Play CG Calls

Another “Smokin” Sector

By Bryan Bottarelli
Tuesday, December 04, 2007 10:34 AM EST
Tue, 4 Dec 2007 15:34:00 GMT

Dear Bottarelli Research Member,

Yesterday, we used the broad-based strength in the agricultural sector to make a nice intraday trade on Bunge (BG – NYSE). Today, I’m getting a similar signal in the consumer goods sector — specifically with cigarettes.

As I write, all of the major tobacco companies are hitting new 52-week highs, including Reynolds (RAI – NYSE), Carolina Group (CG – NYSE), Imperial Tobacco (ITY – NYSE), and Altria Group (MO – NYSE).

Perhaps this bullish move to the upside is based on recession fears? After all, the old Wall Street adage says that in times of recessions, you should invest in pawn shops, alcohol, and tobacco companies. Or maybe it’s easier to sell cigarettes during the winter months. I’m not a smoker, so I don’t know. Either way, it looks like this entire sector is gaining some strong December momentum, and I’d like to capitalize on it right now.

Looking at the charts, it doesn’t appear like this will be a fast-moving play. Unlike some of our recent trades, which have admittedly moved rather fast, I’m specifically designing this one to be a slow and gradual upside mover going into January. So if you’d like to take a longer-term approach and play sustainable upside momentum in the cigarette sector, then I’d like to issue a new upside call play on Loews Carolina Group (CG – NYSE).

CG

Operating as a subsidiary of Loews Corp, CG sells brands like Newport, Kent, True, Maverick, and Old Gold in the United States and Puerto Rico. And as you can see from the chart, the stock has been a model of upside strength and consistency over the last four months, so as a longer-term upside play, let’s go ahead and add January calls now!

PLAY: Buy the CG January 90 Calls (CG AR) at or under $3.40, good for the day. Current bid/ask spread is $2.80 to $3.10. Place a protective stop limit at $1.70.

*Tactical Note: As I mentioned above, I’m specifically making this recommendation to offer a “slower” moving play. I plan to hold this one longer than normal, which allows us to capitalize on the historic upside strength of December. I openly admit that the recent market volatility has sparked some rather fast moving plays, so I’m hoping that this one will give you ample time to enter and exit for the best prices.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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