GO
Loading...

A Sweet Deal?

Monday, 9 Mar 2009 | 5:04 PM ET

What to make of all the call buying on Hershey's today?

Options traders snapped up the 35-strike calls for both the March and April contracts as if they were Hershey's Kisses, buying nearly 13,000 of the March 35-strike calls and 9,000 of the April 35-strike calls. This on a day when the stock actually lost over 3%.

Is there a sweet deal in the offing?

"This is a perennial takeover name, and clearly some investors feel the risk reward is attractive here," said "Options Action" contributor Stacey Gilbert. "20-day Call volume runs around 700 contracts. Today just 28,000 calls traded, most of which were bought," Gilbert added.

The stock has had a tough go as of late, succumbing to the market swoon that has whacked pretty much any stock under the sun. But according to some analysts, the fundamentals of the company are quite sound.

"Great brands, great cash flow, and a clean balance sheet," said Doug Christopher, who covers the name for Crowell, Weedon & Co. (BUY). "And it's cheap."

Hershey's trades at about 16 times '09 earnings, well below its 10-year average of 22. And at a time when cash is king, its 3.5% dividend could come in handy.

The company has been the subject of Nestle takeover speculation in the past. But Christopher and others see a more likely suitor, if one ever emerges. "It's the kind of name you could imagine a Buffett owning."

More on CNBC.com

Questions, comments send them to us at: optionsaction@cnbc.com

  Price   Change %Change
MS
---
HSY
---

Contact

  • Showtimes

    Fridays, 5:30p ET
    Saturday, 6a ET
    Sunday, 6a ET
  • Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

Latest Video

Options Action Daily Reports

Sponsored Related Links

More on thinkorswim by TD Ameritrade

  • Make sure you’re always keeping up with the market with up-to-the-minute news and breaking stories. Move on possible breakout stocks and options with potential opportunity. Plus, get in-depth analysis on futures and forex in one seamless, integrated experience. Join TD Ameritrade and trade commission-free for 60 days + get up to $600 cash.

You Make the Call

  • Mike Khouw, Options Action trader, shares his view on News Corp stock on the heels of testimony from Rupert Murdoch before British Parliament.

  • Do you have a question for the Options Action team? Options Action selects a viewer's question and gives the answer on the show's Make The Call Web Extra video.