What's that old saying? If it ain't broke, don't fix it? Well,
Check Point Software
definitely is not broke; in fact, we have already played on the same team with it, and we won!
Back on Dec. 27, I
recommended Check Point at about $20. One month later I sold the stock at $22 for a $2000 dollar profit; it traded as high as $22.47 and closed at $22.44 on Jan. 27.
So anyway, earlier this week, I was checking my list of stocks that I follow on a regular basis. As I'm doing my homework, Check Point pops up. The only problem is that I am getting mixed signals.
For example: when Check Point reported earnings on Jan. 30, the following news was released by
: "Check Point Software Technologies said on Monday fourth-quarter net income rose 17%, helped by growth in its Internet security software products, and it forecast further growth in 2006."
What? Now I'm really confused. Why? Because I see another news report from
that reads: "Check Point shares fall after results, outlook."
Enough games, let's get to the facts. The Internet security firm -- which makes the popular ZoneAlarm product line -- has a forward P/E of 13.32; its return on equity is rock solid at 18.72%; its debt is a big zero; and it has over $212 million in free cash flow. Does that sound like a company that should be hovering near its 52-week low? I don't think so either.
Here is the deep in-the-money call for this week: We are going to go out to July, with a $12.50 strike price. The last trade was $8, with very little volume or open interest. If we buy the July 21 strike price at $8, we will be in control of Check Point at $20.50 (we add the strike price plus the price of the calls). We would be paying only 48 cents in premium. At least, that is what we would be paying if the stock was at the same price tomorrow, when you get filled on your good-till-canceled (GTC) order.
Bottom line: this is a very safe deep in-the-money call, especially going all the way until July 21.
P.S.: Don't forget to put your GTC limit sell order in, so you can capture your profit.
P.P.S.: Last Monday, I
recommended buying a June $60
deep in-the-money call at $14.50. I want to stress here that I'm not worried about the $14.50 call, all the way until June -- not with this great company.
But last week,
screwed everything up for the group with its brutal earnings and "weak" guidance. Maybe the reason it guided the way it did is because Nabors is taking all of its business!
For the conservative investor, if you did get filled on those June $60 calls at the $14.50 level, I would add to the position at $10.50. This price reflects the stock trading down near its 200-day moving average at $67.09, in addition to the premium you would likely pay.
Life is a journey, enjoy the ride!
At the time of publication, Dykstra was long Nabors calls, although holdings can change at any time.
Nicknamed "Nails" for his tough style of play during his Major League Baseball career, Lenny Dykstra was an integral member of the powerful Mets of the mid-1980s, including the world champion 1986 squad, and the Phillies in the early 1990s.
Today, Dykstra manages his own stock portfolio and serves as president of several of his privately held companies, including car washes; a partnership with Castrol in "Team Dykstra" Quick Lube Centers; a state-of-the-art ConocoPhillips fueling facility; a real estate development company; and a new venture to develop several "I Sold It on eBay" stores throughout high-demographic areas of Southern California.