Weekly Stock Pick

Another down week last week in the markets. Record oil prices not helping matters. For the week the DJIA was down about 4.1%, the S&P 500 down about 2.9%, and the Nasdaq down about 3.8%.

In markets conditions like this, it’s good to look for defensive investments. Defensive stocks are those companies which are not highly dependent on economic cycles and the prosperity that comes and goes with them. Defensive stocks are companies providing products and services that we use or have to consume everyday. Food is a good example.

Scanning the charts Friday evening after the close looking for some potential low risk high reward buy or sell candidates, up popped a fast food chain. After closer inspection on a technical basis, I’m putting a buy on this nationwide fast food stock. This company had problems in the past with the quality of food coming out of their kitchens. Some people got sick and died. Let’s hope that the company has made corrections of the past mistakes so it won’t happen again in the future. In case it does, you’ll be ok by using stop-loss in your position.

Buy Long: Jack In the Box. Ticker JBX

Buy at Market or Buy-Limit Entry 23.52

Stop - Loss 22.69 which is about 4%.

Take Profit Areas:

Very Short Term 25.18 – 26.01

Short Term 29.05 – 30.01

Intermediate Term 30.43 – 31.43

Long Term 33.88 - 35

Longer Term 41.02 – 42.37

JBX Income Report

Jack in the Box reported on May 14th 2008 net income of $26.4 million which is $0.44 per diluted share for the quarter ended April 13, 2008. The street consensus was looking for $0.40 cents per diluted share. The 2008 first half earnings were $1.04 compared to $0.92 for the same period 2007. The PE ratio is about 12 with about a forward PE of 16 for 2008.

Jack in the Box Buy Analysis Commentary

With consumer confidence and their cashflow in the toilet currently, this is good news for the fast-food chains. Everyone has to eat everyday, and now everyone has to watch their budgets like a hawk. Budget meals are the special of the day compared to fine dining, and big tips until the economy turns around.

Since 2004 Jack in the Box has been selling it’s outlets to franchisees which currently is about 30% now. They want to increase selling their outlets to 70% by 2014. Franchising will help them from the rise in food prices. They are remodeling their outlets making them look new, being more cost efficient with new equipment, clean, and generally more inviting.

Longer term the earnings could lag just as much as any other company for the same reasons, subprime mortgage problems, recession or possible recession, and the expenses from the remodeling of their outlets. If they move forward with ongoing promos this could strengthen sales. All things considered, I feel Jack in the Box is a good risk reward at this price right now. Just in case price keeps heading south, use stop-loss to protect your downside risk.

Jack in the Box Company Profile

Jack in the Box owns, operates, and franchises Jack in the Box quick-service restaurants and Qdoba Mexican Grill (Qdoba) fast-casual restaurants in 42 states. The Company also operates a chain of convenience stores called Quick Stuff, with 60 locations, each built adjacent to a full-size Jack in the Box restaurant and including a fuel station. As of September 30, 2007, the Jack in the Box system included 2,132 restaurants in 17 states, of which 1,436 were company-operated and 696 were franchise-operated. As of September 30, 2007, the Qdoba system included 395 restaurants in 39 states, as well as the District of Columbia, of which 90 were company-operated and 305 were franchise-operated.

Click here to review and Trial the Trading Software I used in determining my buy long position on JBX.

Good day, good investing and trading!