EOT Position Update – August 26, 2009
August 26, 2009
Market Snapshot
Is manufacturing the key to the US economic recovery?
As unlikely as it sounds, the number of US manufacturing jobs is about to start growing. Yes. Growing! The days of shipping manufacturing jobs overseas by the boatloads (sorry, I couldn’t help myself) are over.
You see, the “Great Recession” has exposed the true cost of a worldwide supply chain. And manufacturers are taking note.
It’s basically a logistics problem.
Factories are halfway around the world from the customers. It takes time to get the product from point A to point B. When demand for a product goes up, there’s not enough time to build and deliver new products from A to B to meet the demand.
Not having enough product to meet demand results in missed sales. And, missed sales equal a failed business. In order to bridge the gap, manufacturers and wholesalers amass huge amounts of inventory. That way, when demand for a product picks up, they can meet it with inventory warehoused near their customer.
Inventory isn’t a problem when the economy is growing. But when a recession hits, inventories become a liability.
One way to fix the problem is by moving the manufacturing base closer to the consumer. And that means more US manufacturing jobs.
Don’t believe us? It’s already starting to happen.
Farouk Systems is a privately owned manufacturing company specializing in hair care products. Their flagship product is a flat iron called the Chi. (We had no idea what it was at first either.)
They’re winding down production in China and opening up a facility in Texas.
I think we’ll hear more and more stories like this as we emerge from the recession. Don’t be surprised if a revival in manufacturing is a key component of recovery.
Now for the updates…
Position Updates
Just a quick note: Remember, we won’t update every open position every week. I try to focus on the positions that have some significant news or price movement.
UEPS Oct 2009 $17.50 CALLS (QBSJW)
Net1 jumped out of the gates. It cruised through our first resistance level in short order. Congratulations to everyone locking in a 79% gain in just three days!
The stock and our options have pulled back a little. But that should change quickly after tomorrow’s earnings report. We think they’ll beat analysts’ estimates.
Earlier this year, UEPS bought another business. And this quarter’s the strongest for the new segment. It should provide the upside surprise. Aggressive investors should hold out for a bigger gain. Resistance is at $18.50 and $20.25. Support is at $13.50 and $12.
GT Jan 2010 $20 CALLS (GTAD)
Goodyear is all about the future. When expectations of economic recovery are running hot, their stock is up. When expectations cool off, their stock does too. The bottom line is, the ‘Cash-for-Clunkers’ program was a huge success. Car dealers are placing new orders to replace their depleted inventories. And they’ll have to put tires on all of those cars somehow. Goodyear should see a big boost in sales as new car production picks up. Hold tight for now. Resistance is at $22 and $25. Support is at $14 and $12.
MRO Oct 2009 $35 CALLS (MROJG)
Today the EIA reported crude stocks rose by 200,000 barrels last week. And not surprisingly, oil prices are down today. This story seems to change from week to week. In order for oil to push past technical resistance at $75, inventory levels need to start declining. If it doesn’t happen soon, we may have to cut and run. Hold tight for now. Resistance is at $35 and $40. Support is at $26 and $25.25.
PEGA Dec 2009 $25 CALLS (PQMLE)
Pegasystems is doing what it does best… setting new highs. It’s surged past $33 per share for a gain of 287%! Only the most aggressive traders should still be holding this option.
Category: EOT Update
