EOT Trade Alert – November 24, 2010

| November 24, 2010

November 24, 2010

Trade Alert:

   Buy CNH June 2011 $55 Calls at $3.00 or better

Company Background:

CNH Global NV (CNH) is a global agricultural and construction equipment manufacturer.  Their farm products are marketed under the Case IH, New Holland and Steyr brand names.  And their construction products are marketed under the Case or New Holland brand names.

Short-Term Catalyst:

Have you noticed the agricultural Midwest is leading the US economic recovery?

To show you what I mean, just look at the unemployment rate in states like North Dakota at 3.7%, South Dakota at 4.4%, and Nebraska at 4.6%.  While the national jobless rate remains stuck near 9.6%…

It’s no coincidence these are also the three states with the largest share of GDP from agriculture: 10.9% for North Dakota, 9.4% for South Dakota and 6.8% for Nebraska.

No doubt about it, 2010 is shaping up to be an excellent year to be a farmer.

Remember, last spring commodity prices were still low.  The cost of seed, fertilizer, and other inputs were also low.  Now commodity prices are rocketing higher.  As a result, farmers are seeing their profit margins explode.

In August, the USDA forecast farm incomes will climb to $77 billion this year.  That’s 19% higher than the average farm income over the last decade.

And with corn “ending stock to use ratio” at a 15-year low of 6% of annual use, corn prices should hold near their recent highs or go even higher.

In short, higher farm incomes are setting the stage for farmers to go on a shopping spree.  Equipment manufacturers like CNH are going to sell a lot more tractors, harvesters, and other equipment.

I’m expecting CNH’s revenue and earnings to go through the roof over the next few quarters.  Their stock should do the same…

Let’s grab call options on CNH now to profit from surging farm income.

Trade Details:

Underlying Stock Symbol: CNH
Current Bid-Ask Price: $2.20 – $2.90
Option “Buy Up To” Price: $3.00
Break-Even On Stock At Expiration: $58.00
Maximum Risk Per Contract: $300

Exit Strategy:

CNH is trading at $44.22 per share.  Resistance levels will be at $54 and again at $60. Remember, we want this stock to move higher.  Support levels will be at $35 and $31.50.  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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