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DARK HORSE HEDGE – Move on FRX, Buy/Write RDWR
By Scott Brown at Sabrient & Ilene at Phil’s Stock World
Told you that forever was a word, I couldn't say
I don't know 'bout tomorrow 'cause I'm livin' for today
You're every inch a lady and you'll always have my love
You listen, you can hear, her voice is callin' from above
Move on, that's what she told me
Move on, keep on movin' – Paul Stanley
First and foremost, Happy Veteran’s Day and belated Happy Anniversary to the Marines (yesterday). No words can express the gratitude Americans feel for all Veteran’s before us, now and to come.
In lighter news, Forest Laboratories (FRX) has been in the Virtual Dark Horse Hedge virtual portfolio since July 26, 2010 when we purchased a 7.5% position at $28.21 and sold a November $29 call August 17, 2010 for $1.35. FRX is currently trading at $32.76 so by closing the now premium-less $29 call for $3.76 and selling FRX we can take the profit, albeit small, and move on. In other cases we may have recommended rolling the call forward to another month and continuing to earn time premium but following Pharmboy's article, Looking at the Trees in Forest Laboratories, and other miscellaneous events, we feel we can replace FRX in the virtual Dark Horse Hedge virtual portfolio with a company that can appreciate more.
BUY TO COVER, FRX Nov $29 call, at the market, Thursday, November 11, 2010
SELL Forest Laboratories (FRX), at the market, Thursday, November 11, 2010
Radware, Ltd. (RDWR) is our new interest and we are replacing the now departed FRX with it. Radware develops, manufactures and markets integrated networking solutions that allow its enterprise and carrier customers to deliver mission critical applications between data centers and remote locations, over all critical points in their networks. Radware solutions include Application Delivery and Network Security solutions. (See Sabrient's RDWR report.)
The following text is quoted from a soon-to-be published article by David Brown on Sabrient's Top-10 Earnings Busting stocks. With David's permission, we have scooped in to preview an advance copy and we're taking off with one of his top 10 choices.
IT managers are abandoning their physical servers and going to virtual data centers where resources are shared on virtual machines . . . and PC-based software is morphing into cloud computing, where the software and data are provided on demand from a centralized source, much like an electrical grid.
The need for security in these situations is front and center, and meeting that need is Radware, Ltd. Another company for the 21st century, RDWR is a business-to-business provider of systems that help deliver a company’s mission-critical applications between data centers and remote locations.
Why RDWR is an Earnings Buster: Radware is a growing earnings monster. This year, it is up an amazing 246%. It is projected to grow another 32% next year and an almost unbelievable 103% per year over the next 5 years. While that seems fairly incredible, the company has grown at a rate of more than 26% a year over the past 5 years. With these earnings, the current P/E of 41 is a tad high, but in light of its projected growth, its projected P/E is a very reasonable 27.3, and it has a truly outstanding CGR at 3.8. RDWR is rated a Strong Buy by Sabrient.
We are acquiring this “Earnings Buster” in the virtual DHH virtual portfolio using Phil's Buy/Write strategy which reduces our cost basis from $33.11 (current price) to $24.71, a whopping 25% discount. In keeping with our approximately 7.5% allocation per position, our virtual porfolio will add 100 shares of RDWR (half position, because we are selling 1 put and our obligation to buy another 100 shares of RDWR constitutes the second half of the position). Today, Thursday, Nov 11, 2010, our virtual portfolio will do the following:
Buy 100 shares of Radware Ltd (RDWR), at the market (approx. $33.11)
Sell 1 RDWR Mar 2011 $35 call (RDWR110319C00035000) at the market (approx. $3.30)
Sell 1 RDWR Mar 2011 $35 put (RDWR110319P00035000) at the market (approx. $5.10)
We are always monitoring our Long and Short tilt and virtual positions… because when it comes to stocks and options, forever is a word we never say.
