The LEAPS Option Trader
105 W. Monument Street
Baltimore, MD 21201
Wednesday, July 27, 2005
Email – #262
** Will The Sun Ever Shine Again?
Sun Microsystems (Nasdaq: SUNW) has been a laggard for a few years. After its heyday during the Internet boom, the company has been involved in a massive restructuring of its business to keep up with the new paradigm in technology – change and low pricing.
It appears, based on the most recent earnings release, that Sun has turned the corner and is now once again profitable… with the ability to grow its bottom line.
Fundamentally speaking, Sun has never been in danger of going out of business. The company is cash rich with over $7 billion in cash and marketable securities, about $2 per share. That’s quite a cushion for a company selling for less than $4 per share.
Sun’s latest quarter showed growth in its core server market because of its ability to compete, thanks to lower priced/higher performance Opteron chips provided by Advanced Micro Devices.
In recent months, Sun has also announced significant acquisitions to bolster its portfolio of products. It is making a huge investment in storage and software. Combined with investments in servers, this makes Sun a powerful presence in the non-PC computing world.
Recent data from tech companies like Cisco, Texas Instruments, Intel and EMC show that tech spending is growing. Add to this the continued expansion in emerging markets, and tech could be in for a nice ride over the next couple of years. The company has shown that it can be profitable. Management is on record stating that 2006 will be substantially better. If this becomes a reality, we could be in for a super ride. Fortunately for us, the Sun options will have a lot of time for this to play out, and are not very expensive, either.
What intrigues me more about Sun is that it has a history of going in and out of favor. Lately, its shares have been put of favor. However, every few months, the shares spike higher on talks of a takeover, a dividend, or a hot new product introduction. It is these spikes that can cause the share price to move 20% to 40% in a matter of days, since the base is so low at under $4.
Recently the Sun, 2008 LEAPS were issued. These LEAPS give us until January 2008 to play the tech rally in VERY inexpensive fashion.
Here’s What To Do:
Buy the Sun Microsystems January 2008, $5 LEAPS. The symbol is WSU AA. These LEAPS expire in 906 days and the current price is $0.75 on the offer. They are very liquid and you should NOT pay more than $0.75 per contract.
A 20% move in the share price of SUN over the next six to 12 months (its 52-week high is $5.65 – more than 60% above current levels) would result in a 50% plus gain for us.
We will set an initial stop loss at $0.30.
Regards,
Karim Rahemtulla
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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