ACTIONS:
Buy Flextronics (FLEX) common stock at current levels.
Buy to open the FLEX July 13 calls (FLEX150717C00013000, $0.50, down $0.05) at current levels.
Dear Momentum Stocks Weekly Subscriber,
I have two New Trades for the Momentum Stocks Weekly portfolio.
One trade is a stock play, while the other is a longer-term option trade. I like both positions at current levels, and I will wait to sell a covered call on the stock trade down the road.
As far as the option trade, I have found some “cheap” options to play for a potential takeover target. Even without a bid, the options will easily double if shares clear $14-$15 this summer.
The stock is currently north of $12, and each trade carries a different set of risk factors. I will cover them later this week or next Monday, but, for now, I like both trades.
Flextronics (FLEX, $12.24, up $0.06)
Buy Flextronics (FLEX) common stock at current levels.
Flextronics (FLEX, $12.24, up $0.06)
Buy to open the FLEX July 13 calls (FLEX150717C00013000, $0.50, down $0.05) at current levels.
I have been mentioning shares of FLEX off and on for months and have traded the name with a little success.
I have talked about the company’s relationship with Apple (AAPL), as Flextronics manufactures the Mac Pro. Last year, I went on record and said that FLEX could be the front-runner to produce or work on the Apple Watch.
FLEX shares traded to a 52-week peak of $12.48 last week, and I have said that a run to the mid-teens could come this year.
Apple is holding a special event on March 9, and I have a feeling that it is going to blow away the tech-hungry minds. As usual, Wall Street isn’t expecting much as far as sales for the watch, but they have already underestimated Apple Pay and its gorilla ecosystem for years.
I’m hoping that Flextronics catches a piece of this action, which is why I like the stock and bullish call options. The company has its fingers in a lot of pies, but the easiest way to dummy down their business is to think of them as a flexible technology business.
FLEX has a manufacturing operation here in the States. It would be great to see Apple bring back some production work here at home and provide more jobs.
The company was mum on its development of Apple’s Mac Pros, as no leaks were released prior to the announcement. The watch has been one of Apple’s top secret projects for a few years, and Flextronics is known to keep their work on the down low as well.
Flextronics has its prints and technology in wearable devices such as Fitbit, Jawbone and Nike Fuelband.
A “new” partnership with Apple, or a takeover, is pure speculation on my part, of course, but it makes more sense than McDonald’s (MCD) buying ShakeShack (SHAK), which is what one analyst on TV recently suggested.
Flextronics has a market-cap north of $7 billion, so a takeover could cost Apple or another tech company $12-$14 billion. This would fetch a premium of $20-$24 for the stock, which would represent a return of almost 100% from current levels.
I’m using the stock and options to play the technical aspect of FLEX, but I also love the fundamentals of the company. Recent third-quarter (2015) earnings of $0.30 a share on revenue of $7 billion topped Wall Street’s expectations for $0.26 a share on sales north of $6.6 billion.
This represented the fourth-straight earnings beat for the company, as they have topped the suit-and-ties’ expectations by $0.02, $0.03, and $0.04 in the previous three quarters.
Overall, I love the risk/reward these trades offer.
All prices given in this update are current as of 2:20 p.m. EST.
Every new Momentum Stocks Weekly recommendation is listed with the price at which I entered my own position. If the price is slightly different than my recommended entry or exit price when you receive the alert, don’t let that keep you from getting into or out of a trade. Occasionally, you might even get a better “fill” price than what is posted in the Open Trades and Closed Trades.
Trade on!
Rick Rouse
Editor
Momentum Stocks Weekly