EOT Trade Alert – April 22, 2015
Trade Alert:
Buy CBT June 19th 2015 $45.00 calls at $2.25 or better
Company Background:
Cabot Corporation $CBT is a specialty chemicals and performance materials company.
Short-Term Catalyst:
CBT is undervalued at its current price of $45.74.
The company is coming off of a solid 2014 with 17% earnings growth and strong cash flow.
They’ve achieved this by expanding margins, growing into emerging markets, developing new business, and managing their portfolio of products.
In 2015, the company is targeting earnings growth in a range of 10% to 15%. Investors didn’t take kindly to the expected slowdown in earnings growth.
The stock fell from a 52-week high of $60.40 to below $40.00 in December. The selloff was overdone as investors turned overly bearish on the stock.
CBT has rebound 16% from the 52-week lows in the first quarter of 2015.
The stock has clearly broken out of the downtrend that plagued it in 2014. The stock has been forming a new base over the last several months. And it appears to be on the verge of a new uptrend.
The catalyst I see sparking the breakout is the fiscal 2nd quarter earnings report at the end of the month.
At this point, I believe all of the bad news from sluggish global economic growth and currency fluctuations is baked into the cake. Any indication that they see improving demand for their products should send the shares racing higher.
Buy call options on CBT ahead of their quarterly earnings to profit from the bullish reversal in this chemical stock.
Trade Details:
| Underlying Stock Symbol: | CBT |
| Current Bid-Ask Price: | $1.85 – $2.15 |
| Option “Buy Up To” Price: | $2.25 |
| Break-Even On Stock At Expiration: | $47.25 |
| Maximum Risk Per Contract: | $225 |
Exit Strategy:
CBT is trading at $45.74 per share. Resistance levels will be at $50.00 and again at $52.00. Remember, we want this stock to move higher. Support levels will be at $42.50 and $40.00. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.
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Category: EOT Trade Alert
