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Pump It Up: Stock World Weekly
Here's this week's Stock World Weekly: Pump It Up
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Markets: The higher we go into the weekend, the more bearish I want to be at today’s end. If we break over and hold our levels next week – there are plenty of things to buy – we had a bunch of short put plays in yesterday’s Member Chat already (just in case). But, on the whole, we should take this bullish gift for what it is and not look the gift horse in the month as it’s a great chance to take some long money off the table and to lay down a few disaster hedges.
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Our premise is that inflation is lifting the markets, and while we acknowledge that the technical arguments for a rally are strong, we are not thrilled with the fundamentals underlying the markets.
The current rally has left some very good companies behind, and nowhere is this more evident than in the technology sector. Former wonder stocks that could do no wrong are now being shunned by investors who are looking to pile in to “the next big thing.” We think this is a mistake because investors are overlooking some extremely good companies that are currently trading at very attractive prices.
One of our current favorites is networking giant Cisco Systems (CSCO), a behemoth with $40Bn in annual sales as of 2010. While currently out of favor with many analysts, Cisco is a good long-term acquisition. Phil wrote: “CSCO is $17.04 and you can buy the stock and sell the 2013 $17.50 calls for $2.50 and the 2013 $15 puts for $1.75 for a net cost of $12.79 with a 37% profit if called away at $17.50 or, if another round is put to you at $15, then you have an average entry of $13.90 - which is and additional 18.4% discount off the current price. Note that $13.56 was the 2009 crash low so hopefully we can consider it a solid floor!”
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I like the concept - these guys have $7.28 in cash per share, a book value of $8.25 - but I don't know what the catalyst might be. That chart looks like shit... maybe you'd consider taking some down at the March, 2009 levels around $12.
A lot of the 90s tech (INTC, MSFT) is in the same shape... good margins, lots of cash, high book value... and it's just not moving.
CSCO... a no-growth megacap yielding less than half of the Barclays Agg. Buy calls, BTFD!!!
CSCO is a solid, fairly well run company. The strategy listed would be the only real way it makes sense to buy the stock IMO. Get that cost basis lowered via options and then enjoy the dividend when it finally hits. It's sad to say it will never again be a "growth" stock, but it will likely always been a solid company. I've made and lost a lot of CSCO.
However for me.. it's SILVER BITCHEZ.....
(been wanting to post that!)