Lenny Dykstra
In my April 23 column on Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks), I discussed my inclination to invest in battered stocks with my deep-in-the-money (DITM) call strategy. As I said then, the market tends to go to extremes, meaning share prices generally reach higher highs and lower lows than true fair market value would dictate.
Another example of this came Tuesday, when i2 Technologies(ITWO Quote - Cramer on ITWO - Stock Picks), a supply-chain management company, plunged 30% in one day after releasing lower-than-expected earnings and announcing the retirement of CEO Michael McGrath. This move is an overreaction. True, the company reported earnings of 13 cents a share on revenue of $65.6 million, falling short of analyst EPS expectations of 22 cents a share on $64.9 million in revenue. But although earnings per share missed by a lot, the revenue was largely there. And after removing several one-time items, earnings per share climb to a more respectable 16 cents. Plus, when you consider the company posted just 4 cents in EPS a year ago, it's clear this company is growing. In fact, ValuEngine rates the stock a buy. Also, in doing my homework -- which includes a daily 4 a.m. telephone call to RealMoney contributor Richard Suttmeier -- I discovered that the stock has a fair value of $22.55, according to Suttmeier; it closed Wednesday at $18.10. The growth in the past year should continue this year. With the earnings release, management did not change guidance for the 2007 fiscal year, which is a promising sign for a company that just got slapped. I find it appealing that i2 didn't bail out and guide lower, as this would have been the easy thing to do with its stock hammered. I also appreciate that the company did not diverge from its 2007 full-year guidance. Moreover, if we read between the lines, i2 seems confident it will continue to produce in the remainder of the year. Toward the end of the first quarter, i2 announced that it had reached a deal with Costco(COST Quote - Cramer on COST - Stock Picks) to use the i2 Freight Matrix product to improve Costco's performance and lower the retailer's transportation and distribution costs. This is a huge score for i2, because Costco's size and exposure should help i2 increase its own exposure and revenue. At the very least, this company is due for a rebound from its 30% decline. The revenue and earnings growth were there during the first quarter, and the new deal with Costco provides a large, credible and valuable addition to i2's clientele. I want to give this stock plenty of time to get its legs, so I'll go all the way out to December for today's DITM trade, placing an order to buy 10 of the December 15 contracts (JQLC) using a limit order at $4.50 or better.
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