Here’s another trade idea, courtesy of Daniel Jones: 
NYX
With the market at extremely oversold levels, we are issuing our second inter-week pick today, on top of the regular Monday newsletter. It is our feeling that here is a great opportunity to pick up great values on very good companies. In that light, today we’re revisiting the NYX group which has endured a dramatic sell off in the shares of the firm since our last recommendation on 4 June 2008. On that day, we recommended looking to buy NYX at $57.50, among other things. If we liked it at $57.50, we must love it at $47.50, right? You bet we do. We’re pounding the table to buy NYX today, and go long the September calls. We expect a very strong resurgence coming to these shares as the value inherent in the NYSE franchise comes out. In our opinion, the selloff in the shares to date has taken the exchange’s stock price to unwarranted levels.
Recommendation: If you haven’t bought the stock, now is a good time to put in a buy order on NYX at $47.50 per share.
Previously, on 4 June 2008, we recommend a sale of the September $55 puts for $2.50. We would look to also now sell the September $45 puts for $3.10 or better. This will give you a weighted average net cost on NYX shares if you are assigned on both strikes of $47.20. If you are only assigned on the $55 strike prices puts, but get to keep both premiums, this will get you NYX at a net cost of $49.40.
Also, on 4 June 2008 we recommended creating a call spread by going long the September $65 calls for $4.00, and selling the September $75 calls for $1.30, giving a net cost to the spread of $2.70. We recommend buying back those NYX September $75 calls at this point, at $0.15 or less to close that liability of having short calls. We also recommend buying NYX September $50 calls today at $3.25 or less. Whether or not you close (sell) the September 65 calls at $0.40 or better is up to you. If taking that loss is advantageous for either tax or other reasons, they could be closed. We prefer to continue to hold them for now and look to exit at higher prices to recover additional capital.
This chart shows NYX for the last six months. The stock has fallen off a cliff in the last 30 days, dropping nearly 21% from $60 to $47.50. If you look at the $75 price NYX held back in May, it has fallen by nearly 37%. This selling is overdone.
The Relative Strength Index (RSI) and Moving Average Convergence / Divergence (MACD) stochastic lines are both rounding out at low levels, indicating a bounce, at least on a technical basis, could be coming.
NYX Fundamental Data
Current Price: $47.70
Shares Outstanding: 265 million
Market Cap: $12.7 billion
Forward Price / Earnings (avg. Est): 11.7x
PE/G Ratio (5 Year Expected): 0.7x
Price / Book: 1.3x
NYX continues to see growth in its quarterly revenues, despite the market’s volatility – or perhaps because of it. On a quarterly basis, revenues have risen by about 8% annualized, and analysts are expecting a $3.3 billion dollar revenue year for the full year 2008. For the year ending December 2009, expectations are that revenues climb above $4 billion.
Earnings estimates have all been stable, with 2Q08 estimates staying at $0.78 per share for the last 90 days, and full year 2008 estimates remaining in the $3.30 range per share. From a price / earnings ratio perspective, we feel there is not much downside risk here. NYX’s earnings releases over the last four quarters have not featured any disappointments either – to the contrary, there have been positive earnings surprises of 4% to 9% happening.
NYX’s balance has $1.66 billion in cash, or about $6 per share. The debt they carry though, amounts to over $3 billion. The firm’s EBITDA is $2.62 billion on a trailing twelve month basis. That gives us a solid comfort level that NYX and its cash flows are stable and can support the debt in a very consistent manner.
Please note: Options trades all involve a high degree of risk and the potential to lose some or all of your investment. These recommendations are general in nature, and you should consult your own financial professional who is familiar with your situation as to the appropriateness of these trade ideas.
Disclosure: Analyst has no position in NYX stock or NYX options.
Current NYX Stock Price: $47.70 10:20 AM, 9 July 2008
Author: Daniel Jones
