One of the Most Explosive Plays of 2009

Add YRCW January 2011 Calls

Dear Bottarelli Research Member,

Today’s newest LEAPS trade could easily be one of the biggest winners you hit in 2009. It’s a little more speculative, but as you’ll see from the analysis below, the payoff could be quite substantial. So let’s dive right in!

Today’s opportunity comes in the form of trucking stock YRC Worldwide (YRCW – NASDAQ).Formerly known as Yellow Roadway Corporation,YRCW has 14,758 tractors, 61,183 owned trailers, and 3,579 leased trailers that ship industrial, commercial, and retail goods both domestically and internationally. If you’ve ever driven on the highway and seen a truck with “Yellow” on the side, then you’ve seen YRCW’s business operations. Without boring you with too many details, their trucking operation is broken down into the following three units:

• YRC National Transportation: Carries apparel, appliances, automotive parts, chemicals, food, furniture, glass, machinery, metal, metal products, non-bulk petroleum products, rubber, textiles, and wood.
• YRC Regional Transportation: Offers specialized truckload delivery services, including local next-day and second-day delivery, protect-from-freezing, and hazardous material handling methods.
• YRC Logistics: Offers distribution, warehousing, freight forwarding, truckload brokerage, and transportation management services.

Now, if you take one look at the 2-year YRCW chart, you’ll most likely vomit. After all, a major increase in oil/gas prices in early 2008, combined with a global economic slowdown in late 2008, absolutely crushed YRCW shares. As you can see, the stock has fallen from $45.00 in mid-2007 down to $2.50 here in 2009.

But if you take a closer look, you’ll actually see a rather sizeable investment opportunity. Consider this…

Right now, YRCW has a market cap of $217.45 million, yet they’re achieving trailing three month revenues in excess of $9.36 billion. This has caused their current valuation ratios to drop to near-insane levels. For example, YRCW shares currently trade at a Price/Sales ratio of 0.03 and a Price/Book ratio of 0.26. No matter how you look at it, these valuation ratios are dirt cheap. But even more eye-popping is YRCW’s current revenue-per-share statistic, which currently stands at a whopping $164.23. And remember, YRCW currently trades for only $3.70! To me, this is truly amazing. For every $1.00 in revenue that YRCW earns, Wall Street values it at around $0.027. That’s 2.7 cents on the dollar. What’s more, if you completely liquidated the entire company, the book value would amount to $15.75 per share. That’s 250% above what the stock currently trades for right now. Needless to say, I think shares of YRCW are grossly over-sold at current levels.

Now, I fully understand the argument that an extended economic slowdown will equate into less goods transported across the globe. And of course, this will translate directly into lower profits for YRCW. But my response to this argument would be two fold. On one hand, I’d argue that this fear has already been fully priced into YRCW shares. And secondly, I’d argue that the aggressive global infrastructure plans could prove to be a major upside catalyst for YRCW.

After all, someone needs to transport all of the concrete, steel, asphalt, and everything else needed to put this infrastructure plan in place, and YRCW stands ready to meet the demand.

What’s more, since 24.4% of YRCW’s float is currently sold short, any upside price tick could ignite a “short squeeze” that sends the stock aggressively higher. Case in point, YRCW popped 49% last week when S&P raised its credit rating. At the same time, Wachovia upgraded the stock when new union pay cuts were announced which will save the company millions. If this is all it takes to see a powerful 49% rally, then we certainly need to have exposure to this company. All it takes is one piece of positive news and you could multiply your wealth at a very high rate.

And best of all, you can buy the January 2011 calls on YRCW for dirt-cheap. Right now, you can own the YRCW January 2011 2.5 Calls (VYX AZ) for the bargain-basement price of $2.95. Since these calls are currently $1.80 in the money, you’re paying a total of $1.15 to carry this position until January of 2011. That’s two full years from now! Based on everything presented above, I feel that the odds for success are stacked squarely in our favor. So let’s get positioned now!

