EOT Trade Alert – July 27, 2011

| July 27, 2011

July 27, 2011

Trade Alert:

   Buy SQM January 2012 $70 Calls at $3.70 or better

Company Background:

Sociedad Quimica y Minera de Chile (SQM) produces fertilizers and specialty chemicals in Chile.  They specialize in specialty plant nutrition (nitrogen), iodine, lithium, potassium (potash), and industrial chemicals.

Short-Term Catalyst:

SQM is a red hot momentum stock…

The stock is up more than 30% since mid-March.  And there’s still plenty of upside for this fast growing chemical company.

The key to SQM’s success is their exclusive access to huge natural resources in the central region of Chile.  The Atacama Salt Desert is home to the biggest iodine and nitrate natural reserves in the world.  And this area has the highest lithium and potassium concentrations ever recorded.

As a result, SQM is able to produce better products at a lower cost than the competition!  And that’s the biggest competitive advantage a natural resource company can ask for.

But their success wouldn’t be possible without the leadership to grow and develop these resources.  SQM’s management team has done a great job of delivering profitable growth.  It’s no small feat becoming the world’s largest producer of specialty plant nutrition, iodine, and lithium products…

And they’re not content to rest on their laurels.  Management continues to expand and grow the company.  In fact, they’ve increased production of potassium (potash).  An achievement that’s ushering in a new era in profitability.

As a result, SQM is delivering impressive revenue and earnings growth.  More importantly, the growth is being fueled by all five business areas.

Just take a look at these numbers…

In the last year, revenue from their specialty plant nutrition division was up 33%… Iodine revenues surged 49%… Lithium revenues jumped 25%… Potassium revenues were stable (and are in the midst of a major expansion)… And industrial chemicals popped 25% higher…

What’s more, margins are increasing.  Last quarter margins expanded to 39% from 34% in the year ago quarter.  Clearly, SQM is a well run business.

The bottom line is SQM’s high quality natural resources give them a huge competitive advantage.  And management is taking all the right steps to drive shareholder value.

Let’s grab call options on this red hot momentum stock now as it surges to new heights.

Trade Details:

Underlying Stock Symbol: SQM
Current Bid-Ask Price: $3.00 – $3.40
Option “Buy Up To” Price: $3.70
Break-Even On Stock At Expiration: $73.70
Maximum Risk Per Contract: $370

Exit Strategy:

SQM is trading at $64.45 per share.  Resistance levels will be at $70 and again at $80. Remember, we want this stock to move higher.  Support levels will be at $62 and $56. 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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