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Cardinal Health (CAH) is in the business of providing wholesale healthcare services and products in both the pharmaceutical and medical sectors. It has steadily grown its business into a leader in the space. Another quality company, McKesson (MCK), is its main competitor according to the information found on Yahoo! Finance.
CAH trades with a trailing P/E ratio of 14 and a forward P/E ratio of 12. CAH has a dividend yield of 2.3%, trading ex-dividend in a few weeks (June 27). CAH must have conservative, quality management as its total debt is equal to its total cash position, making it basically debt free.
CAH will report its next quarterly earnings on August 2, this quarter marking the end of the company's fiscal year. Consensus expects CAH to improve earnings per share by over 20% compared to 2011's final quarter. In addition, It should report a year-over-year improvement of 14% ($3.20 per share versus $2.80 per share). Putting a 14 P/E multiple on $3.20 per share earnings quickly gets CAH to $45.
Technically, CAH has traded between $40 and $43 since last December. Thus, it has excellent breakout potential. The slow stochastic is bullish as is its relative strength pattern.
CAH passes all the areas I look for in a shooter trade.
This trade is one of high risk due to the fact that is directionally biased and has only six weeks to expiry. This trade is high in reward potential because it is un-hedged. Due to the fact that it is a shooter trade, the trade should only be taken with highly discretionary capital.
Trade: Buy to open 3 CAH July 42 calls for $1.00.
This would be buying a 19 volatility call in CAH.
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