Top 3 Analyst Stock Picks With Strong Catalysts

Includes: AMRN, DAL, FMCN
by: Simon Monger

Focus Media Holding Limited (NASDAQ:FMCN), Amarin Corporation plc (NASDAQ:AMRN) and Delta Air Lines Inc. (NYSE:DAL) are three analyst stock picks with strong catalysts in the coming quarters. In this article, we’ll look at these three stocks, why they are set to move higher, and how investors can profit using options.

Focus Media Set to Report Strong Quarter

Focus Media Holding Limited (FMCN), an interactive digital media network aimed at Chinese consumers, should report a strong quarter and guidance given robust advertising trends in China, according to CLSA. The analyst reiterated its Buy rating and $42.00 per share price target on the stock, which represents a significant 45% premium to the current market price.

Earlier this month, competitor VisionChina Media Inc. (NASDAQ:VISN) reported record revenue that increased 38.3% quarter-over-quarter, while CEO Limin Li suggested that the Chinese advertising industry was in the midst of a “noticeable” turnaround. The advertising company is expected to report its second quarter earnings on August 22, 2011, after the market closes.

Investors interested in capitalizing on FMCN over the long term may want to consider purchasing LEAPS – or long-term equity anticipation securities. Currently, at-the-money 30 Jan ’13 calls are trading at $7.60 per contract, with a breakeven point of $36.58. A move to $42.00 per share would equate to a 72% return using LEAPS compared with a 45% return using equity.

Amarin Should See Bullish News Flow Ahead

Amarin Corporation plc (AMRN), a clinical-stage biopharmaceutical company focused on treating cardiovascular disease, appears undervalued and could see bullish near-term news flow, according to Lazard Capital. With a $27.00 per share price target on the stock, representing a significant 140% premium over the current market price, the analyst appears very bullish on the name.

Earlier this month, the biopharmaceutical company successfully completed all remaining studies for its New Drug Application (NDA) for AMR101 for the treatment of high triglycerides. With the firm planning to submit an NDA by the end of September, some investors and analysts have also speculated that the company could be a takeover target for a larger pharmaceutical company.

Investors interested in capitalizing on AMRN’s long-term potential may want to consider purchasing LEAPS as well. Currently, at-the-money 10 Jan ’13 calls are trading for $5.10 per contract, with a breakeven point of $16.34. A move to $27.00 per share would yield a 500% return using LEAPS compared to a 140% return using equity.

Delta Air Lines Benefits from Several Catalysts

Delta Air Lines Inc. (DAL), an airline providing passenger and cargo transport throughout the U.S. and around the world, was recently upgraded to a Buy by Capstone. The analyst is bullish on the company’s valuation and set a $9.00 per share price target on the stock, which represents a significant 29% premium to the current market price.

The airline industry, including other companies like AMR Corporation (AMR), US Airways Group Inc. (LCC) and United Continental Holdings Inc. (NYSE:UAL) as well, is currently benefiting from at least two strong catalysts, including lower fuel prices and a federal stand-off with the FAA that has led to a reduced tax burden. Meanwhile, pilot salaries remain at post-downturn levels, despite rising consumer spending and a return to the air. Combined, these factors are potential catalysts that could drive the sector higher.

Investors looking for exposure to the sector may want to consider purchasing at-the-money 7.50 Jan ’12 call options priced at $1.08 per contract. With a breakeven point of $8.58 per share, the options cost just $108 per 100 shares and would involve upside of 38% if the $9.00 price target is reached, compared with 29% using plain equity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.