Trade Alert: An Unexpected Industry
Portfolio Armor's top ten names included three representatives of an unexpected industry.
A Surprise In Friday’s Top Ten Names
Over the last few months, Portfolio Armor’s ranking system has been mostly dominated by the usual suspects: AI beneficiaries, industrials tied to reindustrialization, and a smattering of energy names. So when three apparel companies ended up in our top names at the same time on Friday, that got my attention. When that happens, it usually means our system is detecting something broader happening inside a sector (consumer discretionary, in this case, not just a one-off anomaly.
The Strongest Apparel Name In Our Top Ten
The first name we’re trading today is a legacy apparel brand that has spent years falling out of favor. Fundamentally, it is not a “new story,” but the data going into its next earnings date looks more interesting than the narrative would suggest. When it last reported in late October, it beat on both top and bottom lines. Since then, though, analysts have been uniformly revising their earnings estimates for it downward. That’s the classic “expectations getting washed out” pattern.
Zacks, though, highlights a different angle. It currently has this stock at a 3 overall rating, but with an earnings ESP of 5.51%, which means the most accurate analyst is modeling earnings about 5.5% above the consensus. That positive “earnings surprise prediction” sitting on top of broadly lowered expectations is exactly the sort of asymmetry I like heading into a catalyst. If the company clears a low bar with even a modest upside surprise when it reports later this month, the stock doesn’t need perfection to move; it just needs to be “less bad” than what’s already priced in.
Technically, the picture lines up with that thesis. Chartmill gives this stock an 8 out of 10 technical rating and an 8 out of 10 setup rating, and its RSI (Relative Strength Index) is right around 50. That’s not a momentum blow-off; it’s what you tend to see after a long downtrend has stalled and the stock has started to base. In that context, I’m using a defined-risk options combo that gives leveraged upside if the next report is better than feared, while using a put floor to cap the downside if the company finds a new way to disappoint.
And The Strongest Software Name
The second name is a very different animal: a high-growth software company at the heart of the database and application infrastructure stack. Here the story is not about washed-out expectations; it’s about a market that has been steadily raising the bar. This company also beat on both the top and bottom line in its last quarter, and instead of estimate cuts, it has seen a wave of upward revisions and no downward revisions over the last ninety days. Zacks gives it a 1 overall rating and an earnings ESP of 1.64%, meaning the most accurate analyst is modeling earnings modestly above the consensus estimate going into the next report in early March.
Despite the growth premium, the technical posture here is surprisingly reasonable. Chartmill gives it an 8 out of 10 technical rating and a 6 out of 10 setup rating, and its RSI is in the high-40s, which suggests a healthy uptrend that hasn’t gone fully parabolic. For this one, I’m again using a different defined-risk options structure: a hybrid four-leg position that combines a longer-dated call spread with a nearer-term put spread below it. The idea is to harvest some premium from traders still willing to pay up for downside protection into earnings, and use that to help finance upside exposure in a name Portfolio Armor’s system already likes over the next six months.
Plus, A Flyer On A Speculative Robotics Name
I’m also adding a smaller, more speculative trade from my Market Watchers list in one of the hotter parts of the market right now: embodied AI. This is a robotics company focused on service and hospitality use-cases—robots that deliver food, clear tables, move items around hotels and hospitals. After a big spike into an October peak, the stock has pulled back and, over the last several weeks, started to look more like it’s basing than breaking down. Chartmill gives it a setup rating of 7, and Fidelity shows its RSI in the mid-50s, which is consistent with a consolidation rather than a full-blown trend in either direction.
On top of that, short interest is nearly 20% of the float. That combination—high short interest, a constructive setup score from Chartmill, and a base forming after a sharp pullback—sets up the possibility of a sharp move higher on good news, as shorts rush to cover into improving price action. But this is still very much a story stock: the valuation is built on what it might become rather than what it is today, and the business is early in its rollout.
Because of that, I’m sizing this options trade at less than half of what we normally risk per contract. And, to make sure we’re not getting ripped off by market makers here, I’ve calculated the Black-Scholes fair value of our trade used that to set our maximum entry price. If the market wants to hand us this robotics lotto ticket at a discount, we’ll take it. If not, I’m content to let it go and stick with the two more established names above.
Details of all three trades are below, with preset exit triggers, as usual, so we don’t have to babysit the trades.
Today’s First Top Names Trade
(Consumer discretionary rerating theme)
