What I like about the position:
1 - I think that GE is currently undervalued. They are very diverse in their operations, which help to keep the company profitable in all different markets. But when the economy comes back and all business are doing well this means really good times for GE.
2 - Again this is another one of those plays where estimates are probably to low. Currently forecast are set at $1 per share for 2009 and about the same for 2010. Now I know they do have some exposure to financials with the finacial arm. But they have been winding that done to get it to about 40% of its business from 60%. They have reported that this has happened much faster than they had anticipated, which is good news for the overall health of the company.
3 - Becuase of its longevity as a company, I think that investors will be willing to place their bets on GE's survival. And because of that even if GE does not make $2 a share like it has in the past in 2010, investors are going to bid the stock up in anticipation of the good times to come. This is what I am trying to capitalize on.
What do the probabilities look like?
What about the chart?
Today I decided to roll my GE position out to the Jan '12 expiration and down to the $12.5 strike just beause GE may still have some things to work through in 2010 with its financial arm.
ReplyDeleteI want to be more conservative on my calculations. Using a P/E multiple of 10 based on current estimates that may or may not be too low of $1 this puts a price target of $10. Which is close to what my acquisition price would be.
I have closed my 5 puts for a small gain of about $80. As I look at the chart it looks like it may break down a bit more for yet another entry lower. I will keep you posted.