Household product firm Colgate-Palmolive (CL) is trading flat over the past year as consumer goods companies have sold off in recent weeks. One trader sees a strong rebound by the end of next spring.
That’s based on the May 2024 $75 calls. With 211 days until expiration, 51,631 contracts traded compared to a prior open interest of 270, for a massive 191-fold jump in volume on the trade. The buyer of the calls paid $3.40.
Shares recently traded for about $72, so shares would need to rise $3, or about 4 percent, for the option to move in-the-money. That’s still well under the stock’s 52-week high of $82.09.
While earnings are down about 15 percent over the past year, revenues are u about 8 percent. Colgate-Palmolive trades at about 20 times forward earnings, a reasonable valuation for a company that owns a number of leading household brands.
Action to take: The recent pullback in shares could be a buying opportunity ahead of a year-end rally. At present, shares yield about 2.7 percent. Historically, shares have traded closer to a 2.4 percent yield. Shares trade ex-dividend on October 20, so buyers may want to wait until after then to get a slightly lower price.
For traders, the May calls are inexpensive for being so close to where shares currently trade. They have plenty of time to see high double-digit returns or better.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.