Najarian: Go Long Wal-Mart and Gap

Wednesday, 15 Aug 2012 08:01 AM

By Dan Weil

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Retail sales rose in July for the first time in three months, and Jon Najarian, co-founder of OptionMonster.com, recommends that investors take advantage of the move by going long Wal-Mart and The Gap through options.

“You concentrate on back to school and what people are wearing,” he tells Yahoo.

Wal-Mart shares have breached $70 for the first time in 13 years. “We’re continuing to see people betting on Wal-Mart,” Najarian says.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

The stock isn’t likely to jump in the near term, but “a lot of folks are selling just out-of-the-money puts, saying that if the stock pulls back, I’m being paid to own it,” he tells Yahoo.

The Gap, meanwhile, has approached a 52-week high. The company captures the entire income spectrum, with the wealthy shopping at Banana Republic, the middle class at Gap and the less wealthy at Old Navy.

“To play for a breakout, buy a $35 call and sell one just above that,” Najarian recommended. “It’s a very cheap, limited risk shot that could pay off pretty big.”

Gap closed Tuesday at $34.61.

With consumers spending heavily on travel this summer, Najarian also likes short-term plays on Expedia, TripAdvisor and Priceline.com.

Economists offered an enthusiastic response to the 0.8 percent gain in retail sales during July.

“The consumer hasn’t exactly thrown in the towel, which is encouraging because they’ve been battered and bruised in recent months with very slow job growth,” Millan Mulraine, senior U.S. strategist at TD Securities, tells Bloomberg.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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