EOT Trade Alert – December 23, 2011
December 23, 2011
Trade Alert:
Buy CAT February $95 2012 Calls at $3.25 or better
Company Background:
Caterpillar (CAT) is the world’s largest manufacturer and distributor of a variety of construction equipment. Most of you know them for their distinctive yellow machines, but there’s certainly more to that story! Caterpillar’s main source of revenue comes from construction, mining, and track and wheel equipment.
Short-Term Catalyst:
Well everyone, the time we’ve been waiting for has finally arrived. A tumultuous 2011 is coming to an end.
One sector I believe is poised for a breakout in 2012 is the construction sector. And the best in class is Caterpillar.
Obviously, construction and farming have slowed a bit over the past few years. But that negative trend is coming to an end.
An improving global economy has already begun driving new growth in areas of the construction and farming industry. And I see this trend continuing into 2012.
At this point, it’s clear the housing market’s in the process of bottoming. As I write, a newly released report shows another tick down in housing supply.
Supply dropped 1.3% in November. And supply is down 23% for the year. This is great news for construction equipment maker Caterpillar.
You see, less supply spells more demand coming for new construction.
What’s more, farm income is up a whopping 28% this year. This is due to increased demand for all agricultural products across the board. Again, the company poised to profit from this trend is CAT!
No question about it, rising demand for construction and agricultural equipment in 2012 will drive huge increases in revenue and earnings at CAT.
The bottom line is…
Caterpillar holds a nearly 50% share of the global market. And they already have contracts in place for greater equipment volumes in 2012.
That’s what we love to see in a cyclical stock like CAT.
Let’s grab call options on CAT to profit from increasing demand globally for agricultural and construction equipment… and what’ll be a coming rally in Caterpillar. When the herd rushes back in, we’ll be sitting pretty.
Trade Details:
| Underlying Stock Symbol: | CAT |
| Current Bid-Ask Price: | $3.00 – $3.05 |
| Option “Buy Up To” Price: | $3.25 |
| Break-Even On Stock At Expiration: | $98.25 |
| Maximum Risk Per Contract: | $325 |
Exit Strategy:
CAT is trading at $91.95 per share. Resistance levels will be at $97 and again at $112. Don’t forget, we want this stock to move higher. Support levels will be at $88 and $80. 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
