Double Your Money Every Week in 2010
- Love is in the air … and in TV commercials, and in the candy aisle of the grocery store, and in every shop, and just about anywhere else you turn. Must be Valentine’s Day. Whether you love or loathe this sappiest of commercial holidays, there’s one thing we know you love — making money.So we’re bringing you nine option trades we think you’ll adore. Some of them have been inspired by Valentine’s Day, while others are simply on this list because we’re in love with the trade. Either way, we think you’ll be tickled pink with the profits you’ll see.
Double Your Money Every Week in 2010
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#1 Tiffany & Co. (TIF)
By Michael Shulman
Tiffany & Co. (TIF) is synonymous with an expensive display of life-long love — the diamond engagement ring.
The company is well-managed, has a diversified product line, and due to its heavy use of precious metals, actually can increase margins in a down consumer market when the cost of their materials goes up. I have tried shorting TIF in the past with limited success, because it is also a cult stock.
After a mild sell-off, TIF is trading at a major technical support level. The company reports earnings in March, so look purchasing some TIF call options before then.
Double Your Money Every Week in 2010
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#2 Arch Coal (ACI)
By Chris Johnson and Jon Lewis
Speaking of diamonds, we wouldn’t have any if it wasn’t for coal. But last year, was not a good year for the coal industry, or for Arch Coal (ACI), the nation’s second-largest coal producer. Revenue fell 13% from 2008, while income was a whopping 88% less than the year before. Nothing like a lagging economy along with pricing and inventory problems to knock the stuffing out of earnings. However, prospects are looking up for the sector. In fact, ACI was just upgraded based on favorable supply and demand forces.
But we like ACI for more than just the fundamentals. The stock is enjoying major support from its 200-day moving average around the $20 level. We’re also seeing heavy put open interest at the 20 strike, which should add support. In addition, sentiment toward ACI is quite bearish, meaning that the market expects little from the company. High short interest, low analyst ratings, and a high put/call ratio all show a great deal of pessimism directed toward the stock, so any strength will likely unwind some of this negativity into buying pressure.
We’re not saying when this strength will show up, but we’re confident it will happen sometime in 2010. Buying ACI January 2011 calls should allow plenty of time for a strong upside move to play out.
Double Your Money Every Week in 2010
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#3 Barrick Gold Corp. (ABX)
By Sam Collins
Diamonds may be a girl’s best friend, but gold is a close second. So instead of shelling out big bucks for diamonds, why not give your Valentine some Barrick Gold (ABX) July 35 Calls for around $5?
This acquirer, explorer and developer of gold, copper, silver and zinc, has pulled back from an annual high and may have double-bottomed at just under $35. After hitting a 52-week high just above $48 in December, ABX fell to just below its 200-day moving average.
Now at around $37, this correction gives us another opportunity to trade Barrick for at least 3 points to $40, but the calls will give you added leverage. Longer-term investors may want to hold onto this premier gold miner for another major move up in the price of gold bullion.
Double Your Money Every Week in 2010
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#4 Exxon Mobil Corp. (XOM)
By Nick Atkeson and Andrew Houghton
We’re in love with Exxon Mobil Corp. (XOM) because it is the best in class in a sector where demand should only accelerate as the world economies continue to grow. Although XOM is not the most glamorous stock, there are few times when it is possible to buy it with a reasonable chance to capture significant, double-digit returns, and we think now is one of them. Additionally, it is the type of stock that investors are attracted to if there is continued market weakness and a flight to quality.
Since Nov. 25, XOM has declined about 16% from a high of just over $76 to a recent low of about $64. XOM pays a 2.58% dividend and is expected to earn $5.80 this year and $7.36 next year. On next year’s earnings estimate, you can own XOM today for less than a 9 price-to-earnings multiple. If XOM holds it current multiple on 2010 earnings into next year, the stock should trade above $82 per share.
We think XOM LEAPs may be your best bet.
Find out how to Use LEAPS to Avoid Value Traps.
Double Your Money Every Week in 2010
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#5 Qualcomm (QCOM)
By Nick Atkeson and Andrew Houghton
Another stock we love to trade is Qualcomm (QCOM). The world is going wireless and it needs Qualcomm’s high-speed digital wireless communications products to make the wireless experience faster, better and cheaper.
