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Posts Tagged ‘HAR’

Deep OTM NP Strategy – OCT Week 2

Posted by mounddweller on October 8, 2011

Fellow Traders,

This week we have 15 selections which meet our Week 2 criteria (>12.5% DSP, >2.0 PF).  Of these I have selected 3 for your further consideration.

The first thing you’ll notice is that none of these are household names.  However, this is not unusual this late in our monthly expiration cycle.  Since we do not reconsider stocks that have already appeared on our list earlier in the month it is to be expected that later in the month we will have smaller, lesser known companies from which to choose.

Given my penchant for conservative picks some of you might find my selections this week to be a little out of character.  And you would be partially correct.  These selections do not fit my normal ‘modus operandi’.  However, they are also not wildly speculative either.  I have selected them with the following criteria in mind:

(1) strong technical support at or above the strike price

(2) reasonable debt levels relative to cash on hand

(3) profitable with a low P/E ratio

(4) DSP well above our minimum 12.5% selection criteria.

So, with those things in mind let’s look at each of my 3 selections.  First up is Flextronics (FLEX).  Flextronics International Ltd. provides design and electronics manufacturing services to original equipment manufacturers. The company offers its services to a range of products in the infrastructure, mobile communication devices, computing, consumer digital devices, industrial, semiconductor capital equipment, clean technology, aerospace and defense, white goods, automotive and marine, and medical devices markets.   It was founded in 1990 and is headquartered in Singapore.

FLEX has support at the chosen $5 strike price.  It bounced off this price back in August, hitting a 52-wk low of $5.05.  It has about $650 million in debt net of cash.  This is a little high but FLEX has good free cash flow so it is manageable.  FLEX trades at less than 8x trailing earnings and 6x estimated earnings.  The $5 strike offers 1.2% ROIC with 18.62% DSP.

Next up is Harman International (HAR).  Harman International Industries, Incorporated engages in the development, manufacture, and marketing of audio products and electronic systems primarily in the United States, Germany, and other parts of Europe.  It was founded in 1980 and is headquartered in Stamford, Connecticut.

HAR has support at the chosen $25 strike price.  It bounced near this price back earlier this week, hitting a 52-wk low of $25.53.  It has about $539 million in net cash.  This equates to $7.71 in cash per share.  HAR trades at 16x trailing earnings and 8.55x estimated earnings.  The $25 strike offers 1.0% ROIC with 18.69% DSP.

Last up is Allegiant Travel (ALGT).  Allegiant Travel Company, through its subsidiaries, operates as a leisure travel company in the United States. It focuses on transporting travelers in small cities to leisure destinations, Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg, Los Angeles, and Ft. Lauderdale in the continental United States.   It is headquartered in Las Vegas, NV.

ALGT has support at the chosen $40 strike price.  While this is above the 52-wk low of $38.12 is has recently found support multiple times at or above the $40 strike price.  It has about $175 million in net cash.  This equates to $9.18 in cash per share.  ALGT trades at 16.65x trailing earnings and 12.61x estimated earnings.  The $40 strike offers .83% ROIC with 16.14% DSP.

Well, that’s it for this week.  Best of luck trading in the coming week.

Regards,

Troy

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VISIONS Screen – 8/21

Posted by mounddweller on August 22, 2010

All,

I ran a VISIONS Scout screen this weekend after AUG expiration Friday.  Below are some highlights from what I found for specific stocks that looked particularly interesting to me.  However, before we jump into those I’ll tell you a little bit about the overall results of the scan.

The scan returned 32 stocks that met all of Ron’s “Level 4” criteria.  Of these 11 are what I’d call ‘investment grade’, i.e., they have a Gold$ greater than or equal to 80.  4 of the 11 have a perfect Gold$ score of 100.  The 11 ‘investment grade’ stocks are (Gold$):  PWRD (100), GHL (100), HAR (100), GAME (100), NVDA (82), SNDA (80), AMTD (80), SF(80), ADBE (80), WAG (80), and GPN (80).

Here are some details of the four stocks that have perfect Gold$ scores as well as one or two others that intrique me.

