Ag giant could challenge 2011 highs after earnings report
It’s getting tougher and tougher for options trading investors to find earnings plays with the new season just around the corner (less than two weeks away). Making the job even tougher is the fact that we tend to stay away from low-priced stocks (below $5) and stocks with illiquid options, as wide bid/ask spreads are profit killers.
So we’re glad that Monsanto (NYSE: MON) is reporting next Wednesday before the open. Everyone knows that ag stocks have been hot with higher demand for commodities translating into steep price gains. In fact, analysts expect MON to produce profits of $1.85 per share, the highest such figure in two years. On the other hand, this figure represents just a 9% increase from a year ago, so expectations are somewhat reserved.
The stock has done well after recent reports, gaining sharply in the week or two after the past three releases. In the past two quarters, the shares have advanced nearly 8% on average in the week after reporting.
On the chart, MON is recovering from a 16% pullback that began after the shares peaked in early February. The shares are up more than 10% in the past two weeks to pull above their 20-day moving average, which is now poised to point higher. The overhead 50-day is a concern, though a decent response to earnings should overcome this potential resistance.
Monsanto (NYSE: MON)
Sentiment toward MON is another reason to like the shares. After rising for nearly two months, the put/call ratio appears to be forming a peak, a sign that buying pressure may soon dominate the price action. And just eight of 21 analysts believe the stock is a “buy,” setting MON up for some post-earnings upgrades.
With modest expectations and strong fundamentals, look for MON to take out chart resistance and continue its momentum toward its 2011 highs. Buy a little extra time to let the move play out by going with the MON May 70 Call for less than four dollars.
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