Levi Strauss and Co. was founded in 1853 and they also sell Dockers. They have 3,100 Levi stores (not Gap) and they did $5.7Bn in 2019 (made $395M), $4.4Bn in 2020 (lost $127M), $5.7Bn last year (made $554M) and expect $6.4Bn this year making $628M yet you can buy the whole company for $6.5Bn at $17. Cotton costs have been killing them this year but they are likely to normalize going forward:
They pay a pretty nice 0.40 dividend but so does F for a lot less money so we should stick with options for the LTP:
- Sell 20 LEVI 2024 $18 puts for $4.30 ($8,600)
- Buy 50 LEVI 2024 $18 calls for $3.50 ($17,500)
- Sell 50 LEVI 2024 $23 calls for $1.65 ($8,250)
That's net $650 on the $25,000 spread. That's an upside potential of $24,350 (3,746%) and it would cost us $20,000 more to be in the $10s, so it's not worth it as I think $23 is an easy target.
In the Morning Report, we discussed trade ideas for Ford (F):
That's what we're punishing companies for now. Inflation is causing companies to adjust and labor rates are rising but most companies are covering them with price increases that, so far, have not slowed down consumer spending. More raises put more money into consumers hands but, looking at F, another $2.50 per day doesn't let you buy a Model T next week – it takes a while for these things to evolve – but "investors" today have no patience at all.
At $11.23, F has a market cap of $45Bn – even though they made $18Bn last year (not a typo). This year and next year they expect to make a more normal $8Bn but that's still a p/e of 5.5 going forward. F does have $94Bn in debts (net of $41Bn in cash) but that is the nature of their business and we assume it will take 3% more to service the debt going forward, so that will hit F for $3Bn a year and drop eanings down to $5Bn BUT, a lot of F's outstanding debt is for financing – so they may not be hit so hard by increased rates.
