Real-Time Market Insights
Hot Stock News for Options Traders

A Closer Look at... Kraft Foods, Diamond Foods, and Hershey

Checking out the contrarian prospects for HSY, DMND, and KFT

by 9/30/2011 11:30:40 AM
Stocks quoted in this article:

It seems like just yesterday Wall Street was consumed with Uncle Sam's notorious credit-rating downgrade and the fiscal health of the euro zone. Okay, while some things haven't changed, the seasons surely have, with the final quarter of 2011 now upon us. What's more, the turning of the leaves and the crisper air could only mean one thing: Halloween is right around the corner. With this uniquely American holiday on the horizon, we decided to take a look at a trio of potential treats for contrarians: The Hershey Company (HSY - 59.89), Diamond Foods, Inc. (DMND - 81.80), and Kraft Foods Inc. (KFT - 34.09).

The Hershey Company (HSY)

Along with its namesake chocolate bar, HSY is also responsible for such Halloween staples as Kit Kats, Reese's Pieces, and Whoppers, to name a few. From a technical perspective, the stock has outperformed the broader S&P 500 Index (SPX) by more than 18% during the past 60 sessions, and tagged a new three-year high of $60.96 earlier this week.

As such, the security is now trading north of the $58-$59 neighborhood, which acted as a speed bump earlier this year, but could now switch roles to serve as support. Furthermore, the equity's 10-week, 20-week, and 32-week moving averages are ascending into the region. This trio of trendlines has provided a solid technical backstop for HSY in 2011, and should continue to assist the stock in its quest for new highs.

Weekly chart of HSY since January 2011

However, despite HSY's impressive performance on the charts, most of the Street remains sour on the stock. According to Zacks, only four out of 13 analysts consider the equity worthy of a "buy" or better rating, leaving the door wide open for potential upgrades to fuel future gains. In the same vein, Thomson Reuters pegs the consensus 12-month price target on the stock at a measly $61.42 -- just a stone's throw from HSY's current share price. A wave of price-target boosts could also add fuel to the stock's contrarian fire.

Elsewhere, we find that short interest on the security skyrocketed by 40.5% during the past month. At HSY's average pace of trading, it would take more than six sessions to buy back all of these bearish bets -- pointing to an ample supply of sideline cash for a short-covering rally.

Meanwhile, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.71 stands higher than 87% of all others taken during the past year. In other words, short-term options speculators have been more put-heavy on HSY just 13% of the time during the past year. A reversal of sentiment in the options pits could also give the outperforming equity an added boost.

Traders anticipating a continued ascent for HSY may want to consider the stock's January 2012 50-strike call.

Diamond Foods (DMND)

On Halloween, most kids in America come home with at least one off-the-wall treat like nuts, chips, or popcorn balls -- all of which could've come from California-based DMND. Like HSY, the shares of DMND have outperformed the broader equities market, besting the SPX by 26% during the past 40 sessions, and tagging an all-time high of $96.13 last week.

Since exploring record-high territory, though, the security has pulled back to the $82 neighborhood -- presenting an appealing opportunity for the bulls to jump in. What's more, the equity's 10-week and 20-week moving averages are ascending into the area. This duo of trendlines has helped DMND roughly double in value over the past year, and could launch the stock on its next leg higher.

Weekly chart of DMND since October 2010

Page 1Page 2
Keywords:
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

Partner Center

© 2014 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email: service@sir-inc.com

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by QuoteMedia.com | Data delayed 15-20 minutes unless otherwise indicated.