Technology stocks abruptly lost steam Thursday afternoon after a steady rally. But in spite of yesterday's large losses, these stocks on the whole are still up nicely since the
cut rates in mid-September. Inevitably, some investors take profits after a long bullish stretch.
On the whole, I am confident that tech stocks will continue to increase in value over the long run, but now might be a very choppy time for many of these stocks. With that in mind, I would like to shift our focus away from technology and health care, and focus on the financial world.
took a beating in the subprime market, but the company remains a strong investment play. While the company cut this quarter's earnings estimate by 60%, the future outlook holds more weight than past performance.
With the bank cutting profit estimates so heavily at this point, there is far more room to beat guidance in the months ahead than to disappoint investors.
Negative sentiment has already been built into the stock, creating this purchase opportunity. Citigroup's shares are trading well below their levels prior to late July's selloff. Furthermore, Citigroup possesses the means to not only stay afloat through the subprime crisis, but also to add strength.
Let me explain how the company can add strength. The stock has a forward P/E of 9.90, a return on equity of 17.82%, and its revenue totals $88.41 billion. The last item I will mention is cash, and whether you like it or not, remember -- it's all about the cash! The man with the gold makes the rules! Citigroup has total cash of $987.98 billion, according to Yahoo! Finance.
With the stock down nearly $1 already this morning to around $47.50 after a downgrade to "sell" by Deutsche Bank this morning, I will place a limit order to buy 10 March 42.50s (CCV) calls for $5.90 or better.
Before I get to the email, let me tell you I have added five wins --
Penn Virginia Resource
-- in just two days.
Now, as I do every Friday, it's time to look at your emails. First, I must take this time to thank all of you for your widespread support; thank you!
Kudos to you on Massey Energy. I paida large price to learn that optionsare good until time runs out. What aneducation it was looking at today'sprices.I have been following your picks anddeep-in-the-money calls strategy for about a year,and Massey taught me that you just cannot panic. If you have not guessedyet, I sold early at a price lower thanmy breakeven point because I fearedtime was running out.Thanks for all the great informationyou share with your readers.
Thank you for your kind words. You are right: As expiration looms closer, it gets harder and harder not to be swayed by the hand of emotion. The lesson you learned due to anxiety and impatience may come with a cost, but as such, it becomes a lesson you won't quickly forget.
All too often, investors never truly learn this lesson, and they consistently buy too late and sell too soon. Remember this: not all games are won or lost in the final minutes of the game, but there are times when they are.
Keeping a level head at all times is very important and easy to master if you arm yourself with information and have a clearly defined strategy as expiration approaches.
What happened to your EDSCT $5.00 limit order in the unfilled section?
This order was not filled during the week, and the order to purchase was canceled. Too many followers of my DITM calls strategy were leaving their good-till-cancelled buy orders in too long, resulting in questions about what they should do with options that were never filled and not listed in the Stat Book.
To simplify things for the reader, the Stat Book now lists orders that were not filled during the week. Recommendations listed in the Market Watch section have been canceled.
Sometimes I read your column later inthe day, and the price at which I buy theDITM call is lower than the price youpaid earlier in the day.In that situation, should I set my GTCsell at $1 above where I bought myposition, or $1 over where you openedyour position?I love your column.
As an investor, you are in the driver's seat and only you decide the GTC selling price of the trades you make. You have a better chance of a win if you place your GTC sell order at $1 above your buy price, but with weekly advice on buy levels, you have the opportunity with these trades to earn extra profits that might be possible setting your GTC selling price with me.
With 30 consecutive wins, I'd have to say that whichever choice you have been using, it has been working for you. It's always a good idea to stick with methods that yield consistent wins.
Lenny: We really enjoy your tradingstyle. However, I am curious how youchose FedEx (FDX) - Get Report, because we paid well over$1 in premium, according to your rules.Could you please explain your reasoningfor this departure, or am I missingsomething? Thank you.
You aren't missing anything. As in life, there are exceptions to every rule. FedEx is a great company, with superb financials to back it up. As such, however, their options carry a steep premium, so you have to allow for some leeway.
As you continue to trade in DITM calls, experience will tell you when a small departure from the rules is acceptable, and when it is not. And, common sense tell us that when a stock is trading over $100, a higher premium can be expected and accepted, if all other conditions are met.
It's so interesting when one looks atthe numbers. After I read your article,I did some research and decided you areright.Then Wyeth's (WYE) kids' cold remedies are pulledand the downward spiral began (look at the last five days).No matter how hard we investors try, news can kill a good idea in a matter ofminutes.
The classic knee-jerk reaction to negative news is always expected, but news such as this doesn't kill a good idea, it makes it better. This isn't a story about cyanide in your Extra-Strength Tylenol; this is parents failing to read directions.
Johnson & Johnson
are wise to pull the products in question, because situations such as this will cause the stock to dip down, but it is rarely cause for long-term concern.
Investors soon realize that they have over-reacted to the situation, and the stock will go from untouchable to undervalued. I am still confident about the Wyeth recommendation.
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."