market share and new customers that Aerie has won, the increased margin at AE from the strength of casual wear and denim, and all of the improvements to the chain. procurement / logistics through what should turn out to be a couple of smart acquisitions. We clearly started buying AEOs far too early, but we won’t let the weakness of the stock intimidate us out of this position.
American Eagle Outfitters is doing well at the moment and had the best third quarter of its group. It’s not a distressed retailer, although you wouldn’t know if you didn’t pay attention to the share price and follow the strength of its categories, as explained in the Q3 earnings call. .
Finally, we want to stick with AEOs at these levels because investors are getting a pretty solid dividend. And due to the recent drop in stock prices, the dividend yield has increased to around 3.17%. We believe that a dividend of this size should at least give some support to the stock’s already cheap price / earnings multiple.
Boeing on the watch list
Outside of AEO, we are carefully reviewing Boeing (BA), yes, Boeing, as a potential buyout despite the company’s well-documented challenges. What’s interesting about Boeing’s return to $ 191 is that the stock has now erased nearly all of the earlier-month’s gains that were attributed to China’s release of an airworthiness directive for the 737. MAX. It should be remembered that this was a milestone towards the return to service of the aircraft on the second largest domestic aviation market in the world. Additionally, we like the momentum Boeing has shown with its 737 MAX orders and deliveries.
Ultimately, we decided not to increase our position in Boeing right here because we are reluctant to violate our low average cost base of around $ 179 in an already established position. However, we wanted to highlight what we believe to be an opportunity, especially if the share price is added to concerns over the ongoing suspension of 787 deliveries and the impact of increased omicron cases on. international travel.
Updates from Eli Lilly and Nucor
In other news, Eli Lilly (LLY) and Nucor (NUE) made headlines on Wednesday after both companies provided updated guidance. Their stocks are moving in opposite directions, with Eli Lilly, who we regularly buy for the portfolio, leading the S&P 500 this morning in response to its raised outlook for 2021 and its bullish outlook for 2022.
Meanwhile, Nucor, some of whose shares we sold for around $ 120 at the end of November, are the big laggards of the day after management’s record fourth quarter earnings range fell below Street estimates.
We’ll have more thoughts on Nucor and Eli Lilly later today, but we want the investment club members to know that we see NUE’s weakness as an opportunity to buy back what we sold above. In fact, we would buy Nucor from that drop if we didn’t already hold a position for the Charitable Trust. But from our own perspective, we are not taking any action in this drop because we are expecting a level that would improve our average base cost by $ 101.46.
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(Jim Cramer’s Charitable Trust is long AEO, BA, LLY, NUE.)