Dykstra: Precision Drilling Options Warm Up
05/24/07 - 08:54 AM EDT
Lenny Dykstra
Today's deep-in-the-money call pick, Precision Drilling Trust(PDS Quote - Cramer on PDS - Stock Picks), is an excellent value. Precision Drilling performs contract drilling services in Canada, primarily in natural gas but also in oil. At Wednesday's close of $26.43, the stock is trading 30% below its 52-week high, but now is a good time for a DITM play.
The company suffered a slow first quarter, and its monthly distribution has dropped twice thus far this year. In January, the company, which as a trust makes a monthly payment to investors, paid 19 cents per share, 39% below the December distribution. Though the reduced distribution hurt the stock in January, the negative sentiment has had enough time to cool off. In addition, the dividend cut allowed the company to decrease its already small debt and presents the possibility of some strategic acquisitions. The company's dividend is still attractive and should appeal to value investors, and the balance sheet remains impressive. At the stock's recent close of $26.43, I can buy the December 22.50 calls (PDSLX) for a premium of less than 60 cents. So I have placed a limit order for 10 contracts at $4.50, which will allow me to control 1,000 shares of Precision Drilling ($26,430 in common stock value) for $4,500 until December. This will allow more than enough time for Precision Drilling to recover from a seasonally slow time of year. This past weekend I had dinner with the colorful and brilliant Tobin Smith, whom I appeared with as a guest on the show Bulls and Bears. He recommended Color Kinetics(CLRK Quote - Cramer on CLRK - Stock Picks) on the segment, where I recommended a recent deep-in-the-money purchase of Best Buy(BBY Quote - Cramer on BBY - Stock Picks). I don't often look at stocks for long-term investments, but I believe Color Kinetics has the potential to play an important role in an emerging industry. Old-fashioned light bulbs are losing ground to the more energy-efficient LED lighting. This industry is just at the beginning of what may be an exceptional period of growth. I view this stock as a long-term opportunity rather than a DITM play.
RSS
