EOT Trade Alert – July 14, 2009

| July 14, 2009

July 14, 2009

Trade Alert:

   Buy PEGA December 2009 $25.00 Calls at $2.75 or better (PQMLE)

Company Background:

Pegasystems (PEGA) develops and licenses software to manage complex business processes.  Companies combine the business process management (BPM) software and the business rules engine (BRE) to automate decision making.

Short-Term Catalyst:

Pegasystems is growing by leaps and bounds.  In the last year, revenue is up 30% and EPS are up 95%.  And in the most recent quarter, EPS grew at 192%… Not too shabby in a horrible business environment.

This year, companies of all sizes have been conserving cash by cutting out capital expenditures (CAPEX).  But PEGA has been able to increase their sales and earnings in spite of the considerable headwinds.

It should get even better for PEGA over the next few months.  CAPEX should begin to pick up over the 2nd half of 2009 as the economy starts to grow.  And one of the areas sure to see lots of investment dollars is productivity improvement.  Which is exactly what PEGA delivers.

The thing that caught my eye was their valuation.  A company with a big growth rate like PEGA should be worth a lot more than it is now.

The stock price has already had a nice run up this year.  But thanks to a pullback, these call options look under-valued to me.

Let’s take advantage of this dip to snap up these options.

Trade Details:

Option Ticker Symbol: PQMLE
Underlying Stock Symbol: PEGA
Current Bid-Ask Price: $2.00 – $2.65
Option “Buy Up To” Price: $2.75
Break-Even On Stock At Expiration: $27.75
Maximum Risk Per Contract: $275

Exit Strategy:

PEGA is trading at $23.15 per share.  Resistance levels will be at $27.50 and again at $30.  Remember, we want this stock to move higher.  Support levels will be at $20 and $17.50.  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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