On Jan. 27, the company reported earnings and noted that product mix (i.e., a shift toward lower-end smartphones) and increased competition are putting pressure on their revenue outlook. From a recent high of almost $50 per share, the stock has lost about one-quarter of its value. QCOM is expected to earn $2.21 in fiscal year 2010 (ending in September) and $2.47 in fiscal year 2011. On the 2011 estimate, QCOM is trading at about a 15 p/e.
While the price is low and the uncertainty about the future is high, you may want to consider your options with regard to this stock. Implied volatility is trading 37% below historic volatility for the equivalent period. In plain English, QCOM options appear to be inexpensive. And, as we have just witnessed, QCOM is the kind of stock than can make big moves.
Double Your Money Every Week in 2010
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#6 Veeco Instruments (VECO)
By John Lansing
Love hurts sometimes, right? So if that’s the boat you find yourself in this Valentine’s Day, I’d like to help ease your pain by putting some cash in your pockets. And to do that, I’d like you to consider a trade in Veeco Instruments (VECO) that will practically pay for itself.
Lately tech stocks have been falling off a cliff shortly after reporting earnings, no matter how great the numbers. VECO reported fantastic earnings Feb 8, and the stock has since traded up to the $34-$35 level, but I think it will behave like many other stocks in its sector and head back down in the near future. Keep in mind that VECO was a $4 stock in 2009, so if it does a retracement to the teens to fill that huge gap, you can make out like a bandit with the right trade.
VECO calls are overpriced here, so I recommend that you “sell to open” short-term VECO calls and, using the premium collected from that sale, buy medium-term VECO puts. The strike prices can be the same if you choose, but make sure you keep a couple months between the trade’s expirations. And, as always, use a tight stop.
Double Your Money Every Week in 2010
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Next: #7 Kraft Foods (KFT)
By Sam Collins
If you’re planning to romance your love with chocolates from Cadbury PLC (CBY), you might want to give them a few Kraft Foods (KFT) June 28 Calls while you’re at it, which are trading at about $2.
Kraft Foods, together with its subsidiaries, manufactures and markets packaged food and grocery products worldwide. But recently Kraft bought Cadbury, one of the great names in chocolate. That acquisition is considered by many to add stability to Kraft. In addition to being recommended as a high-quality stock with a 4%-plus dividend, your love could double the value of the calls by May.
Double Your Money Every Week in 2010
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#8 Ford Motor (F)
By Chris Johnson and Jon Lewis
Everyone one deserves a second chance, right? Well, OK, not everyone, but Ford Motors (F) certainly does! It’s hard not to love one of the greatest success stories coming out of the recession. Without government assistance, the company bit the bullet and has emerged as a leading global automaker. The results have been dramatic. After a record loss of more than $14 billion in 2008, Ford logged a surprising profit of $2.7 billion in 2009. That’s a first in four years. What’s more, the company increased its market share in the United States for the first time since 1995.
And the company appears to be just hitting its stride. Deep cost cuts and layoffs have made it leaner and more efficient. New models touting fuel efficiency have been major hits with buyers, and now the Toyota crisis has played right into Ford’s hands. The company perceived as top in quality is now struggling to overcome a massive PR problem with faulty brakes and gas pedals and recalls. And Ford, which suffered for decades in Toyota’s shadow, is more than happy to strike where their rival is now most vulnerable — perceived lapses in quality.
Ford is on a roll, but this is not a short-term turnaround. Look out at least six months with a call option. In fact, F January 2011 calls are probably the safest play.
Double Your Money Every Week in 2010
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#9 Natus Medical Inc. (BABY)
By Michael Shulman
We started our Valentine’s Day trades off with a play on diamond rings, and from diamond rings, babies spring — or something like that. So, after the wine, the wooing, the marriage, the honeymoon, the first fight, the first makeup, then comes the first child. And a hospital equipped with some Natus Medical Inc. (BABY) equipment.
BABY is a small player in a big market — diagnostic equipment for infants. Hospitals and insurance companies are cutting back, trying to save money where they can, but not when it comes to baby care.
Profits have been growing at a 20% clip for a long time, enough that Natus just bought another outfit to expand its product line, which, in turn, led to a modest sell-off in the stock, creating an opportunity for us. BABY calls are very thinly traded, but worth a look.
Double Your Money Every Week in 2010
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