With the stock market screaming higher lately, even value investments are trading with significantly higher premiums on deep-in-the-money (DITM) calls than what we look for normally.
A great way to find solid picks is to look for beaten-down stocks. As the
Dow Jones Industrial Average
reach new highs, money moves toward the momentum, leading to higher highs. At the same time, this momentum money leaves stocks with negative news and creates a situation where lows are exaggerated.
For those who read my column every day, this concept may seem something of a cliché. However, I believe the best investment opportunities come from those stocks in which people have hammered home the negative and overlooked the positives. Today's selection,
, reported disappointing fiscal second-quarter earnings and lowered third-quarter guidance. The stock is down 37% from its 52-week high, and as a trader and investor what I see in this situation is an opportunity to profit. At its close yesterday of $23, Jabil's stock has held its 50-day moving average.
Although second-quarter earnings disappointed and the company lowered guidance for the third quarter, revenue came in ahead of forecasts. The company cut guidance because of higher costs, but many of these costs are one-time restructuring and impairment charges.
Although these expenses hurt present earnings, the company's revenue growth makes it an excellent buy at these prices. At its present value, the company is trading with a price/earnings-to-growth ratio of 1.00, and is 10% undervalued, according to ValuEngine's calculations.
In order to allow ample time for Jabil to regain its positive momentum, I will place a limit order for 10 contracts of the December 20s (JBLLD) for $4.20 or better. This allows me to control 1,000 shares for a minimal premium for nearly seven months. This should be more than enough time for Jabil's stock to regain some of its lost value.
Now, let's get to the emails.
Fielding Reader Email
Dear Mr. Dykstra, Do you actually purchase and own all the DITM calls that you pick and describe in your daily report that meet your purchase price, or are they just suggestions for us viewers to consider?
Absolutely! I put my money where my mouth is. I put in the exact same order that I recommend to readers.
Lenny, I want to thank you for sharing your options trading strategy. After yearsof letting others take care of my investments (which they did not do a very good job of), I decided last year to do some of it myself. I was diagnosed with breast cancer last year, and wanted to feel like I had control over something in my life. I had a little success, but since following a lot of your suggestions starting this past March, I am learning a lot! I had hoped some day to start a charitable trust, and now I feel confident that I'll be able to do that! Thanks again!
It's people like you who remind me why I work so hard every day! I am so very happy that I can help you. I hope that with my picks, you will soon have a lot of money in your charitable trust!
Lenny, we haven't corresponded before, but I wanted to drop you a line and let you know how much I enjoyed your comments today on the "Game of Life." It's nice to see someone making insightful comments on the stuff that really matters.
It's great to hear from readers like you. I take pride not only in the stocks that I pick, but also in my "Game of Life" part of the column. Thank you for taking the time to send me this email.
At the time of publication, Dykstra had no positions in stocks mentioned.
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.