Buy Seagate Technology PLC (STX) Stock While It’s on Sale!

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The technology sector is on fire. The Technology Select Sector SPDR Fund (NYSEARCA:XLK) is up almost 30% in 12 months. Within it there have been some incredible rallies making good value stocks rare. Seagate Technology PLC (NASDAQ:STX) is down 5% this morning on a downgrade, presenting an entry opportunity for the mid-term.

Buy Seagate Technology PLC (STX) Stock While It's on Sale!

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Not all dips are equal. In this case, the fundamentals on STX are still attractive. Its price-earnings ratio is not bloated and it pays a decent dividend. Margins are slim but that’s not yet alarming.

Expectations from analysts are not overzealous either since most of them have it as a “hold,” which makes today’s downgrade a surprise.

We continue to become more dependent on technology than ever and the adoption rate is likely to stay exponential in nature. Meanwhile we don’t have influx of new suppliers to provide the infrastructure to make this possible. So in theory there should be room for the whole sector to thrive in the coming years.

Technically, Seagate stock failed around $40, which is a long-term pivot point. This is part of a correction that started in April on its last earnings report. Now it is likely to fall into the clutches of yet another and even longer term pivot point. Those usually are sticky. Meaning neither side will be willing to let them go without a fight. This could bring about stabilization.

I do have to recognize that earnings are coming soon and these are always a potential source for more fireworks. So my trade has to create room for error given the upcoming uncertainty. Catching knives is scary especially in a momentum sector. But thanks to options, I can do so with ample room for error.

Instead of buying the shares out right, and with no buffer, I prefer to sell risk below overblown fears for income. Especially when I can leave a hefty margin for safety.

The Bet: Sell STX stock $30 put and collect $1.40 to open. Here I have an 80% theoretical chance that I will keep the premium for maximum gains. Otherwise, I will have to own the shares and suffer losses below $28.6. This leaves me with a 21% buffer even after this correction.

For those who prefer more limited risk I can use spreads instead.

The Alternate Bet: Sell Dec STX stock $30/$29 credit put spread where I risk less, but stand about the same odds of winnings. If successful, here I can still yield 25%. on risk. This is a much more attractive scenario to me knowing I have room to breath, so I am not hoping for an immediate stabilization to this correction.

Investing is risky, otherwise there would be no reward. But I never risk more than I am willing to lose.

Learn how to generate income from options here. Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @racernic and stocktwits at @racernic.

Nicolas Chahine is the managing director of SellSpreads.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/07/buy-seagate-technology-plc-stx-stock-while-its-on-sale/.

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