The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Tuesday, January 4, 2005
Email – #221
** Bargain Blue-Chips
Buying something at a bargain price is a relative concept. For some it means getting 10% off MSRP on a Rolls Royce. For others it could be buying a stock a discount to its historical valuation and its future growth.
Today, valuations on most shares are at sky high levels. It is a dangerous playground. It is time to shift our attention to high quality companies that have proven earnings power and catalysts for growth in the future that will maintain earnings momentum.
There are three companies that are on my screen that fit the profile of proven winners with catalysts for earnings growth this year and beyond. In each case we will use LEAPS to own these shares at a level of 10% or lower of the current prices. If we wanted to buy 1,000 shares of each company, we would spend close to $91,000. With a stop-loss of 20%, we would have more than $18,000 at risk. By using LEAPS we will invest – for 10 contracts each – about $8,500. With a 50% stop-loss, our at risk capital is less than $4,250, almost $14,000 less than the $18,000 and less than 5% of the amount needed to buy 1,000 shares of each company. I am looking for a 25% to 30% gain in the share price of this blue-chip trio over the next year to 18 months. That would result in gains of over 50% for our LEAPS portfolio. We will have over 2 YEARS on each LEAP. Over the next few weeks I will introduce each company to you as they come into range. The first one is GE.
General Electric (GE-NYSE.) Currently trading close to $37 per share, GE is also trading at a 40% discount to its all time highs set in the late-1990s. A resurgent GE is growing its bottom line at between 10 and 15% per year. Going forward that means close to $2 per share in earnings from this company by 2006. in real terms that would represent more than $20 billion in net income. GE’s catalysts for the coming years are its huge portfolio of industrial and technology assets which are “on sale” compared to its competitors. Why buy products from Siemens of Germany when you can get it from GE at a 30% discount just based on currency? GE is also a major player in Asia, fully realizing the benefits from continued growth in the region. The recent Asian Tsunami will also benefit the company as it is a major supplier of the types of materials needed for rebuilding, such as power generation. GE is also a major player in defense technology and medical science technology, both high growth businesses worldwide. The only negative that I can see for GE is its huge financing arm which could be subject to slower growth because of rising interest rates and a slowing housing market in the US. However, the slowdown in that sector would be offset for the most part by a growing economy that is causing the higher rates. Finally, GE is also an entertainment conglomerate which will benefit from many of the same factors that will help Disney. Buy the GE January 2007 $40 call option (VGE AH). These options are currently trading at $2.75 – do not pay more than $2.85. Set an initial MENTAL stop loss at $1.40. My target price for GE is $45 in the next two years (current price is $36.70.) If GE were to reach $40 – less than 10% higher than the current price in the next 6 to 12 months, we would see a 30% to 50% gain in our option.
Regards,
Karim Rahemtulla
AN URGENT NOTE: Also, here’s how you can join a select group of serious investors to learn how to multiply your money many times over. At Phoenix, AZ’s Pointe Hilton Squaw Peak Resort on February 21-22, 2005, Agora Financial will host Profits at the Peak Traders Conference. Eight top experts will reveal their techniques for beating the markets soundly, year in, year out. Presenters will include MST’s James Boric, Commodity Trend Alert’s Eric Roseman, Microcap Moonshot’s Brian Hunt, the 10 Minute Trader’s D.R. Barton, and The Oxford Club’s Louis Basenese and yours truly, to name a few. To reserve your spot now, visit http://www.agora-inc.com/reports/300Sconf/F300EB21/home.cfm . Or please call Jayle Watje 888.799.0463 or 410.454.0413, or e-mail her at jwatje@agorafinancial.com
Bio:
Karim Rahemtulla is the former Investment Director of The Oxford Club. The editor of The Smart Options E-Report, The Income Trader – A Covered Call Strategy and The LEAPS Option Trader, Karim is also a regular contributor to The Oxford Club Communiqué. His highly successful trading systems use covered calls and LEAPS to boost returns on blue chip stocks, and during the bear markets of 2000 and 2001, his picks outperformed the major market averages. Educated in England, Canada and the U.S. and fluent in several languages, Karim travels the world to find the best investment opportunities for our members.
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