Shares of Terex Corp, (TEX) hit a new 52-week high of $66.48 Wednesday December 27th. The stock is being buoyed by its recent placement on the S&P 500 and sector-wide analyst “Buy” ratings.
An audio podcast of this article is available at: poweropt.com/podcasts/2006_12_28_terex.mp3.
It is typical for a company’s stock to rise as it is added to the S&P 500 because funds that track the S&P 500 now must buy shares. Terex replaced Navistar Inc. (NAV) on the S&P 500 after the close of trading Tuesday. Navistar, trading at $33.65 at Wednesday’s closing bell, is also near a 52-week high.
Navistar was scheduled to be de-listed from the NYSE on Wednesday. The company, which is restating past finances, said it would miss the stock exchange’s deadline for restating its 2005 results. Navistar was able to defer their delisting by requesting a formal review of the matter by a Committee of the Board of Directors of NYSE Regulation. This review is expected to occur on January 30, 2007.
Many analysts are pinning a price target of $70 on Terex. They believe the company is well positioned to benefit from long cycle and emerging markets.
Stock Buy Back:
Terex announced on 15 December 2006 the authorization of a $200 million share buyback program. The buyback will occur between now and June 30, 2008. Terex also said it will redeem $200 million of 9.25 percent senior subordinated notes due in 2011.
Terex will pay holders around 105% percent of the principal amount of the notes plus accrued interest. As of Sept. 30 the notes were part of Terex’s nearly $800 million in long-term debt.
CFO Sells Shares:
The CFO of Terex Corp., sold 15,000 shares of common stock, according to a SEC (Securities and Exchange Commission) filing last Thursday. Phillip Widman reported he sold 7,500 shares 19 December for $63.95 apiece, and sold an additional 7,500 the 20th for $65.50 to $66.42 apiece.
Terex Corporation manufactures equipment for the construction, quarry, mining, shipping, transportation, and refining industries worldwide. Terex Construction makes scrapers, hydraulic excavators, loaders, cranes, backhoes, and a myriad of commonly used construction equipment. Terex Aerial Work Platforms segment provides aerial work platform equipment such as material lifts and scissor man-lifts. Terex Materials Processing and Mining segment makes crushers, hydraulic mining excavators and drilling equipment. Terex Road building unit manufactures asphalt and concrete equipment used in road construction. The company, formerly known as Terex U.S.A., Inc., was founded in 1925 and is based in Westport, Connecticut.
With Terex’s addition to the S&P 500 and its strong positioning in its market segment, a bullish strategy for Terex looks attractive. Using PowerOptions stock options search tools we discovered the following bullish positions:
|Covered Call — TEREX CORP (TEX) $66.29|
|TEXAM||07 JAN 65.00||$3.00||4.50%||2.70%||2.70%|
|Bull-Call Debit Spread — TEREX CORP (TEX) $66.29|
|TEXAA||07 JAN 62.50||$4.70||TEXAY||07 JAN $57.50||$9.20||11.10%||62|
The covered call trade offers solid downside protection of 4.5% and a reasonable potential profit of 2.7% in the 23 calendar days until expiration. This trade is an in-the-money call option because the stock price is above the strike price of the option.
The second trade is a more risky bull call debit spread. This trade has a potential return of 11.1% in 23 days if the stock stays above $62.50. The break-even price is $62.00 and the investment would realize a large lost if the stock price slips below $57.50, resulting in a loss of $450/contract.
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[tags]S&P 500, NYSE, SEC, Phillip Widman, Westport, Connecticut, CAT, Caterpillar Inc., MTW, Manitowoc Company Inc., NAV, Navistar International Corp., TEX, Terex Corp., bull call debit spreads, covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]