PCAR - Paccar Inc $71.80 ** Stop loss $68.50 **
Paccar is the number two maker of heavy-duty trucks with two of their major brands being Peterbilt and Kenworth. Paccar produced a company record of 124,000 trucks in 2004 as healthy freight volume pushed demand. Earnings were announced on Feb-1st and revenue increased +44% and earnings +52%. The company said sales continue to be strong with an expected 15% jump in total truck sales in the U.S. in 2005 and a +5% jump in Europe. Market share in North America increased to +24% on heavy duty trucks and 9.4% on medium duty vehicles.
Paccar had risen from $52 last January to $81 at the close of 2004. Like all the other winners they were hit hard by profit taking and knocked back to $68.50 on Jan-28th. After two weeks of sideways consolidation they have started to move higher once again. This is a stable company with very strong earnings and growth and should be a target of fund managers once the techs move into overbought territory. $70 appears to be holding as support and hopefully a launching point.
With PCAR at $71.80 the 2006 $75 LEAP Calls are $6.30. The $70 LEAP Calls are only $8.80. They are already $1.80 in the money and I believe represent a better value. I am going to list them both and you pick your favorite. I am not putting an insurance put on this play given the already drastic drop and earnings are behind us. I would rather go with a tight stop.
2006 $70.00 LEAP Call YYQ-AN currently $8.80
Stop loss $68.00 This will be below the January dip.
No insurance put
Entry point $71.80 (02/07)
ADSK - Autodesk Inc $31.33 ** Stop loss $27.50 **
Autodesk is the worlds biggest software design maker and the stock has made quite a few investors a lot of money. In 2004 the stock rose from $12 to $39 for a +209% gain. Needless to say the company was hammered once the calendar expired and it dropped to a low of $26 on profit taking. On January 24th, the low for the current market and after a 33% January drop the company was downgraded on valuation my Banc of America. BAC was late to the party but ADSK saw another -12% drop on the news. Smith Barney retaliated that the concerns over share price had already been factored in with the January selling and suggested there was upside potential.
In November ADSK raised guidance for 2006 above analysts estimates and nothing has change from the company. A string of positive press releases continue to paint a picture of business is booming. Earnings are Feb-22nd so we do have event risk but I would like to think the risk is to the upside. The 100-day average has proved to be support in January as is did last August.
Autodesk does not have leaps. Since the normal time in a leap trade is only about two-three months I decided to enter the play with the July $32.50 call instead at $3.20. It is cheaper than a leap and plenty of time to play. The July $30 call is only $4.40 and it is already $1.33 in the money.
I am not going to recommend an insurance put because of the cheap calls. The closest strike at $30 makes the March put $1.60. I can see paying $1.60 to insure a $3.20 position.
July $30.00 Call ADQ-GF currently $4.40
No insurance put
Stop loss $27.50
Entry point $31.33 (02/07)