This Stock Is Still a Solid Short-Term Trade, Despite Its Revenue Miss

The Federal Reserve’s “soft landing” narrative is looking more questionable than ever…

A soft landing is the term economists use when the central bank attempts to slow down demand and inflation by raising interest rates, but not by so much that it sends the U.S. economy into a recession.

The Fed has realistically only achieved one true soft landing out of the last nine tries since 1961, when chair Alan Greenspan doubled short-term interest from 3% to 6% in 1994-95. Then, the Fed was able to curb economic growth without killing it off entirely.

But back to what I was talking about before…

It all started with last Friday’s Consumer Price Index report that came in slightly higher — 0.3%, to be exact — than analysts had anticipated.

There was an unspoken expectation on Wall Street that the most recent CPI report would indicate that the worst inflationary pressure is behind us. But instead, it accelerated to 8.6% in May and in all likelihood has Fed Chair Jerome Powell wishing the report didn’t come just days before its next meeting.

This also meant that any inflation number at the same level as last month, or mildly higher, would trigger the stock market sell-off just like it has this week…

The S&P 500 slipped back into bear market territory on Monday, which is typically defined as a 20% drop from a recent all-time high over a sustained stretch of time, such as two months, while the Dow shed about 900 points.

The wildest thing about this is that policymakers might now be entertaining the idea of a 75-basis-point rate hike this Wednesday to tame surging inflation. That’s despite Powell’s remarks in May that central bank officials aren’t “actively” considering hikes of more than half a percentage point at upcoming meetings and that expectations over the past month have priced in the exact same thing he said.

We won’t know for certain, of course, until the Fed makes its announcement Wednesday afternoon…

But without further ado, let’s get into the high-quality stock I recommend selling a put on this week, Five Below Inc. (FIVE).

If you’re one of my long-haulers, then you’ve probably heard this name before because we’ve sold put options on it numerous times. But if you’re a newer subscriber, Five Below is one of the fastest-growing discount stores in the world.

The high-growth value retailer is aimed at tweens and teens and sells products that cost up to $5, plus a limited selection of items from $6 to $25.

In its first-quarter earnings report, Five Below reported a drop in profits despite higher revenue as operating costs increased from the same period last year.

The Philadelphia-based company posted earnings of 32.7 million — that’s $16.9 million less than a year ago. Five Below said it expects its second-quarter revenue to come in between $675 million and $695 million, along with a full-year outlook of about $3.08 billion, which would both miss Wall Street’s forecasts.

So, why would I recommend a stock that not only missed revenue estimates in Q1, but also reduced its guidance for the full year…

As you’ve probably heard by now, inventory setbacks continue to weigh down most retailers like Target Corp. (TGT), which recently cut its Q2 profit outlook for the second time in almost three weeks.

But Five Below has reassured consumers that its inventory levels are in great shape. CEO Joel Anderson recently told investors that the chain is “well positioned from an inventory standpoint with improved in-stocks and accelerated receipts for Summer and Back to School.”

Despite first-quarter sales being softer than expected, Five Below executives say the company is well positioned to continue delivering products at extreme value. In fact, Anderson went on to say the retailer “expects the macro environment to remain challenging” and that people will continue to seek “value even more.”

Shares of FIVE are down after earnings, but the stock still remains a solid short-term trade for us. It is on an Income Trader Volatility (ITV) “buy” signal, which means now is an ideal time to benefit from selling put options.

ITV, the red line at the bottom of the chart below, gave the signal when it fell below its 20-week moving average (blue line), signaling that volatility is bottoming and we can expect shares to move higher.

To help minimize risk and give ourselves added protection in this volatile market, I’m picking an expiration date that is about four weeks out and a strike price that gives us an additional 29% cushion from current prices.

The point of all this is, trading options could be a way to increase your income by hundreds or even thousands of dollars every month. But you need to know the ropes before making trades. That’s where my premium Income Trader service comes in…

Each week since February 2013, I have provided my subscribers with low-risk put selling opportunities. And so far, more than 90% of my trades have been winners.

I recently sat down with my publisher for a tell-all interview to explain how it all works.

You can go here to check it out now!