Unusual Options Volume for Ferrari (RACE) Underscores a Contrarian Opportunity

It doesn’t take an advanced degree in rocket science to understand that the present inflationary pressures don’t bode well for consumer sentiment. With people tightening their belts for all but the most necessary of items and services, Ferrari (RACE) technically shouldn’t perform well. After all, people need transportation – they don’t need to do it in an exotic car. Nevertheless, during these difficult times, RACE stock could be a contrarian’s dream.

For one thing, the company delivers the goods when it comes to fiscal performances. For its latest fourth-quarter earnings report, Ferrari delivered earnings per share of 1.21 euros, outpacing the 1.16 euros it posted in the year-ago quarter. As well, the Prancing Horse generated 1.368 billion euros, up over the 1.172 billion euros in Q4 2021.

In addition, the Barchart Technical Opinion rating views RACE stock as a 100% buy, articulating its strongest short term outlook on maintaining the current direction. Obviously, that’s high praise that investors can’t afford to ignore.

What’s more, Wall Street analysts continue to maintain a moderate buy view on RACE stock despite its outperformance. Since the January opener, shares screamed toward a 26% return. And in the trailing year, they’re up over 48%. To be fair, the magnitude of enthusiasm has waned a bit. Nevertheless, no one dares issue a sell order.

Conspicuously, RACE stock ranked among the highlights for Barchart.com’s screener for unusual stock options volume. Following the close of the March 3 session, total volume reached 3,631 contracts against an open interest reading of 15,755. Further, the delta between the Friday session volume and the trailing one-month average volume came out to 381.56%.

Drilling into the details, call volume hit 2,669 contracts while put volume reached 962. Therefore, the put/call volume ratio came out to 0.36, mathematically favoring the bulls. Fundamentally, investors enjoy three key reasons why RACE stock can move higher still.

The COVID-19 Pandemic Favored the Ultra-Rich

While virtually all Americans are glad to see the COVID-19 crisis fade into the rearview mirror, the harsh reality is that the pandemic favored certain segments of the population over many others. Specifically, the wealth gap between the ultra-rich and everyone else expanded conspicuously, meaning that Ferrari’s target audience benefitted quite handsomely from the otherwise terrible circumstances.

I don’t mention this to cast aspersions on the super-wealthy. However, the data doesn’t lie. According to the Board of Governors of the Federal Reserve System, in Q4 2019, those ranked in the top 1% of U.S. society held 30.7% of the nation’s total net worth. As of the latest read in Q1 2022, this metric increased to 31.9%.

At first glance, a move from 30.7% to 31.9% doesn’t seem like much. But within that 1.2% difference is a massive load of “surplus” wealth that can be directed toward exuberant purchases like Ferraris. Therefore, RACE stock could be a cynical beneficiary.

Target Consumer is Too Wealthy to Care

As the Associated Press reported at the end of February, “[c]onsumer confidence dipped for the second straight month as stubborn inflation and anxiety over a potentially slowing economy weighed on Americans.” Should circumstances continue to worsen, it’s quite possible that regular households will batten down the hatches, focusing their spending only on the essentials.

However, the beauty of investing in RACE stock during these circumstances is that economic downturns won’t impact the folks acquiring exotic cars. Let’s be real – if monitoring the tape on CNBC has your heart palpitating, you probably shouldn’t be buying a Ferrari. And to be blunt, if you’re in that category, Ferrari won’t sell you a car. It has an image to keep, after all.

In some ways, Ferrari operates in a fantasy world except for the small detail that’s in fact a reality. Though reeking of elitism – a not-so-great trait to promote these days – it’s this characteristic that keeps RACE stock humming.

Rising Interest in Formula 1 May Help RACE Stock

Between the 1980s to the economic downturn of 2008, domestic motorsports leagues – particularly NASCAR – operated under the ethos, “Win on Sunday, sell on Monday.” In 2021, USA Today reported that NASCAR team owner Rick Hendrick benefitted handsomely when he bought the sponsorship rights through 2023 for NASCAR driver Kyle Larson.

Despite Larson courting controversy for using a venomous slur, his victories on track following a suspension made Hendrick’s investment pan out very profitably. Fundamentally, then, a similar situation can materialize for Ferrari and the rising popularity of Formula One – motorsports’ crown jewel league – in the crowded U.S. sports market.

Just as importantly, the Ferrari team has become much more competitive recently, meaning that the brand could gain serious international exposure. Combined with more people able to afford Ferraris due to the widening wealth gap, RACE stock could be interesting for the long haul.

• Job Reports, Bond Auctions And Other Key Themes To Watch This Week
• Phillips 66 - 3.96% Dividend Yield and Massive Buybacks Are Attracting Value Investors
• Artificial Intelligence: Embracing the Future
• Stocks Settle Higher on Lower Bond Yields and Improved Risk Sentiment