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Dykstra's Deep-in-the-Money Call: DFG

Jake Long became a very rich man this week.

For those of you who do not know who he is, Long will be the top pick in this weekend's National Football League draft. The offensive lineman has already signed a reported $57.75 million, five-year contract deal to play for the Miami Dolphins, who have the No. 1 overall pick. Slightly more than half of that, or $30 million, is guaranteed. He'll be rolling in the dough.

That's what I expect to do as well with today's pick, so let's dig right in. Unlike Long, there is no guarantee on this pick, but I'm a believer in Delphi Financial (DFG).

Delphi is a provider of insurance plans to companies. It manages all aspects of employee absence and provides the related insurance coverage, such as long-term and short-term disability, excess and primary workers' compensation, group life, travel accident and dental.

There couldn't be a better time to buy Delphi. The stock is getting pummeled following its quarterly earnings announcement. In fact, shares fell off a cliff Wednesday, hitting their lowest level in four and a half years. Delphi shares closed at $22.45, a drop of $6.88, or 23.5%. The stock traded as low as $22.26 yesterday, a new 52-week low, $25 below the 52-week high of $47.79.

The numbers were ugly. On Tuesday, the company said its profits fell by 46% from the year-ago period. It earned $21.1 million, or 42 cents per share, in the period. That's well off the $39.2 million, or 76 cents a share, it earned in the same quarter last year.

Excluding losses associated with investment losses, the company earned $25.3 million, or 51 cents a share. Wall Street had been calling for 84 cents per share.

Helping to drive shares down even further was news that the company revised its full-year projections. Delphi had previously been predicting earnings of between $3.45 and $3.60 a share, but now expects $3 to $3.30 per share in profits.

It sounds painful, but that's good news for us because Delphi is a good company that is in a slump at the moment, but is poised to break out of it.

First of all, Delphi's a solid company. It's got a price-to-earnings ratio of 9.2 and its balance sheet is in good order. When a good company has taken such a beating, it often means that its shares are trading at a big discount.

Readers of past columns of mine may remember that I am a fan of Delphi. In fact, it was an early season (Mar. 25) pick this year. However, the order did not get filled at the price I wanted and was canceled on April 1. As a reminder, I generally cancel orders that are not filled in one week's time.

Bottom line: Delphi has been oversold down to levels that make this stock a complete gift; if the operators on Wall Street want to give it away, then I will take it. Here is today's order: I am doubling my typical investment by placing a limit order at $1.40 or better to purchase 20 October $22.50 contracts (DFGJX), which will give me control of 2,000 shares. (I usually would go deeper, but this is the cheapest contract on Delphi, which shows you how ridiculously cheap this stock is.) Don't forget to place your GTC sell order one point higher once the order is filled for a $2,000 dollar victory.

Always remember: Life is a journey, enjoy the ride!

Know What You Own: DFG operates in the insurance industry, and some of the other stocks in its field include CNA Financial Corporation (CNA - Get Report), Prudential Financial (PRU - Get Report) and American International Group (AIG - Get Report). These stocks closed at $26.45, $74.87 and $43.86, respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.
At the time of publication, Dykstra had no positions in stocks mentioned.

Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."

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