EOT Trade Alert – September 8, 2011
September 8, 2011
Trade Alert:
Buy CNH December 2011 $40 Calls at $1.35 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:
We’ve owned call options on CNH before. The last time around we more than doubled our money. And I’m expecting even better results this time.
Here’s why…
Agribusiness stocks have tanked recently as economists slashed their growth estimates.
Gone are the hopes for a second half recovery. And the “transitory soft patch” of economic data now looks like a cyclical slowing of the economy.
But a funny thing happened as stocks got hammered over the past few months…
Grain prices haven’t budged. The price of commodities like wheat, soybeans, and rice are still trading at or near their recent highs. And corn prices are pushing all time highs of $8 per bushel.
The bottom line is agriculture has been immune to the slowdown in other areas of the economy. But Agribusiness stocks have fallen in lockstep with the broad market.
Simply put, this is a great buying opportunity. And CNH is a perfect example of the value in Agribusiness stocks.
CNH recently reported great earnings and raised guidance. While the stock initially jumped on the news, it was later caught up in panic-fueled broad market selloff.
Now, CHH is a great value pick with strong growth.
In the past three months, analysts have raised earnings estimates for CNH. The full year 2011 earnings estimates have shot up 44 cents to $3.38. And the 2012 estimates jumped 23 cents to $3.84. That’s the kind of growth that should send this stock soaring!
And just look at these numbers…
CNH has a PE under 10x… A forward PE under 9x… And a PEG of 0.65… That means CNH is trading at a 35% discount to its projected five year growth rate!
No doubt about it, CNH is a strong growth stock trading at bargain prices. And it’s in an industry that’s been immune to the economic slowdown!
Let’s grab call options on CNH now to profit.
Trade Details:
| Underlying Stock Symbol: | CNH |
| Current Bid-Ask Price: | $0.80 – $1.25 |
| Option “Buy Up To” Price: | $1.35 |
| Break-Even On Stock At Expiration: | $41.35 |
| Maximum Risk Per Contract: | $135 |
Exit Strategy:
CNH is trading at $30.97 per share. Resistance levels will be at $40 and again at $45. Remember, we want this stock to move higher. Support levels will be at $25 and $21.50. 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
