Dear Momentum Options Subscriber,
One of my favorite stocks is RAVE Restaurant Group (RAVE, $3.91, up $0.06), which is a company I have followed closely for four years.
As you can see from the five-year chart below, RAVE zoomed to a high north of $16 last year, but the pullback since then has been harsh due to the recent losses the company has posted.
RAVE has been on an aggressive journey — now five years old — to expand the number of its Pie Five Pizza restaurants to 500 units by this year or next. This fast-casual pizza concept has been a hit, as a number of well-known franchisees have signed on to open up to 10-20 stores in major metropolitan areas.
The company also owns a number of Pizza Inn restaurants that have been around for decades, which have recently been updated and remodeled. While RAVE is still opening these types of buffet-style units, their main focus has been on Pie Five Pizza.
The Pie Five Pizza concept reminds me of Chipotle Mexican Grill (CMG), as your personalized pizza cooks in under two minutes. Pie Five offers a choice of more than 28 fresh toppings, seven sauces and four crusts for you to invent your own pie.
While it is a great fast-casual pizza experience, the losses in recent quarters have been very disappointing. While growing pains were to be expected along the way, rapid growth often comes at a price. With losses of $0.12 per share during its third quarter, and a second-quarter loss of $0.45 per share, the chances that RAVE will turn a profit this year seem bleak.
The good news is that the company will be rolling out a nationwide campaign this September that should give the Pie Five Pizza chains momentum going into 2017. There is very little Wall Street coverage of the stock due to its small market-cap of just under $40 million. Right now, the company needs to keep its losses in check and focus on profitability.
Given the recent merger and acquisition activity in the food sector, a major player like McDonald’s (MCD) or Chipotle (CMG) could offer a buyout, but that is unlikely. For one, Chipotle has its own pizza-development units called Pizzeria Locale, and the company is expanding the brand. McDonald’s could copy the concept and offer quick pizza options at its restaurants, but I doubt they would match the quality and taste of those at Pie Five Pizza.
As far as the market goes today, the nonfarm payrolls came in better than expected, as 287,000 jobs were added. This has propelled the indices to fresh highs, and they are now within striking distance of all-time highs.
The Dow is currently up 226 points to 18,122, while the S&P 500 is adding 28 points to 2,126. The Nasdaq is higher by 73 points to 4,949, and the Russell 2000 is jumping 26 points to 1,176. The rally I predicted for July following the late-June weakness has been on point, and I can’t wait to start my weekend research as soon as the market closes.
I could have an additional update or a New Trade ahead of today’s closing bell, but, if you don’t hear from me again today, have a great and safe weekend. I try to end every week with these words, as safety is becoming an increasingly important topic of late.
Momentum Options Play List
Closed Momentum Options Trades for 2016: 55-18 (75%). All trades are dated so new subscribers can look at the past history to see how the trades have played out.
Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades. Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Hard Stops” entered to close any trades or “Exit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the 9 a.m. and 12 p.m. – 1 p.m. updates. Also, I will usually give you a heads-up if I think I’m going to send an email outside of these time frames.
All prices given in this update are current as of 2:05 p.m. EST.
I hereby disclose that I will be participating in the following trade(s).
Green Dot (GDOT, $23.81, up $.45)
GDOT August 25 calls (GDOT160819C00025000, $1.00, up $0.20)
Entry Price: $0.80 (7/7/2016)
Exit Target: $1.60
Stop Target: None
Action: Resistance is at $24. Support is at $23-$22.50 and the 50-day moving average.
Energous (WATT, $12.27, up $0.13)
WATT August 12.50 calls (WATT160819C00012500, $1.31, up $0.11)
Entry Price: $1.57 (6/28/2016)
Exit Target: $3.15
Stop Target: $0.75
Action: Resistance is at $12.75-$13. Support is at $11 and the 50-day moving average if $12 fails to hold.
Morgan Stanley (MS, $26.31, up $0.62)
MS August 28 calls (MS160819C00028000, $0.36, up $0.09)
Entry Price: $0.79 (6/23/2016)
Exit Target: $1.50
Stop Target: None
Action: Fresh resistance is at $26.25-$26.50. Support has moved up to $26-$25.75.
Viavi Solutions (VIAV, $6.74, up $0.18)
VIAV September 7 calls (VIAV160916C00007000, $0.26, flat)
Entry Price: $0.55 (6/23/2016)
Exit Target: $1.10
Stop Target: None
Action: Near-term resistance is at $6.75-$7. Support is at $6.50-$6.40.
Editor and Chief Options Strategist