PWRD – Perfect World is a Chinese online gaming company.  They sell and manage several of the largest and most popular online role-playing games in China.  They have a market cap. of $1.25B.  They have no debt and over $250M in cash on their balance sheet (over $5/share).  Their P/E ratio is 8.5!  As one would expect with a software company they earn incredibly high returns on assets and on equity. 

The stock is currently trading near the lower leg of the VISION V.  Like all VISION selections it has fallen, hit bottom, and is now in recovery mode.  It hit a 52-wk high of $49.08 back in November of 2009.  It then fell hitting its 52-wk low of $20.79 in June.  Since then it has recovered, closing Friday at $24.99.  The SEP CCs at the $24, $25, and $26 strike price all look good.  The best choice of course is dependent on your guess as to the future direction of the market and your risk profile.

GHL – Greenhill & Company is an independent investment bank.  It has a market cap. of $2.13B.  They seem a little pricey having a P/E ratio of 33.  However, they have excellent operating margins.  They have around $33M in cash but over $55M in debt.  The stock hit a 52-wk high of $93.90 back in October before falling to around $61 in June.  It closed Friday at $72.20. 

I would pass on this one for a number of reasons.  First, I like to trade stocks that are less than $50.  Second, it has a very high P/E which in this shaky market means it could fall alot further before folks began to see it as a bargain and starting buying.  Third, while the amounts are modest, it does have more debt than cash on its books.  In this market and economy I’d rather stick with stocks that have zero net debt.

HAR – Harmen International Industries is a manufacturer of stereo equipment under various brand names including the famous Mark Levinson brand stereos found in Lexus automobiles.  It has a market cap. of $2.14B and a reasonable P/E of 13.65.  As one might expect in a highly competitive industry Harmen has thin margins and low rates of return on assets and equity.  However, they do have more cash than debt on their balance sheet and generate good free cashflow.

The stock peaked at $52.51 in April.  Its 52-wk low is $27.10 which it hit almost a year ago in August 2009.  It closed Friday at $30.71.   The SEP $30 call looks interesting at $1.75 bid.

GAME – Shanda Games Limited, like Perfect World is another Chinese online gaming company.  It has a market cap. of $2.02B and a P/E of 9.16.  Also like Perfect World, GAME has excellent operating margins and earns high rates of return on both assets and equity.  It has over $420M in cash vs. only around $2M in debt.

I like everything about Shanda except the stock price.  It is less than $10, having closed on Friday at $7.02.  Thus, when trading options you have little room to maneuver.  Worse yet, the Shanda options trade in increments of $2.50.  For these reasons I would pass on trading GAME.

That wraps up my discussion on the four top-rated VISION picks.  However, a couple of others further down the list of 11 caught my eye.  They are ADBE and WAG.

ADBE – Adobe Systems is one of the most recognized names on the planet in computer software.  It makes the ubiquitous Adobe Acrobat and pioneered the PDF document.  It has a market cap. of $14.66B and a relatively high P/E of  39.21.  However, it has a forward P/E of only 13.  It has good but not exceptional margins and about $1.15B in net cash.   It is trading at the lower leg of the VISION V having hit a 52-wk high of $37.86 last December and bottoming out in July at $26.34.  Friday it closed at $27.92.  The SEP $28 call at $0.88 looks interesting to me.  Ron prefers the OCT $28 or $29 strikes.  In this kind of market I prefer to stick with the near month.

WAG – Walgreens is a drugstore retailer.  It has a market cap. of  $27.69B and a reasonable P/E of 13.70.  Like most all retailers it has thin operating margins.  However, it does earn respectable returns on its assets and equity.  Its cash and debt are almost exactly equal and it generates strong cash flow.  The reason I’m interested in Walgreens is because I think it is a blue chip company with a solid dividend.  This is a company I wouldn’t mind owning for a good long time and now is a good time to establish a position.  It pays a small but growing dividend of $0.70/share.

Since hitting a 52-wk high of $39.66 in October it had fallen to a 52-wk low of $26.20 in July.  On Friday it closed at $28.45.  You could enter a position in WAG in several different ways.  You could do a buy/write and sell the JAN $30 or $31 strike.  This would allow you to make some capital gains and collect at least one dividend before facing the possibility of being called away in January.  Or, you could sell near-month put at either $27 or $28 and hope to be assigned on a pull back.

Hope you find all of this information interesting and useful.

Regards,

Troy

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