NEW BULLISH Plays
Ingersoll-Rand Plc - IR - close: 62.96 change: +0.45
Stop Loss: 59.25
Target(s): To Be Determined
Current Gain/Loss: unopened
Entry on June -- at $--.--
Listed on June 10, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.8 million
New Positions: Yes, see below
Why We Like It:
IR is in the industrial goods sector. They operate two business divisions, their Climate and Industrial segments. The climate business accounts for the majority of their sales as they compete in the heating, ventilation, and air conditioning markets. They're best known for their Club Car, Ingersoll Rand, Thermo King, and Trane brand names.
The company has been consistently growing earnings with EPS growth of +28% from 2011 to 2013. They've also seen operating margins improve over the same three-year period. Their most recent earnings report in April beat analysts' estimates by three cents with a profit of 29 cents a share. Revenues were up +3.2% from a year ago to $2.72 billion. Orders were up +5% for the quarter while margins in its climate business rose 210 basis points.
Steady revenue growth and margin growth sound like a pretty good deal if you're bullish on the stock. Management followed up their earnings news by raising their guidance on the second quarter this year.
Weather was a factor in the first quarter but now that we're into summer any increase in construction should be a boon for IR.
In yesterday's new play (AOS) we noted that the U.S. real estimate market looks poised for improvement. Housing starts were up 13 percent month over month in April. New permits to build houses hit their highest levels in five years. This should all point to improved sales for IR's HVAC business.
We know that somebody is bullish on IR. The last couple of weeks have seen some pretty big option bets. Thousands of July calls options have been purchased expecting IR's rally to continue over the next few weeks.
Technically we are seeing IR rebound from its long-term up trend. The last four months have also built what appears to be an inverse head-and-shoulders pattern, which forecasts a $69-70 target.
The January 2014 high near $63.50 could be resistance. We're suggesting a trigger to buy calls at $63.75. We're not setting an exit target tonight but the Point & Figure chart for IR is bullish with a $71.00 target.
Trigger @ $63.75
Suggested Position: buy IR stock @ (trigger)
- (or for more adventurous traders, try this option) -
buy the Sept $65 call (IR140920C65) current ask $2.00
Option Format: symbol-year-month-day-call-strike