Should we Follow the Big Money into These Stocks?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When an investor feels strongly that a stock is going to make a big move, using leverage is a worthwhile tool to maximize one’s return (granted he knows the potential downside risks). Therefore, I like to see if there is abnormal options activity as that is one of the best leveraging tools around. Here were stocks on Jan. 19 that caught my eye.
Dow Chemical (NYSE: DOW) is an absolute behemoth with approximately $60B in revenue and has been in operation since 1897. We brought up the company recently here and there was abnormally strong options activity, particularly in the Feb 25 calls trading well over 6,000 contracts against just approximately 1,500 in open interest.
This looks to be considerable bullishness with their upcoming earnings report on Feb. 2. Moreover, the company sports a very nice and consistent 3.1% dividend yield, while trading at a reasonable 13.5x trailing P/E, 12x forward P/E, .65x P/S, and 1x EV/S. I’d be a buyer of DOW.
Semiconductor maker Teradyne (NYSE: TER) also caught our attention. The Jan 16 calls traded approximately 2,400 contracts against only 689 in open interest. Earnings for TER don’t come out until Jan. 25, but it looks as though investors either wanted to get in early or take advantage of an expected nice earnings report from fellow semiconductor giant Intel.
Either way TER looks like a quality long-term holding at just a 12x trailing P/E, 13x forward P/E, .95x PEG, and very strong net cash position of approximately $1B. In light of this bullish options activity, I’d buy TER ahead of their earnings report.
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