EOT Trade Alert – October 5, 2009

| October 5, 2009

October 5, 2009

Trade Alert:

   Buy TMO Dec 2009 $45 Calls at $2.45 or better (TMOLI)

Company Background:

Thermo Fisher Scientific (TMO) is the self described ‘world leader in serving science’. What the heck does that mean?  Basically they supply research facilities and laboratories with instruments and tools used to conduct research, analyze results, and manufacture products.

Short-Term Catalyst:

Business is on the rebound at TMO.  They were caught off guard when customers cut new orders to burn off excess inventory as the economy slowed last year.  Now customers have burned through most of their inventory and new orders are picking up.

TMO is one of the largest suppliers in the industry and they can act as a one stop shop.

TMO is coming out of the economic slowdown in a better position than they went in. Many of their customers are cutting costs by streamlining their purchasing process. Customers are buying everything they need to run their facility from TMO instead of buying different materials from different suppliers.  This should help drive revenue and earnings growth through the rest of 2009.

And it gets even better.

Right now, TMO is sitting on a pile of cash.  They’re beginning to put their cash to work through mergers and acquisitions (M&A) activity.  M&A is a key component of their growth strategy.  The low valuations in the science and health care stocks have created some good opportunities to grow through acquisitions.

Announcements of these M&A deals should cause the stock to jump!

TMO’s chart is looking great too.

TMO has pulled back to support at around $42 and started moving higher again.  The stock completed a bullish engulfing pattern on Friday.  That’s a good sign the pullback has reversed course.

I’m expecting the stock to make a strong push back toward the recent high around $47.50.  Then a good Q3 earnings report should push the stock toward the $50 mark in a few weeks.

Trade Details:

Option Ticker Symbol: TMOLI
Underlying Stock Symbol: TMO
Current Bid-Ask Price: $2.20 – $2.35
Option “Buy Up To” Price: $2.45
Break-Even On Stock At Expiration: $47.45
Maximum Risk Per Contract: $245

Exit Strategy:

TMO is trading at $44.07 per share.  Resistance levels will be at $47.50 and again at $50.  Remember, we want this stock to move higher.  Support levels will be at $41.50 and $38.50.  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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