The Kroger Co.: 3 Reasons to Buy KR Call Options

Irrespective of the prevailing situation in the market, some stocks are bound to record impressive growth and we will be looking at options of one of such stocks today. The Kroger Co. (NYSE:KR) is the largest grocery retailer behind Wal-Mart Stores. Kroger with its market capitalization of $34.64B manufactures and processes some of the food for sale in its supermarkets. The company operates about 3,700 stores across the country where it is strategically located within a 2.5-mile radius of its target customers

Why Are We Looking at Kroger Today?

Kroger caught my attention yesterday after the stock soared to record a new 52-Week high of $70.75 before closing with 1.18% gains to close at $70.50. Shares of Kroger have been soaring impressively in the last couple of weeks as the stock recorded 15 new highs in the last one month. In fact, shares of Kroger have surged more than 11.13% in the last month as the stock trades above its 20, 50 and 200-day moving averages.

Technical and Fundamental Analysis Support the Bullish Thesis

Kroger Chart

The chart above shows how the shares of Kroger Co have traded within the last one year. You will observe that the stock has been obstinately northbound despite a closely knitted volume-trading pattern. In fact, Kroger has made an impressive 101.39% gain from its 52-Week low of $35.13 to its 52-Week high of $70.75.

You will also observe that the stock has an RSI of 70.37, which suggests that the stock is in overbought territory. However, the stock only went into “oversold” territory once in the last one year and RSI has only dropped below 50 about 5 times within the same period. Hence, the worst-case scenario is not likely to see the stock having a pullback that will fall below its technical support at $67.84.

On the fundamental analysis side, Kroger spots a P/E of 21.18, which is relatively lower than the industry average of 23.46. Analysts expect that the company’s revenue will grow by 10.30% this year and by another 3.90% next year. In addition, it is estimated that earnings will increase by 18.90% this year and by an additional 9.70% next year before it continues at an annual rate of 11.98% over the next five years.

Interestingly, between the time I wrote the second paragraph (before market opened) and now 11:00AM EST, shares of Kroger have gained another 1.26% to make a new 52-week high of $71.48 even as the stock trades around $71.40 per share.

Strong Economic Outlook Supports the Bullish Thesis

Another great reason to be optimistic about the prospects of Kroger is the improvement being recorded in the economy of the United States. The GDP has grown by about 5% in the third quarter and the situation in the labor market has improved with a significant drop in the unemployment rate to 5.8%. Of more importance is the consistent drop in global oil prices, which has increased the disposable income of the average American by as much as $900 to $1300. In addition, the drop in oil prices will continue to reduce transportation costs for Kroger and help the company record lower operating costs and the resultant increase in profit margins.

How to Trade KR Options

I am optimistic about the prospects of Kroger and I think that the best way to play the options of the company is to purchase call options. You will do well to purchase the KR Apr 2015 70.000 call (KR150417C00070000) at an asking price of $3.30. The KR Jul 2015 70.000 call (KR150717C00070000) is also attractive at an asking price of $4.60.

— Daily Option Alerts

You May Also Like

About the Author: Daily Option Alerts