Dave & Busters Has Upside After Rare Insider Buy
The arcade-restaurant faces some challenges, but I like it as a covered-call trade idea at current levels.
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My regular readers know that I have been bearish on the overall market throughout most of 2024. It has been the wrong call up to this point. However, I am not going to give into FOMO and step up now to buy the likes of Apple AAPL at 35-times earnings and over nine-times revenues.
That is approximately double the valuations that the stock went for before the pandemic and it gives the stock a PEG ratio of roughly 2.5. Call me old fashioned, but that is just too steep to pay for a growth stock with a negligible dividend yield in an uncertain global economy.
Given my bearish take on the market, I have maintained a good chuck of my portfolio in short-term treasuries, which were paying just over 5% until recently. The bulk of my holdings have been maintained via covered-call positions around the few stocks in the market that I find that still have reasonable valuations. So far this year, my overall portfolio is up in the low teens. Significantly below the return of the S&P 500, but with considerably less risk. And my returns are roughly in line with that of the equal weight S&P this year. This is something I can more than live with and an allocation I continue to deploy.
I have outlined some of the covered-call trade ideas during my weekend post here on TheStreet Pro for a year now. In today’s column, I will provide quick updates to a couple of the stocks I have previously posted a covered-call trade idea around and still like at current levels. Let’s start with Dave & Busters Entertainment PLAY.
Like most restaurants and retailers, Dave & Busters is challenged by a struggling consumer, especially at the lower- and middle-income levels. The company did post better-than-expected bottom-line results when it posted its Q2 numbers on September 10. Dave & Busters should also benefit from its remodeling efforts and improved digital marketing in the years ahead. The company is also still throwing off considerable operational cash flow. The equity is not expensive, at under 10-times FY2025 EPS. In addition, the CEO recently made a rare insider buy in the shares when he added just over $500,000 to his stake in the company on October 7.
I also continue to have a fairly large holding in mid-cap oncology name Exelixis EXEL. The stock has ground up in recent months but has largely been range-bound over the past five years. That has made it a lackluster performer for long-term buy and hold shareholders.
However, given the liquidity and premium in the options around the equity, that has made Exelixis one of my favorite "rinse, wash and repeat" covered-call trades over the years.
Alas, the stock might finally break out to the upside from its long-established trading range. The company just won a key victory in a long-time patent litigation battle that will keep market exclusively for its flagship drug CABOMETYX through 2030. It also may pave the way for Exelixis to be acquired. Regardless, the company is nicely profitable, is seeing solid revenue growth and is sitting on a massive cash hoard.
At the time of publication, Jensen was long EXEL and PLAY.
