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Intermediate Trade: Winnebago Industries

Consider this WGO bullishly biased, at-the-money vertical call spread.
Comments

The Trade: Buy 1 WGO July 27 call and sell 1 WGO July 32 call for a debit of 1.40 points.

Winnebago Industries (WGO) is one of the primary companies in the business of manufacturing and selling recreational vehicles (RVs). Next year will mark their 60th year in that business.

Over these years, Winnebago has known plenty of good times and bad times. The worst of times were during the 1970s OPEC oil embargo. The best of times, and some in the past were quite nice, could be right now.

That "best of times" potential has these positive factors working in Winnebago's favor:

1) The relative price of gasoline now is the best in many decades (RVs eat gas).

2) The baby-boomer generation is retiring and they want to travel this great country of ours, some doing so in an RV made by Winnebago (think: millions of potential buyers).

3) Winnebago makes RVs that are affordable, comfortable, and fun to operate.

WGO trades at a P/E multiple of 14x trailing 12-month EPS and a ridiculous forward P/E multiple of 10x. Thus, analysts think Winnebago will grow earnings at 15%-20% or higher over this year and next year.

WGO has a very small float of only 29 million shares. Yet almost 12% of the shares are held as short sales.

Technically, WGO has a bullish one-year stochastic reading with a confirming/bullish RSI (relative strength index). Resistance is around the $32 level.

The trade tactic I prefer for WGO is the bullishly biased, at-the-money vertical call spread expiring in July.

The trade is as follows: Buy 1 WGO July 27 call and sell 1 WGO July 32 call for a debit of 1.40 points. The suggested target to close for a gain is a bid of $1.90 and the suggested stop loss target is a bid of $0.90. Best to scale into the position using limit orders.

At the time of publication, Raschke had no position in the securities mentioned.

Please be advised that shorting stocks or doing options trades can entail increased risks and might not be suitable for all investors. Consult your financial adviser for details.