A Quick Follow-Up on Two Picks

GIS & NWS Still Look Juicy, Plus OSTK Puts

Dear Bottarelli Research Member,

I’d like to quickly follow up on two of our latest January calls recommendations on News Corp (NWS – NYSE) and General Mills (GIS – NYSE). Starting with GIS, the stock has continued to break new 52-week highs after experiencing their wonderful earnings-related jump in mid-September. Take a look:

On the day of earnings, I recommended using the bullishness to exit the GIS January 60 Calls (GIS AL), which delivered a nice $0.55 exit price. Later that day, prices on these calls ticked back down and executing a sale at or over $0.50 because more difficult. But luckily, today’s move is once again offering you an exit opportunity at or above $0.50. If you’re still holding these calls waiting to exit for $0.50, look to take your profits today.

Moving over to News Corp (NWS – NYSE), a very interesting valuation call just hit the newswires which makes me seriously consider getting back into the NWS January 20 Calls (NWS AD).As you know, we already bought these calls for $1.15 and sold them for $1.55, good for a 34.78% gain. But yesterday, RBC Capital Markets analyst Jordan Rohan backed up what I’ve been saying about the incredible monetary value of MySpace, saying that the social networking site could be valued at $15 billion by 2009. Considering News Corp purchased MySpace in July of 2005 for $580 million, that’s quite a return on investment. But here’s where things get interesting:

Currently trading at $20.51 a share, NWS carries a market capitalization of $20.31 billion. If MySpace alone could be worth $15 billion by 2009, that means the market is assigning only $5 billion to News Corp’s other business segments — which include HUGE company names like the New York Post, Fox Sports, 20^th Century Fox, Harper Collins, and even American Idol. To be blunt, the stock is severely undervalued, which is why Mr. Rohan said “The trajectory for profitability of MySpace is every bit as steep as that of Google.”

The reason MySpace as such potential is because the revenue-stream to access their members has infinite possibilities (feel free to go back and read my initial write-up on NWS in the latest Bottarelli Research special report titled “3 Speculative (and Cheap) Doublers”). Google, for example, has promised to pay NWS $900 million for the exclusive rights to provide search features and advertising on MySpace pages.

Based on this new MySpace valuation, it has crossed my mind that I may have recommended taking profits on our NWS January 20 Calls (NWS AD) too early. But then again, you can never second-guess taking profits. As a result, I plan to use any subsequent weakness in NWS to add more January calls, as I still think the stock has a lot of room to move up.

Switching gears, I’d like to follow up on what I said yesterday about the coming Dow weakness in October and take the first of many steps that’ll allow us to profit off it. Today, that first step entails entering into November put options on Overstock.com (OSTK – NASDAQ).

To be honest, I’ve bought things on Overstock.com before and had a very positive experience. But now, the stock has fallen into the so-called “Sharper Image Syndrome,” where the complete lack of new and exciting products forces buyers to turn their backs on the store and buy elsewhere. A good example is that Sharper Image is now selling Tupperware, of all things. I guess that’s what happens when your store becomes stale and unimaginative. It’s happened on the retail side at Sharper Image and it’s happening online at OSTK. Chart-wise, it looks like the stock will once again move down to their recent low of $16.00, which represents a $1.37 fall from current levels. Let’s play this fall via the OSTK November 20 Puts (QKT WD), as I calculate they could gain 30% on a near-term fall to $16.00. Anything below $16 and your profits only get larger. Here’s the play:

PLAY: Buy the OSTK November 20 Puts (QKT WD) at or under $3.60, good for the day. Place a protective stop loss at $2.30.

Lock and load

Sincerely,