Beer Stock Could Be Prime Target for Bears

Downgrades and/or additional short selling could pressure TAP stock

Sep 25, 2018 at 10:31 AM
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Beer maker Molson Coors Brewing Co (NYSE:TAP) has been in a long-term downtrend on the charts, down 22% year-over-year and 21% year-to-date. The stock filled its post-earnings bear gap from early May over the summer, and has since drifted lower. Now, TAP is once again fresh off a rejection from resistance at its 100-day moving average, suggesting it's an ideal time for bears to bet on the brewing name’s next leg lower.

WKEND Chart TAP Sept 21

 

Despite its negative technical performance, analysts have continued to lean optimistic toward Molson Coors Brewing stock. Of the 13 firms covering TAP, seven sport a "strong buy" recommendation. Plus, the stock’s average 12-month price target comes in at a 15% premium to Friday’s close, indicating that a round of overdue downgrades and/or price-target cuts could pressure the security even lower.

Digging deeper, short interest on Molson Coors stock rose by 29% during the most recent reporting period. However, the 5.09 million shares sold short only represent 2.8% of the stock’s total available float. A continued ramp in short-selling activity could help to drive underperforming TAP even lower.

Lastly, the stock's Schaeffer's Volatility Index (SVI) of 21% sits in just the 6th annual percentile, revealing low volatility expectations being priced into near-term contracts. Our recommended put option currently sports a leverage ratio of negative 6.8, and will double in value on a 12.3% decline in the underlying security.

Subscribers to Schaeffer's Weekend Trader options recommendation service received this TAP commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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