26 Feb These consumer stocks may have underpriced options ahead of earnings, Goldman says
Uncertainty in the consumer sector has created a potential options opportunity for investors in the final weeks of earnings season, according to Goldman Sachs. The bank’s derivatives research team led by Vishal Vivek said in a note to clients on Thursday that some consumer stocks have seen big swings after earnings reports in recent weeks. “Mixed earnings results from WMT, HD, AMZN, TSLA, etc. have led to increased dispersion of returns, suggesting volatility under the surface. The average large-cap Consumer Staples stock has moved +/-3.7% on the day of earnings, inline with options implied moves and above the 17-year average of +/-3.2%,” the note said. Additionally, Goldman analyzed the components of SPDR’s consumer discretionary ETF (XLY) and consumer staples ETF (XLP) and found there are several stocks in both groups whose options are implying unusually low volatility, according to Goldman. “One-month implied volatility on the average XLY stock is only in its 44th percentile relative to the past year, despite upcoming earnings (35th percentile for the XLY ETF). Implied volatility for the average XLP stock is in its 15th percentile relative to the past year (18th percentile for the XLP ETF),” the note said. One way to take advantage of this potential mispricing is through straddles. These options contracts serve as a put and a call — or a bet for and against — on the same stock with the same strike price. They are more expensive than one-direction bets, but can pay off if the stock makes a large move in any direction. The companies below are scheduled to report earnings before the next monthly options expiration date on March 17 and have options prices that are implying below average volatility. Two quite different consumer discretionary companies report on Tuesday, with Norwegian Cruise Line Holdings and AutoZone . While Norwegian tends to cater more to high-end customers, AutoZone has a more mixed customer base. Shares of Norwegian are up more than 30% this year, while AutoZone has underperformed the S & P 500. Then there are three companies on the list set to report on Thursday: Burlington Stores , Costco and Hormel Foods . Of that group, Hormel has been the biggest underperformer in 2023, falling about 1%. The stock has a buy rating from just 7% of analysts, according to FactSet, and a hold rating from more than 70%. — CNBC’s Michael Bloom contributed to this report.