EOT Trade Alert – November 11, 2009

Corey Williams | November 11, 2009

November 11, 2009

Trade Alert:

Buy VIT Feb 2010 $17.50 Calls at $2.80 or better (VITBW)

Company Background:

VanceInfo Technologies (VIT) is a Chinese IT service provider and offshore software development company. They primarily work with major US corporations on R&D projects.

Short-Term Catalyst:

VIT works closely with its partners to develop software to meet their specific organizational needs.

Their two biggest customers are IBM (IBM) and Microsoft (MSFT). And they recently announced the opening of a new Offshore Development Center (ODC) with Expedia(EXPE).

I know outsourcing isn’t a popular topic in the states. Seeing American jobs get shipped overseas doesn’t sit well with me. But for executives at multinational corporations trying to improve the bottom line, it’s a very attractive solution.

VIT is fast becoming one of the top software outsourcing companies in the world. Delivering high quality products and services cheaper than comparable workers in developed countries is their specialty.

They’re capitalizing on the availability of cheap Chinese labor, specifically engineers and programmers trained in rural China who will work for less money than even their urban dwelling ‘city cousins’.

Now as the economy recovers, many multinational companies are ramping up R&D spending. You can bet they’ll be outsourcing many of these projects to companies like VIT. I wouldn’t be surprised to learn about more partnerships like the one with Expedia soon.

And, VIT is in great shape financially too.

They’re growing revenue at a clip of 48% and EPS at better than 65% over the last twelve months. And they’re doing it all with no debt and high profit margins.

Already this year, the stock has had an impressive run from under $5 per share to over $17. But amazingly, the PE and PEG ratios indicate the stock is still undervalued compared to the industry.

On a technical level, the charts look very promising. The stock has set a series of higher highs and higher lows since the stock took off in March. The recent pullback is providing a great entry point.

Trade Details:

Option Ticker Symbol:	VITBW
Underlying Stock Symbol:	VIT
Current Bid-Ask Price:	$2.25 – $2.55
Option “Buy Up To” Price:	$2.80
Break-Even On Stock At Expiration:	$20.30
Maximum Risk Per Contract:	$280

Exit Strategy:

VIT is trading at $17.49 per share. Resistance levels will be at $21 and again at $22.50. Remember, we want this stock to move higher. Support levels will be at $14.50 and $12.65. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

Chart: