EOT Trade Alert – January 20, 2009

| January 20, 2009

January 20, 2009

Trade Alert:

    Buy EMC April 2009 $11 CALLS at $1.25 or better (EMCDM)

Company Background:

EMC is one of the largest technology companies in the world.  They help businesses of all sizes manage their technology infrastructure.  Their systems allow businesses to store and manage massive amounts of data.  The company has more than 40,000 employees worldwide.

Short-Term Catalyst:

The key to EMC’s business is their ability to help other organizations store and use information more efficiently.  And that makes them very valuable to other businesses. EMC helps other businesses optimize their data.  As a result these companies are able to cut costs and become more profitable.

Basically EMC helps companies be more efficient (and profitable)… and that’s a good thing in a recession.

The company has an extensive history of beating their earnings estimates.  In the last 4 quarters the company hit estimates once, and beat estimates 3 times.  Not bad for a tough environment.  I don’t think it’ll be any different at their next earnings announcement.  I’m expecting them to have some positive earnings.  EMC is scheduled to announce earnings on the 27th of January.

That alone is enough to take a position on this trade.  But I have more.

In the last 5 years, EMC’s been able to grow their revenues by double-digits in each of the last 21 quarters!  Right now the business is sitting on over $5 billion dollars in cash.  Now despite these great numbers management is working hard to continually improve.

Just a few days ago the company announced a restructuring to reduce headcount by 2,400 people.  The market loved the news and the stock moved higher.  I’m expecting more commentary from the management on how they are making the business even more efficient.  This should help push the stock to new highs.

On a technical basis, the stock appears to have put in a bottom in late November.  Just a few days ago we had the 5- and 20-day moving average cross to the upside. Also, the 50-day moving average is in an uptrend.  The stock is also trading above the 50-day moving average.  All of this points to a higher stock price.

Trade Details:

Option Ticker Symbol: EMCDM
Underlying Stock Symbol: EMC
Current Bid-Ask Price: $1.05 – $1.08
Option “Buy Up To” Price: $1.25
Break-Even On Stock At Expiration: $12.25
Maximum Risk Per Contract: $125

Exit Strategy:

EMC is trading at $10.80 per share.  Resistance levels will be at $13.00 and again at $14.25.  Support levels will be at $9.50 and $8.50.  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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