Buy Calls In Steady Medtronic

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Looking ahead to next week, the earnings calendar continues to thin out. But there are still a few potential plays of note for options trading investors. One we like is Medtronic (NYSE: MDT), the maker of various medical devices. MDT is scheduled to report on Tuesday, May 24, before the bell. 

Analysts expect a modest 3% gain in per-share earnings from a year ago, which is in line with what the company has achieved for the past several quarters. Analysts haven’t been too far off the mark. The largest deviation in the past nine quarters was three cents, and MDT met or beat in each of those reports.

On the chart, MDT hit an annual high after bouncing off the support of its 20-day moving average. From a longer-term perspective, the stock is sitting atop its 50-month moving average, a trend line it last closed a month above in August 2008. The next overhead obstacle is the 2010 highs in the 46-47 region, a move of about 8% from Wednesday’s closing price.

Our sentiment review shows some skepticism, especially among the shorts and analysts. Short interest has spiked to a multi-year high, which could lead to a short-squeeze. And just 41% of covering analysts rate MDT a “buy,” which is hardly consistent with a stock hitting a 52-week high.

We don’t expect earnings to blow the stock up or down by a huge amount next Tuesday. We see the company showing steady growth pretty much in line with expectations that shouldn’t get in the way of the current uptrend. With plenty of pessimism available to unwind into buying pressure, look for MDT to at least reach its 2010 highs within the next month. Buy the MDT June 43 Call for $1.50 or less.

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Article printed from InvestorPlace Media, https://investorplace.com/2011/05/buy-calls-in-steady-medtronic-mdt/.

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