Tuesday, February 23, 2010

AZN is looking good!

I found AZN on my pre-set market scanner that I have saved over at Finviz.com. It is currently trading at a p/e af about 8.5 and a forward p/e of closer to 7 and below 7 if they hit there high target for earnings, which the company recently just revised upward. Very bullish for the stock in my opinion. I also find it as a good opportunity as the stock recently had a sell off after missing Q4 numbers. But it has found a nice base around 43.5, See chart below:

As you can see highlighted in the chart the stock has been basing in a very tight $0.50 range from 43.50-44 since its Q4 miss in late January. Look at the candlestick where the low was put in at 42.21, this shape of candle stick is known as a hammer which more often than not signals a reversal in direction. So I like the fact that AZN traded faily quickly off this low and has been basing.

So the trade: I am looking to buy 5 of the Jan '11 $45 calls @ 3.30. Now why am I buying so far out? I like the January calls as I am betting that this stock will play catch up with its earnings estimates but it may need a few quarters to prove to investors that it can do it. AZN reports in April, July, and October. So this will allow me to capture 3 quarters, which should be plenty of time for this stock to work. Last report in October is after option expiration which leaves Jan '11, thus the best choice for me.

Lets take a look at the Scenario analysis from TOS:


I have set the calendar to October 29, 2010 as this is the day after the last report for the year. And obviously if it works a lot faster than I will be more than happy to take profits early.

Stock price: Currently at $43.5

Target: 55-60

Stop : Below 40 (pretty big support level from 2009)

Risk/Reward : 1:2 or better depending on speed of move and ultimate price

Holding period: 2-9 months

The market seems weak as I write this post. SPX is down about 12 points.

Buy 5 Jan '11 45 calls @ limit of $3.30 or better.

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