PLAY: Buy more Verizon April 30 Puts (VZ PF) at market, good for the day.
PLAY: Buy more AKS January 2010 15 Calls (YDF AC) at market, good for the day.
PLAY: Buy more Southern Peru Copper January 2010 25 Calls (YPV AE) at market, good for the day.
Dear Bottarelli Research Member,
We’re going to kick off the 2009 investing year by using our extended expiration times to add to three of our current LEAPS positions.
All three of these positions are currently below our original entry price, but due to some recent developments (which are outlined below), all three have started to move in our desired direction. At the same time, the current chart formations continue to support our directional bias. Therefore, the time to lower our cost basis is now. So today, we’ll officially add to our positions on Verizon Communications (VZ – NYSE), AK Steel Holdings (AKS – NYSE), and Southern Peru Copper (PCU – NYSE).
Here’s the full break-down…
ADD TO POSITION #1: Verizon April 30 Puts (VZ PF)
This past Monday, Bernstein Research analyst Craig Moffett predicted a sharp slowdown in Verizon’s 2009 growth. As a result, he lowered his revenue target on Verizon from $2.75 per share down to $2.43. In a 60-page report, he explained why wireless growth (which is the prime sales generator for VZ over the past decade) is expected to fall from 4.2 million down to 3 million in 2009. And it’s easy to see why this sharp fall-off will occur. After all, wireless phone service is quickly reaching its saturation point, which means that the growth figures that Wall Street has come to expect will soon come to a screeching halt.
At the same time, I continue to feel that VZ’s stock chart is capped off at the 200-day moving average, which signals a break-down below the 50-day moving average very soon. As you know, we originally entered the VZ April 30 Puts (VZ PF) on 12/8/2008 for $3.05 per contract. As of last Friday, these contracts were available for $1.95 per contract. Therefore, I’d like to lower our cost basis and add to our VZ put position now.
PLAY: Buy more Verizon April 30 Puts (VZ PF) at market, good for the day.
ADD TO POSITION #2: AKS January 2010 15 Calls (YDF AC)
At the same time Verizon was being downgraded by Bernstein Research, shares of AKS where being upgraded by Goldman Sachs. The firm noted that AK Steel’s electrical steel segment “should remain highly profitable and should get a boost from global stimulus packages, particularly in China.”
I’ve maintained all along that shares of AKS were unjustly punished in the second half of 2008. Now, Wall Street is beginning to agree. As you can see from the chart, AKS has put in a very impressive recovery, bouncing from $5.00 up to $15.00 in recent trading. Over the next year, this upside move should continue. That’s why it’s smart to add to our AKS January 2010 15 Calls (YDF AC) now. We originally entered these calls on 11/3/2008 for $4.90 per contract. As of Friday, they were available for $3.20. Therefore, let’s lower our cost basis and add to our position now.
PLAY: Buy more AKS January 2010 15 Calls (YDF AC) at market, good for the day.
ADD TO POSITION #3: Southern Peru Copper January 2010 25 Calls (YPV AE)
And finally, I’d like to make a pure play on a rebound in copper prices by adding to our calls on Southern Peru Copper. As you know, copper prices got obliterated in 2008, falling over 68% to $1.30 per pound (from their July peak). But according to the latest demand data released by the International Copper Study Group, copper usage increased 2.7% in the first nine months of 2008. Not only that, but refined copper usage in China (the world’s largest user of copper) increased 12.7%.
Copper has many applications, including electrical wiring, plumbing pipe, and motors. That means that it’ll be in demand for years to come. But because of the financial scare, copper prices were overly hit by a dramatic sell-off. Going forward, I fully expect prices to recover. If they do, PCU will rally right alongside them. In fact, the current valuations of PCU is sparkling. With a current market cap of $15.6 billion, a P/E ratio of 8.6, and a dividend yield of 7.5%, the stock looks like a steal. And from a chart perspective, a powerful bounce off the $10.00 level sets itself up for a longstanding upside run in 2009.
