Don’t Knock on Wood this Earnings Season

by Ken Trester | October 26, 2012 2:04 pm

No doubt earnings season has chopped down stocks across a horde of sectors, from Microsoft (NASDAQ:MSFT[1]) and Xerox (NYSE:XRX[2]) to The New York Times Co. (NYSE:NYT[3]) to even Crocs (NASDAQ:CROX[4]) faster than you can say “timber.”

But don’t discount all sectors when it comes to earnings upside.

The forestry (lumber) space is enjoying some strength[5] on the back of the housing recovery. Forest products  (NYSE:WY[6]) released impressive earnings figures Friday, including earnings that leaped 83% from the year-ago period to 22 cents per share, which exceeded the Street’s expectations by 4 cents. The company also reported a 13% revenue increase to $1.77 billion, while boosting its dividend 13% to 17 cents.

I recommended some Power Options in the form of WY calls to my Maximum Options[7] subscribers to take advantage of the move a few weeks before the earnings announcement, but don’t worry — you haven’t wholly missed out on a lumber-sector opportunity.

My system still rates WY as a buy with a strong short-term and long-term outlook, but another lumber name flashing a buy signal is Louisiana-Pacific (NYSE:LPX[8]), which reports earnings Nov. 6. LPX has a solid short-, medium- and long-term outlook, and it’s ripe for establishing longer-term calls.

I recommend buying the LPX Jan 17 Call options at $1.05 or lower. After entry, take profits if the stock price hits $17.60, at which point the option price should be around $2, nearly doubling your money. Exit if the stock price closes below $14.80 or the call option’s price drops in value to 70.

A note that a competitor to both WY and LPX, Plum Creek Timber (NYSE:PCL[9]), reports earnings Oct. 29, so strong results from these three names could indicate we’ll see more strength in the housing sector going forward.

Ken Trester[10] is editor of the popular Maximum Options[11] program. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.

  1. MSFT:
  2. XRX:
  3. NYT:
  4. CROX:
  5. forestry (lumber) space is enjoying some strength:
  6. WY:
  7. Maximum Options:
  8. LPX:
  9. PCL:
  10. Ken Trester:
  11. Maximum Options:

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