PLAY: Buy the YRCW January 2011 2.5 Calls (VYX AZ) at market, good for the day. Place a protective stop limit at $0.50 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

UPDATES

Genentech March 80 Calls (DWN CP): On Friday, Genentech reported earnings of $3.4 billion ($3.21 per share) on sales of $9.5 billion. DNA’s highest-selling drugs were Rituxan ($2.6 billion, up 13%), Herceptin ($1.4 billion, up 7%), Lucentis ($875 million, up 7%), Xolair ($517 million, up 10%), Tarceva ($457 million, up 10%), Nutropin ($358 million, down -4%), Thrombolytics ($275 million, up 3%), Pulmozyme ($257 million, up 15%) and Raptiva ($108 million, up 1%). In a market like this, I think these numbers are outstanding. And going forward, the potential on DNA looks even stronger. You see, Genentech has the potential to receive four (4) new FDA drug approvals this year, and they also plan to file more than 10 new applications. All told, the future continues to look great for this position. We already locked in a 50% profit on half of our DNA calls, so be sure to hold the remaining half going forward. Hold.

Teva Pharmaceuticals January 2010 45 Calls (WTX AI) & Cubist May 20 Calls (UTU ED): Similar to the DNA position from above, both TEVA and CBST continue to look strong in 2009. Despite a slight pullback, both stocks are holding the line at their critical 50-day and 200-day moving averages. Hold.

ETH February 15 Puts (ETH NC): With the 50-day moving average still acting as solid resistance, I still support the viewpoint that ETH will trade in the single digits very soon. Showroom floors are empty, which means that sales will remain depressed for the foreseeable future. Hold.

Salesforce.com May 25 Puts (CRM QE): A double-top formation at the $35.00 level has now set a ceiling on the stock, which gave way to a breakdown under the 50-day moving average. Therefore, the bearish technical formations remain in play. You can expect CRM to set new 52-week lows under the $25.00 level soon. Hold.

Verizon April 30 Puts (VZ PF): As you know, we locked in HALF of our profits at the 50% level this past week, which means holding the remaining half for more profits. Hold.

MCD June 55 Calls (MCD FK), ADM January 2010 20 Calls (WRA AD), YUM January 2010 30 Calls (WRJ AF): After posting a very strong upside run, all three of these positions have given back some of their recent gains. This could hand us a strong opportunity to add to our positions. If the timing is right, I’ll let you know in a forthcoming alert. But for now, continue to maintain all three positions. Hold.

Ultra Financials June 8 Calls (UUF FH), Excel Maritime March 15 Calls (EKN CC), & Tesoro January 2011 5 Calls (ZGC AA): Our three turnaround plays are offering mixed signals. On one hand, we used a strong upside push in TSO to lock in 42% profits on HALF of the position on Friday. But on the other hand, our turnaround play in the financial sector hit a major snag as more bearishness pushed the financial group lower. Therefore, let’s officially close out our UYG play, as a financial turnaround no longer looks viable before the June expiration. Maintain your TSO and EXM plays, but close out the UYG June 8 calls. Hold EXM and TSO. Sell UYG.

Apex Silver Mines January 2010 2.5 Calls (YSB AZ): It turns out that our speculative silver play did not work out.This past Tuesday, SIL sought bankruptcy protection from creditors, and announced plans to sell their stake in their Bolivian mining operation. In a statement concerning their continued operations, Apex said its existing shareholders would not receive any repayment under the proposed plan. Therefore, it looks as if these calls will expire for nominal value. Let’s officially close this one out and take it off the books. If you can, go ahead and liquidate your position. Sell.

Barrick Gold January 2010 40 Calls (WRX AH), AK Steel January 2010 15 Calls (YDF AC), and Southern Peru Copper January 2010 25 Calls (YPV AE): It looks as if the near-term correction in metals prices (specifically copper, gold, silver, and steel) is now over. If so, that’s very positive for all three positions listed above. Plus, with our incoming president planning to spend one trillion dollars to get our economy moving, it’s clear that this type of spending will take our dollar down like a lead weight. That’s why owning metals exposure is so critical. As you know, we added to both the AKS and PCU positions recently, which lowered our cost basis. And just like clockwork, both PCU and AKS are holding the support level at the 50-day moving average.

If this support holds, our decision to add to both positions will prove to be brilliant. Plus, shares of ABX are looking to move higher, which is a good sign. I continue to like all three positions, so continue to hold for more upside. Hold.

Sincerely,