Dykstra: Sticking With 3M Options

With investors and analysts betting on a Fed rate cut, the next couple of days present a challenging trading climate. It will be interesting to see how people construe a rate cut.

Many thought the original cut was a one-and-done that would take care of any lingering negative effects from the subprime crisis. A further rate cut would acknowledge that the damage may be deeper than originally thought; but it would also provide cheaper money for mergers and acquisitions.

Today I would like to focus on an incredibly cheap Dow component -- 3M(MMM Quote). I wrote about 3M earlier this year, and noted that everyone knows this company as the maker of the Post-It.

However, there is way more depth, diversity and success than this office essential. With its vast domestic and international operations, 3M is an attractive investment play in this market. Its global presence and size present considerable opportunity.

The company reported strong earnings, solid revenue growth and raised its profit outlook for the year in its most recent report, yet its shares lost more than 8% on Oct. 19, when management lowered prices on the films they produce for LCD screens. These films had enjoyed a nearly 30% profit margin. While that margin will narrow, the lost profit should be made up for with increased demand.

Management clearly sees things differently than traders. The company raised guidance, boosting both the high and low end of earnings estimates for the fiscal year 2007. When a company raises guidance, I want to be on board, especially when I can buy shares on the cheap. The stock closed at $86.13 Friday, and I will place a limit order to buy 10 contracts of the April 75 calls (MMMDO) for $12.90 or better.

Game of Life

The Boston Red Sox claimed their second World Series Championship in four years last night, sweeping the Colorado Rockies, who came into the Fall Classic having won 21 of their last 22 games, including seven straight in the post-season.

Some will attribute the Rockies demise to their eight-day layoff prior to the World Series. However, the reality is the Red Sox played great baseball, winning their last seven post-season games, after falling behind the Indians three games to one in the ALCS.