We originally entered the PCU January 2010 25 Calls (YPV AE) on 8/25/2008 for $5.20 per contract. As of Friday, these calls were trading for $2.00. Therefore, let’s lower our cost basis and add to our PCU calls as well.
PLAY: Buy more Southern Peru Copper January 2010 25 Calls (YPV AE) at market, good for the day.
UPDATES
YUM January 2010 30 Calls (WRJ AF): As the markets closed 2008 with a powerful rally, shares of defensive stocks like YUM pulled back. But I certainly don’t think we’re out of the woods yet. Therefore, if we see any forthcoming selling pressure, you better believe that scared investors will flock back into safe plays like YUM. Therefore, maintain your calls for more upside. Hold.
Genentech March 80 Calls (DWN CP): My bullish thesis on the top biotech names has worked out well so far, as we locked in a 50% profit on half of our DNA calls this week. Hold the remaining half going forward, and be sure to sell the remainder at the 100% level. Sell at 100%.
Teva Pharmaceuticals January 2010 45 Calls (WTX AI) & Cubist May 20 Calls (UTU ED): As you can see from the two stock charts below, both TEVA and CBST are clinging onto their 50-day moving averages. If these levels prove to be the floor (which I believe they are), then both plays are setting up for a strong upside push. Hold.
ETH February 15 Puts (ETH NC): Retail sales figures for December came out this week, and the biggest loser among the group was Wal-Mart. If the best retailer in the world cannot survive in this current recession, I can’t fathom how an over-priced home furnishing store can keep its head above water. Plus, with the stock now hitting resistance at the 50-day moving average, this is when ETH can begin the next downside move. Therefore, my stock price target of $6.00 to $7.00 remains intact. Hold.
Salesforce.com May 25 Puts (CRM QE): My bearish thesis remains in place, as CRM is about to break below its 50-day moving average. If this occurs, you can expect to see new 52-week lows being set well under the $25.00 level. Hold.
MCD June 55 Calls (MCD FK) & ADM January 2010 20 Calls (WRA AD): As you know, we took 50% profits on half of each of these two positions, which leaves us holding the remaining half for more gains. This move proved to be smart, as both ADM and MCD have recently pulled back. But both companies are very well-positioned to extend their upward growth in 2009, so continue holding each position. Hold.
iShares MSCI Emerging Markets Index March 24 Puts (MBY OX): Unfortunately, our downside play on the deterioration of emerging markets has moved against us. We came within 8% of locking in a 50% return on this play, but then prices reversed course. As a result, these puts have fallen down to $2.30 per contract. If you haven’t already done so, close this position out now. Sell.
Ultra Financials June 8 Calls (UUF FH), Excel Maritime March 15 Calls (EKN CC), & Tesoro January 2011 5 Calls (ZGC AA): Shares of TSO continue to blast higher, which has put us on the verge of locking in a 50% gainer on half of our position. Be sure to lock in profits right at the 50% level. Plus, we’re also seeing a really nice recovery in the dry bulk shipping sector, so hold your EXM calls as well. In terms of UYG, we’ve already locked in profits on half of the position, which leaves us holding the remaining half for a financial recovery going into mid-2009. Hold for more upside. Hold.
Apex Silver Mines January 2010 2.5 Calls (YSB AZ) & Barrick Gold January 2010 40 Calls (WRX AH): A troubling news story surfaced this week, which confirmed that China and Japan, who had been buyers of our U.S. debt obligations (like bonds and other instruments), are starting to feel that they’re no longer interested in buying more debt going forward. Why would they stop buying? Well, it’s simple. Perhaps they see the writing on the wall for the U.S. dollar? If that’s the case, they’ll unload these investments as quickly as they can, which will be very troublesome. That’s why 2009 could be a very powerful year for gold, silver, and other metals. Therefore, I’d like to maintain exposure to both metals via SIL and ABX. And that’s why we’re also adding to our copper play via PCU above. All told, I want to be sure we’re all exposed to metals. Hold.
Sincerely,
