EOT Trade Alert – April 28, 2009

| April 28, 2009

April 28, 2009

Trade Alert:

   Buy LZ June 2009 $45 Calls at $2.25 or better (LZFI)

Company Background:

Lubrizol (LZ) is a specialty chemical company.  They produce various technologies used in transportation, industrial, and consumer markets.  The company operates in two business segments; additives and advanced materials.

Short-Term Catalyst:

The basic materials sector has been on a roll lately.  And chemical producers are no exception.

Just last week Lubrizol’s biggest competitor, Newmarkets (NEU), beat earnings estimates.  Their fuel additives profit skyrocketed 33% on stable market demand and lower raw material costs.

And as we’ve seen time and time again, when one company in an industry beats estimates… others usually follow.

I’m expecting these two market factors to spill over and boost Lubrizol’s profits as well.

Last week they sent out earnings guidance.  They’re forecasting earnings of around $0.95 per share.  If they beat this estimate on April 30th, the stock price should jump higher.

The stock price is also looking good on a technical basis.

Right now the path of least resistance is higher.  It’s in a short term uptrend since its March 3rd lows, as well as recently breaking out to fresh year-to-date highs.  Plus, it is trading above the 20-, 50-, and 200-day moving averages which are all in an uptrend.

Trade Details:

Option Ticker Symbol: LZFI
Underlying Stock Symbol: LZ
Current Bid-Ask Price: $1.45-$1.95
Option “Buy Up To” Price: $2.25
Break-Even On Stock At Expiration: $47.25
Maximum Risk Per Contract: $225

Exit Strategy:

LZ is trading at $41.95 per share.  Resistance levels will be at $45 and again at $50. Remember, we want this stock to move higher.  Support levels will be at $37.50 and $32.75.  Conservative investors should look to exit at the first support or resistance level.  Aggressive investors may want to hold for a bigger move.



Category: EOT Trade Alert

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