Applied Materials (AMAT) is up 18.5% in the last 6 months. AMAT did $9.17 billion in sales and $1.52 billion in income in the last 12 months — about twice the industry average on both counts. The company’s profit margin is currently at 16.2%, beating the industry average by over a percentage point. The company’s debt to equity ratio is a miniscule 0.06 compared to a 0.18 industry average.
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Applied Materials closed at $17.97 on Friday. Many analysts feel the stock is currently undervalued, and if it were valued similar to its competitors a more suitable price would be around $22.00 with a $24.00 year-end target.
The company’s stock rating was upgraded on February 5th by Am Tech/JSA Research. This may be a signal the earnings report will be better than expected. Earnings estimates for the first quarter report, to be released Tuesday, range from $0.24 to $0.31 a share compared with $0.14 for the same period last year. Even if the earnings come at the low end, some analysts have noted the stock is still undervalued.
The Motley Fool has called Applied Materials a classic “wide moat” firm because of the “defensibility of its competitive advantage.” This position conforms to trading sage Warren Buffet’s underlying trading philosophy. Companies with a strong competitive advantage often have higher than average P/Es (Applied doesn’t), leading many to believe there is room to grow.
Regardless of how the earnings come out on Tuesday, Applied Materials looks like a strong competitor for the long term. However, the stock price may, especially when earnings are announced, behave erratically in the short term.
Competitors:
Competitors for AMAT include: KLA-Tencor Corp. (KLAC), LAM Research Corp. (LRCX), Tokyo Electron Limited (private), Axcelis Techs. Inc. (ACLS), ASM International N.V. (ASMI), Brooks Automation Inc. (BRKS), FEI Co. (FEIC), Mattson Technology Inc. (MTSN), Novellus Systems Inc. (NVLS), Semitool Inc. (SMTL), and Varian Semi. Equip. (VSEA).
Potential Trades:
All of the following option trades have 34 days until expiration. Applied Materials Inc. is currently trading at $17.97. These trades were discovered using the powerful suite of option search tools found at PowerOptions.
| Covered Call – Applied Mats. Inc. (AMAT) $ 17.97 (34) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| OPTION | Strike Info |
Opt Bid |
% Dnsd. Prot. |
% If Unch. |
% If Asgnd |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANQCS | 07 MAR 18.00 | $0.65 | 3.60% | 3.80% | 3.90% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Bull-Call Debit Spread — Applied Mats. Inc. (AMAT) $ 17.97 (34) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sell Opt |
Strike Info |
Bid Price |
Buy Option |
Strike Info |
Ask Price |
% Return |
Break Even |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ANQCS | 07 MAR $18.00 | $0.65 | ANQCR | 07 MAR $17.00 | $1.35 | 42.90% | $17.70 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The covered call trade, an out of the money covered call, offers 3.6% downside protection and a potential profit of 3.8% if the stock remains unchanged. If the stock advances an additional $0.03, above the $18.00 strike price, the potential profit becomes 3.9%. The net cost of this trade, per 100 options, is $1,732.00.
The second trade is a bull call debit spread. This trade offers 42.9% potential profit if the stock settles above $18.00. If the stock decreases below the break-even price of $17.70, the investment begins to lose money. If the stock price goes below the lower strike price of $17.00, the entire investment is lost. The net cost of this trade, per 100 options, is $70.00.
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. They can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
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[tags]Am Tech/JSA Research, Motley Fool, Warren Buffet, Tokyo Electron Limited, ACLS, Axcelis Techs. Inc., AMAT, Applied Mats. Inc., ASMI, ASM International N.V., BRKS, Brooks Automation Inc., FEIC, FEI Co., KLAC, KLA Tencor Corp., LRCX, Lam Research Corp., MTSN, Mattson Technology Inc., NVLS, Novellus Systems Inc., SMTL, Semitool Inc., VSEA, Varian Semi. Equip., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options[/tags]