EOT Trade Alert – May 14, 2010

| May 14, 2010

May 14, 2010

Trade Alert:

   Buy ASIA Oct 16 2010 $30 Calls at $1.70 or better

Company Background:

AsiaInfo Holdings (ASIA) is a Chinese software and programming company.  They provide IT solutions to the Chinese telecom companies.

Short-Term Catalyst:

ASIA is a Chinese growth stock.  And like any good growth stock, the company is growing revenue and earnings at an impressive pace.

They reported Q1 earnings a few weeks ago.  Their earnings jumped 113% from Q1 last year.  And management expects their strong earnings growth to continue.

It looks like ASIA is being mis-valued by the market.  ASIA sports a forward PE of just 16.9x and a PEG of only 0.68.  A PEG under 1 is a sign ASIA could really move as the rest of the market catches up.

Despite the strong earnings and low valuation, ASIA has taken a beating lately.  The European debt crisis, a mini-crash in US stock markets, and Chinese efforts to cool their growth rate have all contributed to its fall.

But I don’t see anything that justifies a 30% drop in their stock price.

ASIA is oversold at current levels and due for a bounce.  It’s already started moving higher on heavy volume today.  And it’s doing it on a day when most stocks are down.

Clearly there were plenty of buyers waiting to scoop up shares of ASIA on dip.

One analyst covering ASIA reaffirmed their buy rating with a $38 price target today.

It all adds up to a great buying opportunity.

Trade Details:

Underlying Stock Symbol: ASIA
Current Bid-Ask Price: $1.20 – $1.55
Option “Buy Up To” Price: $1.70
Break-Even On Stock At Expiration: $31.70
Maximum Risk Per Contract: $170

Exit Strategy:

ASIA is trading at $23.04 per share.  Resistance levels will be at $29.50 and again at $32.  Remember, we want this stock to move higher.  Support levels will be at $18 and $16.  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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