#4 in our series of 5 Trade Ideas to Make $25,000 in 5 Months is going to be Tenet Healthcare (THC) and we love them at $21.20, which is a $2.2Bn market cap for a company with $18Bn in sales and $250M in earnings. You'll notice I kind of like to buy things when they get to P/E ratios of 10 or less because that means they are returning 10% on your money, which is very good vs. 0% for bonds these days.
You don't need or expect growth when a company is trading at 10x earnings, we just want to make sure that they are not declining and, with THC, an aging population of Baby Boomers makes that very unlikely – talk about a growth industry!
We are at the end of the first bar after 2000 and there's a huge jump ahead of us with 16M new old people hitting the hospitals in the next decade. We have 40M now so that's 40% more potential payments so THC is a great long-term premise and it's just a matter of waiting for them to come back in favor as an investment.
We've played THC several times over the years, usually around $15 but we're not going to be so lucky this time but all we're going to do is play them not to go lower than $20 into Jan 17th expirations and we'll be home free with the following trade:
- Sell 10 THC Jan $20 puts for $2.20 ($2,200)
- Buy 20 THC Jan $15 calls for $7 ($14,000)
- Sell 20 THC Jan $20 calls for $3.75 ($7,500)
That's net $4,300 on the $10,000 spread so $5,700 (132%) upside potential is not as exciting as our other trade ideas but THC is a lot more of a blue chip so possibly the least risky of the set. Margin is also light, just $2,886 according to TOS in an ordinary margin account.
