EOT Trade Alert – July 13, 2011

| July 13, 2011

July 13, 2011

Trade Alert:

   Buy BK January 2012 $27 Calls at $1.40 or better

Company Background:

The Bank of New York Mellon (BK) is a financial services company in the Asset Management & Custody Bank industry.  They specialize in institutional services, private banking, and asset management.

Short-Term Catalyst:

There’s not a nice way to say it… Bank of New York Mellon has had a rough year.

BK has steadily fallen from $32.50 in January to the recent low of nearly $24.  That’s a 26% haircut over the last six months.

What’s behind their weak performance?

Simply put, they haven’t lived up to analysts’ expectations.

Over the last year, analysts have slashed their earnings estimates by 10%.  Yet, BK still missed first quarter estimates by 10%.  That’s never good…

Here’s the silver lining…

Analysts have gone too far.  They’ve slashed BK’s earnings estimates too much.  It’s set the stage for BK to deliver better than expected earnings.  And when BK beats estimates, I’m expecting it to fuel a huge comeback rally in the second half of the year…

What’s more, BK is trading at a big discount to other companies in the industry.  Their current PE is 12.5x while their peers are averaging 16.9x.  And the price to book is at 0.99, well below the industry average of 1.7.

But that’s not all… BK’s chart looks great too.

Over the last few years, buyers have stepped in anytime the stock dips below $25. This level is a solid technical support level.  And like we’ve seen time and time again, when BK recently dipped below $25, buyers stepped in to pick up shares at bargain basement prices.

This looks like the early stages of a reversal that will spark a rally in BK.  Let’s grab call options on BK now to profit from BK’s comeback in the second half.

Trade Details:

Underlying Stock Symbol: BK
Current Bid-Ask Price: $1.26 – $1.30
Option “Buy Up To” Price: $1.40
Break-Even On Stock At Expiration: $28.40
Maximum Risk Per Contract: $140

Exit Strategy:

BK is trading at $25.46 per share.  Resistance levels will be at $28.50 and again at $30.50.  Remember, we want this stock to move higher.  Support levels will be at $24 and $23.  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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