EOT Trade Alert – 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.
Chart:
Category: EOT Trade Alert
