Consider Trailing Stop Losses and Buying NYX

NEW YORK (TheStreet) -- Stocks had a great two-day run after reopening in the aftermath of "Frankenstorm" Sandy. As I write this article on Friday, I'm struck by the fact that we are approaching another critical event.

On Tuesday we in the U.S. will have the most important presidential election since November 2008. The media say the race is too close to call, so all I can say is that uncertainty and some angst may accompany the election's approach and its aftermath.

For those of us who own stocks, it's a prudent time to reexamine our exit strategy (you do have an exit strategy, correct?) and the importance of some kind of a trailing stop-loss system that will alert you when it's time to sell.

In September I wrote an article that speaks to the importance of this system as not only a safety net but as a way to make sure we let "our winners run."

In the article I made the following observations:
Usually, I don't like to enter these "trailing stop-loss orders" as standing orders with the brokerage firm where I trade my portfolio. As I wrote in an article yesterday, "When you enter them with your brokerage firm, the market maker may see your willingness to sell at a price below the current price and conveniently match your order up with some big client who is looking to buy at that price..." In other words, I don't want the market makers to see my stop-loss or trailing stop-loss orders."

That's why I like to use a system that the market-makers can't see, like the new version of TradeStops. It's a system that's been around for years and was recently updated with many helpful new features.

In essence, it's a system designed to keep us invested in our best positions while giving us a discipline to exit ones that are not performing as we'd anticipated. With the potential for increasing stock volatility or unexpected news that can cause a stock to plummet or soar in a "New York minute," we need to keep very close tabs on every stock position that we own.

With that said, let me introduce you to a company that is in the business of operating securities (i.e. stock) exchanges: NYSE Euronext ( NYX).

At the moment, shares of NYX are "on sale!"

Headquartered in New York City, NYX is an international exchange operator. It owns and runs the New York Stock Exchange (NYSE), NYSE Arca, Inc., and NYSE Amex LLC in the United States.

It also operates five European-based exchanges comprised of the Euronext N.V., the Paris, Amsterdam, Brussels, and Lisbon stock exchanges, as well as the NYSE Liffe derivatives markets in London, Paris, Amsterdam, Brussels, and Lisbon.

NYSE Euronext offers an expansive range of products and services in cash equities, futures, options, swaps, exchange-traded products, bonds, clearing operations, market data, commercial technology solutions and carbon trading to investors, issuers, financial institutions and market participants.

You can learn more about the company by visiting its user-friendly Web site and exploring all the ways it makes money and makes markets for all sorts of investment products.

NYX has a $6.22 billion market cap and an average daily volume of 2,385,000 shares traded. For various and sundry reasons, including the problems associated with Hurricane Sandy, NYX is trading closer to its 52-week low price.

As I write, the share price is at $25.30, giving it a dividend yield-to-price of 4.74%. Try to find a company that has a solid corner on its market with a 22% operating margin, operating cash flow (trailing 12-month) of $938 million and levered free cash flow of $696 million with a dividend yield of 4.74%. Bet you can't!

As you can see from the five-year chart below, there appears to be a disconnect between the share price of NYX and its impressive operating margin. My thesis is that this may be corrected in the very near future. NYX Chart NYX data by YCharts

Now before you buy some shares I have one warning. NYX reports its latest quarterly earnings results on Tuesday, Election Day. If the company disappoints or if its forward guidance isn't encouraging enough, the stock could move lower in reaction. The opposite scenario could see a sharp spike in shares.

So I suggest, as Jim Cramer likes to call it, we do some "schnitzel-ling." That's another way of describing "accumulating" where you buy some shares before earnings are reported Tuesday and the rest after all the results and comments are out on the table for all to see. As Jim would remind us, do your own careful due diligence before investing.

Consider using some kind of trailing stop-loss system to protect your capital, and do some dollar-cost-averaging when it comes to buying a stock like NYX. Its forward PE ratio of 10.59 seems quite reasonable and I suggest that now may be an auspicious time to practice "schnitzel-ling" and other savvy investment disciplines.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

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