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These two much-maligned companies are often the objects of contempt for a multitude of groups. But the fact remains most people love and use the products these companies peddle. From the $14 ironing board to the MS Excel, these two are the standard bearers of our times. Their stocks, however, reflects an investor belief that strong growth isn’t likely to come from either of the two companies.
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Consider first Wal-Mart with its 21% return on equity and over 40% quarterly earnings growth. Their P/E looms around 14.5 while Target (TGT), despite their recent earnings correction, has a P/E of around 18.5.
In the news, Wal-Mart announced today it would sell the popular fungal medication, Lamisil, for $4. The company also indicated it would sell two popular birth-control drugs for $9. The company hopes to lure more young women into their stores with this offering.
Microsoft’s price is a bit of a puzzle. Granted, they’ve seen about a $1 per share bump in the wake of Halo 3. The company has a profit margin of 27%, but is consistently valued less (in P/E terms) than its peers.
On the downside, Microsoft is under relentless criticism from bloggers over its giving facebook.com a $10 Billion valuation with its offer of around $500 million for 5% of the company. Also, the European commission turned down an appeal request on the ruling of Microsoft’s Windows having a virtual monopoly.
Interestingly, Microsoft is infinitely more open in its operating system than Apple’s OS10. What would European courts do to Apple (AAPL) if a similar case were brought to bear on their operating system, iTunes, or the iPhone? The Apple crowd would be incensed.
Are the American public’s favorite corporate whipping boys going to see stock gains in the near-term? It is difficult to tell, but in the following analysis, we will assume the stocks are undervalued and look at covered call trades involving the two stocks.
Whether you agree with the premise of this blog or not, one thing is for sure; when attempting to identify the best option trades, a great place to turn is PowerOptions. Their patented search engine can whip out trading alternatives in no time flat. So an investor can be sure they have identified the best option trading position possible.
All of the following trades have 114 or 86 days until expiration depending on whether they are January or December covered calls.
|Covered Call Search|
|WMT||43.75 (+0.45)||WMTAI||08 JAN 45.0 (114)||$1.75||42||4||4.2||7.1|
|MSFT||29.51 (+0.01)||MSQAK||08 JAN 30.0 (114)||$1.40||28.11||4.7||5||6.7|
|WMT||43.75 (+0.45)||WMTLI||07 DEC 45.0 (86)||$1.45||42.3||3.3||3.4||6.4|
|WMT||43.75 (+0.45)||WMTAV||08 JAN 42.5 (114)||$3.10||40.65||7.1||4.6||4.6|
|WMT||43.75 (+0.45)||WMTLV||07 DEC 42.5 (86)||$2.85||40.9||6.5||3.9||3.9|
|MSFT||29.51 (+0.01)||MSQAY||08 JAN 27.5 (114)||$2.95||26.56||10||3.5||3.5|
Competitors for WMT include: Autozone Inc. (AZO), Bed Bath & Beyond Inc. (BBBY), Best Buy Co. Inc. (BBY), Big Lots Inc. (BIG), Brown Shoe Co. Inc. (BWS), CSK Auto Corp. (CAO), Circuit City Stores Inc. (CC), Casual Male Retail Group Inc. (CMRG), Conns Inc. (CONN), Costco Companies Inc. (COST), CVS Corp. (CVS), Dicks Sporting Goods Inc. (DKS), drugstore.com Inc. (DSCM), Family Dollar Stores Inc. (FDO), Foot Locker Inc. (FL), Freds Inc. (FRED), Hibbett Sporting Goods Inc. (HIBB), Kroger Co. (KR), Nash Finch Co. (NAFC), 99 Cents Only Stores (NDN), PetsMart Inc. (PETM), Payless ShoeSource Inc. (PSS), Rite Aid Corp. (RAD), Renters Choice Inc. (RCII), Sally Beauty Holdings Inc. (SBH), Sears Holdings Corp. (SHLD), Spartan Stores Inc. (SPTN), Stage Stores Inc. (SSI), Supervalu Inc. (SVU), Safeway Inc. (SWY), Target Corp. (TGT), Walgreen Co. (WAG), Winn-Dixie Stores Inc. (WINN), and Zale Corp. (ZLC).
Competitors for MSFT include: Google Inc. (GOOG), International Business Machines Corp. (IBM), Oracle Corp. (ORCL), Apple Computer Inc. (AAPL), Adobe Systems Inc. (ADBE), Borland Software Corp. (BORL), Convera Corp. (CNVR), Cognos Inc. (COGN), Citrix Systems Inc. (CTXS), DivX Inc. (DIVX), Earthlink Inc. (ELNK), Epicor Software Corp. (EPIC), GSI Commerce Inc. (GSIC), Immersion Corp. (IMMR), Logitech Intl. SA (LOGI), Lawson Software Inc. (LWSN), Marchex Inc. (MCHX), McAffee Inc. (MFE), Macrovision Corp. (MVSN), Novell Inc. (NOVL), Openwave Systems Inc. (OPWV), Open Text Corp. (OTEX), Progress Software Corp. (PRGS), Red Hat Inc. (RHT), Research In Motion Ltd. (RIMM), RealNetworks Inc. (RNWK), SAP AG (SAP), Smith Micro Software Inc. (SMSI), SonicWall Inc. (SNWL), Sybase Inc. (SY), Symantec Corp. (SYMC), TiVo Inc. (TIVO), VMware Inc. (VMW), Wind River Systems Inc. (WIND), and Zixit Corp. (ZIXI).
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