Recapping a Muted Day

Dull Markets Mean No Trading

By Bryan Bottarelli
Wednesday, May 03, 2006 4:48 PM EST
Wed, 3 May 2006 21:48:00 GMT

Dear Bottarelli Research Member,

If you were unable to watch the markets today, you didn’t miss much.

The markets basically traded in a very tight range to the downside — one which didn’t really move more than 30 points all session. This “muted” market action has cause some of my favorite potential upside plays to drop a little, as Transocean (RIG – NYSE), Valero Energy (VLO – NYSE), Patterson-UTI Energy (PTEN – NASDAQ) and Southwestern Energy (SWN – NYSE) each fell between $0.80 and $2.00 today. This could be a nice set up for an entry price later this week — or early next week.

In terms of our two downside positions, Black & Decker (BDK – NYSE) is showing a slight gain today — most likely on the positive comments from our friend Jim Cramer about their upcoming line of cordless power tools. But if $0.70 is all the upside the stock can muster, than we’re still in good shape.

BDK

Looking at the chart, I feel that BDK could retrace back to at least $90.00 and still remain locked in a solid up-trend. Ideally, a move down to the 50-day MA would be the next stop. Remember, BDK just closed the books on a quarter in which net income fell 22% from a year ago — as earnings of $1.45 a share were down from $1.75 a year ago. Hold your BDK May 95 Puts (BDK QS).

P.F. Chang’s China Bistro (PFCB — NASDAQ) also looks like their upside momentum is nonexistent. Their new restaurant chain, called Pei Wei, was supposed to be the catalyst for continued growth, but sales fell 2% in the first quarter. For all of 2006, PFCB expects just 0.2% growth — and that does not include any effects of inflation, interest rates or gas prices.

PFCB

To me, that doesn’t sound like the stock deserves to be trading at an earnings multiple that exceeds its peers. I still like the downside scenario, so hold your PFCB May 45 Puts (HUO QI).

To the upside, I continue to be tempted by Monsanto (MON – NYSE). The company is the undisputed leader in the biotech agriculture industry, and now they’re getting even more momentum as their U.S. corn breeding program is showing strong growth for the fifth consecutive year. This strength is largely attributed to the ethanol sector, as Monsanto breeders have identified corn hybrids which yield more ethanol per bushel.

Tomorrow, Monsanto’s Executive Vice President and Chief Financial Officer Terry Crews will be speaking at Bank of America’s 2006 Basic Industries Conference in New York. In this speech, Mr. Crews is expected to say that Monsanto’s full-year 2006 EPS guidance will be toward the upper end of its $2.35 to $2.50 range.

MON

Looking at the chart, I would expect the stock to break past their recent high around $88.00. I am leaning towards recommending a longer-term play on MON so we can participate in the 3-momth uptrend without fighting day-to-day volatility. I see MON as an indirect play on the continued bullishness of ethanol, so when the timing is right, I’ll let you know. Until then…

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From May 2006