The Four to “Buy on Dips”

VLO, TSO, ATI, and POT are Rocket Ships

By Bryan Bottarelli
Monday, April 30, 2007 2:45 PM EDT
Mon, 30 Apr 2007 18:45:00 GMT

Dear Bottarelli Research Member,

As we mentally prepare for, what appears to be, a weak May market environment, it’s important that we isolate that special group of stocks that are so strong that we’re entirely comfortable buying them on any dips. In fact, we may end up adding to these positions on more than one occasion — that’s how incredible these companies are.

Topping this “best of the best” list is Valero Energy (VLO – NYSE). As you can see by the chart, the top U.S. refiner has been on an absolute terror — making anyone buying call options on near-term dips quite wealthy. Best of all, VLO is by far the cheapest of the large refiners — sporting a ridiculous Forward P/E of 9.95. If VLO experiences a two or three-day dip, we’ll be all over near-term calls. In fact, lets’ hope for a dip back to $67.50 so we can enter a position like this.

VLO

Another U.S. refiner in this same category is Tesoro (TSO — NYSE). Just look at the TSO chart and you’ll know everything you need to know.

TSO

As you can see, the stock has been an absolute beast – moving from $65 up to $125 just this year. Can you say 92%? I’m slightly concerned that the stock is getting a little too high at these levels, but I’d certainly feel comfortable adding calls on any May-induced bearishness.

Another name that we should not lose sight of is Potash of Saskatchewan (POT – NYSE). The fertilizer and industrial and feed company is a pure play on our increasing worldwide population, and the stock is doing nothing but hitting new 52-week high after new 52-week high. I would expect to see shares break $200 soon, so let’s hope for a pullback to perhaps $170 for our next upside call play.

POT

And lastly we have Allegheny Technologies (ATI – NYSE), the best specialty metals company that money can buy. ATI was upgraded today atWachovia on the view that they can expand their capacity over the next five years — and I couldn’t agree more.

ATI

Looking at their entire 2007 stock chart, the last two times that the stock tested its 50-day moving average, it bounced like a super-ball on concrete. With the stock once again down $2.70 today and approaching the $110 level, our ATI June 115 Calls (ATI FC) have unfortunately hit our $4.50 stop price. But I’m certainly not putting this one aside — and I’ll continue to monitor it for another buying opportunity.

And as the markets continue to display signs of near-term exhaustion, hold tight to your AMZN June 60 Puts (ZQN RL) and also your protective SPY June 150 Puts (SYH RT).Any coming pullback will make each position a very nice winner.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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