Which Valentine's Day Stock Should You Fall For?

Darden Restaurants, Inc. (DRI) could be a strong contrarian play for bullish option traders

Feb 11, 2016 at 12:30 PM
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With Valentine's Day just around the corner, a number of companies are gearing up for big business, including Darden Restaurants, Inc. (NYSE:DRI), 1-800-Flowers.com Inc (NASDAQ:FLWS), FTD Companies Inc (NASDAQ:FTD), and Hershey Co (NYSE:HSY). This is a crucial time of year for these consumer goods concerns, and a strong performance could eventually translate into gains for the respective stocks. Today, we'll take a closer look at DRI, FLWS, FTD, and HSY, and examine which one has the greatest potential for outsized gains.

For the unfamiliar, DRI operates a number of casual-to-upscale restaurants around the country, including Olive Garden and Seasons 52. While the shares have been pulling back along with the broader market this year to trade at $57.03, they appear to have found a foothold atop their 80-week moving average -- from which they bounced last November. What's more, the stock is near its year-over-year breakeven mark of $54.98, hinting at double-barreled technical support.

If Darden Restaurants, Inc. takes another bounce off the aforementioned trendline, skeptics could start heading for the hills. For instance, almost 10% of the stock's float is sold short, and would take over one week to buy back, at its average daily volumes. What's more, over half of analysts consider the shares a "hold" or worse, leaving the door open for future upgrades.

Meanwhile, flower shipping company FLWS has advanced a market-beating 3% in 2016 to trade at $7.49, getting a big boost from its late-January earnings beat. Longer term, however, the stock has been diving, and even its recent rally appears to be petering out near its 80-day moving average.

Making matters worse, optimism is really high on 1-800-Flowers.com Inc. All five analysts tracking the shares rate it a "strong buy," and traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open over 108 calls for every put during the past 10 weeks. If FLWS can't live up to the hype, a capitulation among these bulls could spell headwinds.

Rival FTD is in much the same boat, with 100% of analysts sporting "strong buy" opinions. Likewise, the stock is a technical trainwreck, earlier hitting a record low of $21.79 and last seen at $22.22. Suffice it to say, a future round of downgrades could exacerbate selling pressure.

Finally, chocolate champion HSY has bounced back since flirting with the $83 level earlier this year, last seen at $88.69. However, on a year-over-year basis, the stock has swooned almost 17%.

In recent months, option traders have been upping the bullish ante on Hershey Co. Its 50-day ISE/CBOE/PHLX call/put volume ratio of 5.41 ranks in the high 90th percentile of its annual range. If the stock can sustain its recent rally, these traders will be sitting pretty -- but if not, an unwinding of the hedges related to these positions could spark further selling on HSY.

All things considered, it seems Darden Restaurants, Inc. (NYSE:DRI) could be your best bet if you're looking for a Valentine's Day stock. Its strong technical set-up, coupled with negative sentiment, make it a classic contrarian play.

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