EOT trade alert July 25, 2014

| July 31, 2014

July 25, 2014

Trade Alert:

Buy ADI September 19th 2014 $50.00 Calls at $1.85 or better

Company Background:

Analog Devices (ADI) designs, manufactures, and markets analog, mixed-signal, and digital signal processing integrated circuits (ICs) for use in industrial, automotive, consumer, and communication markets.  It’s part of the S&P 500 index and has a market cap of $16.1 billion.

Short-Term Catalyst:

Analog Devices announced it was seeking to acquire Hittite Microwave (HITT) on June 9th.  The $2 billion deal is expected to immediately add new revenue and earnings for ADI.

That’s typically a good thing… the problem is ADI’s management failed to tell investors just how big of a boost the acquisition would provide to revenue and earnings.  The uncertainty their vague forecast created has been weighing on ADI’s share price ever since.

The deal was completed on July 22nd in an all cash deal.  Since then, the stock has dropped 6%.  In fact, ADI is down 10.5% since reaching a 52-week high of $56.18 when the deal was first announced.

I think the selloff in ADI is overdone.  This is a very disciplined company that has done a good job of boosting margins by keeping expenses down.  Simply put, ADI wouldn’t do this deal if it’s bad for shareholders.

What’s more, the selloff sent the share price of ADI down to technical support.  The stock touched $50 today and has been moving higher since then.  I think we’ll see a snap-back rally in shares of ADI in the days and weeks ahead.

Let’s grab call options on ADI now to profit from the coming surge.

Trade Details:

Underlying Stock Symbol: ADI
Current Bid-Ask Price: $1.45 – $1.65
Option “Buy Up To” Price: $1.85
Break-Even On Stock At Expiration: $51.85
Maximum Risk Per Contract: $185


Exit Strategy:

ADI is trading at $50.24 per share.  Resistance levels will be at $53.00 and again at $55.00.  Remember, we want this stock to move higher.  Support levels will be at $48.00 and $47.00.  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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