How do you trade a stock that never gets cheap?

Very good companies are not hard to identify. They sport excellent long-term growth in easily measurable business metrics. Industrial and construction supply company Fastental (FAST) surely qualifies as a real winner on that basis based on its excellent 10-year track record.

The high quality has kept the stock from going to bargain levels even during bad times. The absolute low in March 2009, came with the shares at almost 21x that year’s final EPS. The two other best times to buy since 2007 occurred when the forward P/E was around 26-27x.

At last week’s close of $46.15 Fastenal was back to a relatively cheap multiple and yielding a fairly generous 2.17%. The stock opened slightly lower this morning making its valuation a bit more attractive.

Market Shadows’ Virtual Put Writing Portfolio sold 2 each of the Jan. 2016, $40 and $45 puts at prices of 4$3.40 and $5.60 respectively. That drops our break-even prices to $39.40 and $36.60, levels that haven’t been seen since 2012.

Consensus views for calendar year 2015 earnings now center on $1.96 per share. If all goes as expected the ‘if put’ prices represent only 18.7 and 20.1x the EPS that will be in effect by the Jan. 2016, expiration date.
That would be better value than was available at the exact low in 2009.