I think I speak for the majority of investors when I say I am tired of hearing about the "Fiscal Cliff" and CNBC's "Rise Above" fluff campaign. I miss the days when the market rose or fell based on fundamentals and economic reports instead of the latest politicians sound bites on Bloomberg. I am not taking many big bets right now until the folks in Washington show they can behave like adults, drop the Teleprompters and get together behind closed doors and come up to a workable solution.
That being said, I am taking some small positions on special situations. I am primarily doing this by using options on stocks I think are turning around and have momentum. It is small risk/high reward strategy until we get some more clarity in the market. One of the most successful of these plays was my bull call option spread position on Apple (AAPL) two weeks ago near its bottom. It looks like I will triple my money on that bet. My play on Research in Motion (RIMM) also looks positive for the moment. Another option play I made today is on Hercules Offshore (HERO) which is leveraged to drilling activity and has received some received some love from analysts recently.
Key recent positives for HERO:
- Stephens just raised its rating on Hercules from "Equal Weight" to "Overweight" on the back of a strong Fleet report.
- Deutsche Bank upgraded the shares to "Buy" from "Hold" and raised its price target to $8 from $5 a share based on its secular outlook for natural gas demand.
- Dahlmann Rose also raised its rating on HERO from "Hold" to "Buy" in late October. It raised its price target to $6.50 from $5 a share at that time as well.
- S&P recently raised the credit rating for HERO which was important as the company does carry significant debt.
- The stock just crossed over $5. This is important as some institutions are prohibited from buying stocks under $5 a share.
Hercules Offshore provides shallow-water drilling and marine services to the oil and natural gas exploration and production industry worldwide.
4 additional reasons HERO is a good speculative play at $5 a share:
- After posting losses for the last two fiscal years, analysts project the company will be back in the black in FY2013 with earnings of a quarter per share.
- Revenue growth is expected to accelerate to almost 30% in FY2013 from just over 5% in FY2012.
- Insiders stepped up to buy the stock in the second quarter when the stock and the market were tanking and have been net buyers of the shares in 2012.
- This stock traded above $35 a share prior to the financial crisis and is now above its 200 day moving average again (See Chart).
Option Strategy: I made one way directional bet earlier this morning on HERO. I bought the April 5 calls for 60 cents. If Deutsche Bank is correct and the stock gets to its $8 price target, I quadruple my money. If this rally fades, I am out my 60 cents. Seems like a worthy tradeoff in this uncertain market.