EOT Trade Alert – August 31, 2009

| August 31, 2009

August 31, 2009

Trade Alert:

   Buy MMM Jan 2010 $75 Calls at $3.20 or better (MMMAO)

Company Background:

3M (MMM) is a giant global conglomerate.  They manufacture products used by consumers, offices, and industrial applications.  They’re a titan of the industry.  They’re ability to develop, manufacture, and market a product is virtually unmatched.

Short-Term Catalyst:

3M’s commitment to R&D and operational efficiency is paying off big.

In fact, they’ve been able to rebound from the global recession much faster than anticipated.  They blew away analysts’ Q2 earnings estimates.  And things should only get better from here.

I see three big reasons 3M’s stock should move higher.

First off, inventory restocking should boost Q3 sales.

It’s no secret fear caused many wholesalers, retailers, and manufacturers using 3M components to cut orders more than necessary.  The result is a massive decline in inventories.  The restocking process should provide a nice bump to revenue and earnings.

Secondly, they’re aggressively expanding their presence in China.

Exposure to high growth economies is a key component of 3M’s growth plans.  The Chinese economy is one of the strongest in the world.  During the recession, their economy never stopped growing!  Demand from China will certainly help 3M grow the business.

And last but not least, a great technical picture.

3M’s in a strong upward trend.  The stock, 20-day moving average, and 50-day moving average all crossed to the upside over the 200-day moving average in June. The bullish crossover set the stage for a big rally in July.

Since then, it’s traded relatively flat.  This has allowed the 20-day moving average to catch up with the price.  As we’ve seen time and time again with stocks in a strong trend… the 20-day moving average can act like a springboard shooting the stock to new highs.  We should see the same thing with 3M.

Trade Details:

Option Ticker Symbol: MMMAO
Underlying Stock Symbol: MMM
Current Bid-Ask Price: $2.95 – $3.10
Option “Buy Up To” Price: $3.20
Break-Even On Stock At Expiration: $78.20
Maximum Risk Per Contract: $320

Exit Strategy:

MMM is trading at $71.39 per share.  Resistance levels will be at $75 and again at $80.  Remember, we want this stock to move higher.  Support levels will be at $65 and $60.  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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