Two Sectors: One Stone

Add JOYG Calls

PLAY: Buy the JOYG April 80 Calls (JQY DP) at market, good for the day. Place a protective stop limit at $3.40 and implement our scaled-selling technique to lock in portions of your profits as these calls achieve 50% returns (and greater).

Dear Bottarelli Research Member,

We’ll start off today’s alert with an amazing statistic…

It’s hard to believe, but every American citizen consumes over 125 pounds of mined materials every single day. Add it up, and you consume over 45,000 pounds of mined materials every year!

If you ask me, that’s quite remarkable. In fact, I wasn’t aware just how important mining was until preparing today’s alert. But the headline (above) is entirely true. “Everything is either grown or mined.” I would guess that 99% of the items found at Wal-Mart or Target are derived from either growing or mining, making it easy to understand why the mining industry is critically vital to our economy.

All told, the mining industry contributes over $49 billion to the economy, and the numbers are growing larger by the day. That’s why today’s newest LEAPS play comes in the form of world mining leader Joy Global (JOYG – NASDAQ).

Joy Global is listed in the Farm & Construction Machinery industry, but that’s a little misleading. In reality, they offer mining equipment for the extraction of coal, copper, iron ore, oil sands, silver, gold, diamonds, and phosphate.

As you’ll see below, the stock has recently trended lower, thanks in part to the broad-based commodity sell-off. In particular, a drop in coal prices took shares of JOYG down along with it. But for most of the month of August, shares of JOYG have been hammering out a near-term bottom. And on Thursday, shares of JOYG broke above their 50-day moving average for the first time since early April. This serves as an early indication that JOYG shares could be in for a strong upside move leading into the close of the 2008 calendar year. See for yourself:

Looking specifically at JOYG’s product line, their market-leading mining divisions are broken into two groups:

1. P&H Mining Equipment
2. Joy Mining Machinery

Both groups are profiled below.

P&H Mining Equipment: This is the world leader in surface mining equipment for the extraction of ores and minerals. 40% of P&H’s surface mining business comes from copper mining, 30% comes from coal, 15% comes from iron, and the remaining 15% comes from other mineral resources.

With over 900 shovels operating globally, P&H provides more than 70% of the mining shovels sold over the past 10 years – and their equipment is found in 90% of the world’s surface mines. To put their heavy-machinery into perspective, P&H draglines are among the largest mobile units on the face of the earth. They walk on footpads as long as a city bus and have buckets as large as a four-car garage!

Joy Mining Machinery: This is the world leader in the extraction of underground coal, which is 90% of their underground mining business. The remaining 10% involves extraction of gypsum, lignite, phosphate, potash, salt and trona. Pictured below is JOYG’s “continuous miner” machine.

Aside from the long-term bullish trend in mining, I like JOYG at these levels for five (5) reasons.

1. Adding a call on JOYG offers us exposure to two strong market segments: Heavy Machinery and Coal. As it stands today, we do not have exposure to either segment in our LEAPS portfolio. Adding JOYG calls today kills two birds with one stone.
2. A technical breakout above the 50-day moving average indicates that JOYG could re-test the latest highs above $90.00. That’s good for $20.00 worth of upside from current levels – a 29% gain!
3. JOYG’s board just raised their quarterly dividend 17% to $0.17. This dividend is payable on September 19^th to shareholders of record as of September 5^th, and it proves to you that JOYG’s business operations remain strong despite fears of a global recession.
4. Joy Global entered into a definitive agreement on August 28^th to acquire 100% of the outstanding shares of Wuxi Shengda, a Chinese manufacturer of long-wall shearing machines, for $22.0 million. This further strengthens JOYG’s global footprint in China. In fact, JOYG’s President and CEO Mike Sutherlin said, “The acquisition of Wuxi Shengda provides us with a foothold in the China market for domestic equipment and will allow us to better serve that country’s local and regional mining industry. We see opportunities to grow revenues and margins at Wuxi Shengda by enhancing its existing product offering through newer shearer technology.” This new acquisition should help JOYG continue growing revenues that exceed Wall Street expectations for many quarters to come.
5. JOYG has an earnings announcement scheduled for September 3^rd 2008, and this could offer an extended upside trigger to the share price.

Add it all up, and it makes sense to add upside exposure to mining and coal via JOYG in our LEAPS portfolio. So let’s get positioned now!

PLAY: Buy the JOYG April 80 Calls (JQY DP) at market, good for the day. Place a protective stop limit at $3.40 and implement our scaled-selling technique to lock in portions of your profits as these calls achieve 50% returns (and greater).

UPDATES

Wells Fargo January 2009 30 Puts (WFC MF): The trading tactic in the financial sector is quite simple: Short any rallies. We used an upside pop last week to add WFC puts, so as the sector once again falls, we’ll be in position to lock in strong returns. Hold.

Southern Peru Copper January 2010 25 Calls (YPV AE), Barrick Gold January 2010 40 Calls (WRX AH), United States Natural Gas Fund January 40 Calls (UNG AN), & JA Solar Holdings January 15 Calls (QJP AC): Here are four positions that we entered after a severe (and overdone) price decline. We executed a well-timed entry point on all four positions, resulting in quick profits. But then, we witnessed a slight counter-move and our profit levels dipped back down. This volatility is getting to be a standard event in today’s market environment, but I still feel that all four positions are strong. Therefore, continue to hold each one, and we’ll look to lock in profits on any forthcoming up-ticks. Hold.

UltraShort Dow30 ProShares October 65 Calls (DXD JM) & CBOE Volatility Index October 25 Calls (VIX JE): Our two protective “hedge” positions offer you portfolio insurance, which will come in very handy if more bank failures spook the market next week. There are whispers that Lehman Brothers (LEH – NYSE) won’t survive the weekend, so maintain these two positions to protect against another round of selling pressure. Hold.

Valero Energy January 35 Calls (VLO AG): This is another over-sold play, and I continue to feel that the bottom has been set in shares of VLO. As the “crack-spread” between oil and gas prices reverts back to its mean, VLO should move higher. Hold.

Salesforce.com November 55 Puts (CRM WK): After taking half of our profits off the table, our puts are right back to our original entry price. Hold the remaining half of the position and lock in profits at the 50% level.

Overseas Shipholding Group January 95 Calls (OSG AS): I continue to believe that shares of OSG have hit a bottom and are due for a strong bounce. Considering our January expiration gives us breathing room, I’d still like to maintain this position. Hold.

America Movil January 2009 70 Calls (AMX AN), Petroleo Brasileiro January 90 Calls (PMJ AR), & Entergy January 140 Calls (ODF AH): Our three “recovery” plays could still surprise you. We have until January expiration on all three of them, so maintain these positions for an upside surprise. Hold.

Sincerely,