EOT Trade Alert – August 19, 2009

Corey Williams | August 19, 2009

August 19, 2009

Trade Alert:

Buy UEPS Oct 2009 $17.50 Calls at $1.45 or better (QBSJW)

Company Background:

Net1 (UEPS) is a technology company. They provide smart cards on a global basis to individuals and businesses. It’s essentially a system to promote economic development by allowing the use of bank cards in remote areas without access to communication networks.

Short-Term Catalyst:

Right now there are a lot of good things going in Net1’s favor.

The first thing that jumps out at me is how undervalued this company is. They have a PE of only 9.55 and a PEG of 0.53. There earnings growth rate should easily support a PE of 15 or higher. That means a price of around $21.75.

But it gets even better. Analysts are increasing their earnings estimates. So not only are they undervalued at their current earnings estimates, but they are really undervalued if their earnings keep growing.

This should translate to a higher stock price soon. It may happen as soon as their Q4 earnings release which is on August 27.

This isn’t just an undervalued/earnings announcement play. This is a company with a solid business model. In fact, they are the first company to bring access to electronic payment processing for many developing countries. The growth potential is truly amazing.

On a technical level, the charts are looking good.

The stock price recently jumped higher by 40%. Since then, it’s been consolidating around $17 for the entire month of August. Now the 20-day moving average has caught up to the price. It’s shaping up to move higher from here.

Not only that, the option looks undervalued too.

Trade Details:

Option Ticker Symbol:	QBSJW
Underlying Stock Symbol:	UEPS
Current Bid-Ask Price:	$1.05 – $1.35
Option “Buy Up To” Price:	$1.45
Break-Even On Stock At Expiration:	$18.95
Maximum Risk Per Contract:	$145

Exit Strategy:

UEPS is trading at $17.21 per share. Resistance levels will be at $18.50 and again at $20.25. Remember, we want this stock to move higher. Support levels will be at $13.50 and $12. Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

Chart: