EOT Trade Alert – January 19, 2011

| January 19, 2011

January 19, 2011

Trade Alert:

   Buy MCD June 2011 $80 Calls at $1.35 or better

Company Background:

McDonalds (MCD) doesn’t need much of an introduction.  The fast food restaurant operates more than 32,000 stores in 116 different countries.

Short-Term Catalyst:

Next week, before the markets open on Monday, McDonalds will report earnings for their 4th quarter of 2010.  Analysts are expecting earnings of $1.16 per share on $6.22 billion in revenue.

Right now the fundamentals and technical setup indicate we should get a nice pop in the stock after the report.

Just a few weeks ago investors we’re saying “I’m Lovin’ It” as they sent MCD to an all-time high of over $80 per share.  Since then, profit taking and a weaker than expected report on November same store sales slashed 10% off the stock price.

I think the reaction was way overblown.

The stock tested support of the 200-day moving average a few days ago.  Since then, it has begun moving higher in a hurry.

Now, by modestly beating earnings or even just meeting the consensus estimate, the stock could really take off.  And I think there’s a great chance they’ll deliver.

Remember, the MCD’s biggest catalyst is overseas earnings growth.  Growth in Asia/Pacific, the Middle East, and Africa was running at better than 8% last quarter.

McDonalds currently operates 1,200 stores in China with plans to open another 200 stores in the next three years.  Keep in mind, they began charging higher prices at their China stores just a few months ago.  And that could translate into higher revenue and earnings growth!

I think the China growth story will deliver the needed boost to send MCD’s stock back to their all-time high and beyond.

Let’s grab these call options now to profit from the rebound in MCD after they report earnings.

Trade Details:

Underlying Stock Symbol: MCD
Current Bid-Ask Price: $1.25 – $1.28
Option “Buy Up To” Price: $1.35
Break-Even On Stock At Expiration: $81.35
Maximum Risk Per Contract: $135

Exit Strategy:

MCD is trading at $75.18 per share.  Resistance levels will be at $80 and again at $85. Remember, we want this stock to move higher.  Support levels will be at $70 and $67.50.  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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