TRADE INSTRUCTIONS
Date: March 9, 2017
Name: Hanesbrands
Symbol: HBI
Type: Open
Limit: Buy below $20.50

TRADE TARGETS
Holding Period: 4 months
Target Return: 17.1%
Annualized Return: 51.3%
Target Price: $23.50
Stop Loss Level: $18

COMPANY DESCRIPTION
Hanesbrands Inc., a consumer goods company, designs, manufactures, sources, and sells various basic apparel for men, women, and children in the United States. It provides its products primarily under such well-known brands as Hanes, Champion, Maidenform, DIM, Playtex, and several other specialty names. As of December 31, 2016, it operated 252 outlet stores in the United States and the Commonwealth of Puerto Rico, as well as 460 retail and outlet stores internationally. Link to company website.

TRADE RATIONALE
It’s always difficult to determine exactly when a stock has bottomed out, but our Rapid Profits Matrix tells us that Hanes has now reached oversold territory and should soon recover. But we’re not expecting a miracle; if HBI can just return to its late-January share price near $24 then we will have achieved our target return in this trade.

Hanes’ most recent quarterly and annual earnings report, released on February 2, drove its share price down 16% despite record cash flow for 2016. But the fourth quarter for Hanes was weak, as it was for most retailers, and forward guidance for sales growth of 8% in 2017 of roughly 7 – 9% was perceived as tepid by the market.

However, 12 of the 14 Wall Street analyst following HBI have it rated as a ‘buy’ or ‘strong buy’ with an average one-year target price of $26.69. Even the most pessimistic of those estimates comes in at $22, which is 10% above the current share price for HBI. But with 90% of its float controlled by insiders and institutional investors, it’s the retail investor that is calling the shots at the moment.

That’s a problem when sentiment towards a sector is strongly negative as it has been for the retailers for the past two months, but can work equally strongly in the other direction once selling subsides and share prices revert towards the mean. With interest in so-called “Trump stocks” beginning to wane now that those campaign promises must fit into a budget, investors are beginning to look for value and a stock like HBI, trading at less than 10x forward earnings with an IDEAL score of 8, may be just what they are looking for.

NOTE: HANE is optionable. I’m putting a four-month holding period on this position, so the July call options are in play for those of you who want to leverage this trade. As of the date of this alert, the $20 call option that expires on 7/21 could be had for $1.50, meaning a share price of $23 by then would result in a 100% return on that option.