Caterpillar unearths an options-trading opportunity
Today's Financial News - Posted April 21, 2009
Caterpillar (NYSE:CAT) revealed its latest earnings this morning and Terex (NYSE:TEX) will do it this afternoon. By the time the news is digested, savvy traders will have an opportunity to profit from Oshkosh (NYSE:OSK).
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): With most of the nation’s top banks getting their earnings reports out of the way, there is room for the nation’s down-and-dirty companies to display their latest results.
By the end of today, we will have a strong grasp on the financial health of one very important sector of the nation’s economy, the heavy-equipment builders. As one of the last major manufacturing sectors and a source of strong employment in the U.S., the industry is a leading indicator of what’s to come.
So far, the news is not all that great. Before this morning’s bell, Caterpillar (NYSE:CAT) let the Street have a glimpse at its books. The first quarter of 2009 marks the first three-month loss for the Illinois-based company since 1992.
In all, the yellow-equipment manufacturer lost $112 million ($0.19 per share) during the quarter, down from last year’s $922 million profit during the same quarter.
Fortunately, the loss does not look like it will grow into a long-term trend. Nearly $500 million was written off last quarter as the company cleared its payroll of 25,000 workers.
The company expects to earn about $1.25 per share for the entire year, down from its most-recent estimates of $2.50 per share.
Even with the 50% cut in estimated annual earnings, shares of the company are down by only about 3% so far today.
Waiting for more news
Investors will get a better grasp on the industry’s health later today when industry rival Terex (NYSE:TEX) releases its latest earnings figures. Analysts expect a loss of about $0.08 per share.
If the company misses the mark by a wide margin on either side, expect share price of both companies to be impacted. Caterpillar’s report was rather vague. I believe investors are looking for more evidence of industry stabilization before they make any moves.
One company with shareholders watching the action quite closely is Oshkosh (NYSE:OSK). While not technically a direct competitor with Caterpillar or Terex, the company is a major manufacturer with strong correlations to the nation’s infrastructure industry.
Shares of Oshkosh have made a strong resurgence over the past few weeks, climbing from $5 to over $10 today. Technical-minded investors will look at the chart and say shares of the company are set to drop. There is strong resistance around the $10 level.
But all it will take is some help from industry peers to turn that resistance into support. The next few days will tell the tale.
For savvy investors, this is a good opportunity to use an options straddle, as share price will not likely stay at this level for long. It will either rise significantly or drop significantly. A well-placed straddle will allow investors to profit no matter what happens.
The markets are volatile, making this a high-risk week. With just a few facts, however, savvy traders will be able to rake in some sizeable profits as traders readjust their expectations.
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