Dykstra: Taking On the Big Unit

On Wednesday, we saw the market take a big hit the morning after Merrill Lynch(MER Quote) reported a whopping $7.9 billion writedown, only to end the day with minimal overall damage.

The current market seems to regain its legs after each significant fall, but only time will tell the true effect that the subprime crisis will have on the financial sector, the stock market and the economy at large.

While I generally like to buy beaten-down companies, my approach remains cautious in regard to financials. Now is the time to focus on industries with relatively inelastic demand; these companies can better withstand difficult economic conditions. With oil continually moving toward record levels, that industry provides many investment opportunities.

Today I would once again like to focus on Unit(UNT Quote), a company that both drills for its own account and provides contract-drilling services. I have written about this company on several occasions -- most recently Oct. 4 -- and I believe that with oil at its present levels, Unit will once again continue to move higher.

After closing at $46.12 Wednesday, shares are trading well below their high of $65.65, set in June. The company's price-to-earnings ratio is 7.34, with a PEG of 0.88, metrics that indicate excellent shareholder value. I will place a limit order to buy 10 March 35 calls (UNTCG) for $11.00 or better.

Game of Life

Little boys throughout America don their first baseball gloves when they enter elementary school or even earlier. They learn how to field grounders and catch "high pops," which are initially thrown by their proud dads, before they are hit with a bat. Concurrently, the proud dads work diligently to perfect the art of hitting their sons' bats with a pitch, thereby convincing the little boys that they are sluggers.

As Tee Ball morphs into Pony League, which morphs into Little League, those same little boys fantasize while they are practicing with their dads, or their brothers, or their friends, that they are pitching or hitting in the World Series. They pretend they are the star players, in game-changing moments, mimicking their movements and mannerisms.

Amazingly, in the pretend phase, the faux pitcher always strikes out the batter with the bases loaded, or the mini-Manny invariably hits a walk-off homer to win the World Series.

Alas, young boys in America have counterparts in the Dominican Republic, Puerto Rico, Venezuela, Mexico and Japan, who dream that they will someday appear on big screens across the globe, competing in the Fall Classic.