Intuitive Surgical Inc. (NASDAQ:ISRG), Agnico-Eagle Mines Limited (NYSE:AEM), and Abbott Laboratories (NYSE:ABT) are three hot stocks during Wednesday’s session. In this article, we’ll take a look at how investors can invest in Intuitive Surgical for less, lower their break-even point and recover Agnico-Eagle Mines losses more quickly, and profit from Abbott’s spin-off plans.
Capitalize on Intuitive Surgical’s Strong Quarter
Intuitive Surgical Inc., developer of the da Vinci Surgical System that enables advanced surgical procedures, moved sharply higher on Wednesday after reporting better-than-expected earnings. During the third quarter, the firm reported earnings of $3.05 per share, versus a consensus of $2.76 per share, on revenues of $446.7 million, versus a consensus of $418 million. The company reportedly sold 133 surgical systems, compared to 105 systems during the same period a year ago.
With strong sales of its da Vinci Surgical System, despite erectile dysfunction concerns raised by JAMA articles, investors may want to consider taking a long-term options position in lieu of a stock position given the firm’s high share price. Instead of purchasing 100 shares for more than $42,000, investors can purchase at-the-money 420 Jan ’13 calls for $7,150, which gives them rights to 100 shares at $420. This position has a break-even point of $491.50, while investors can write shorter-term call options with a 500 strike in the meantime in order to realize an income.
Recoup Your Losses from Agnico-Eagle Mines’ Stumble
Agnico-Eagle Mines Limited, a Canada-based international gold producer with mining operations in several countries, fell sharply on Wednesday after announcing it would suspend mining operations and gold production at its Goldex mine, effective immediately. The move followed concerns that a weak volcanic rock unit in the hanging wall of the Goldex deposit has failed, and groundwater has begun flowing into the mine, contributing to further weakness of the rock mass.
While the Goldex mine is a major contributor to its production, the company has several other mines that are still producing. Investors that have realized a loss and are confident in a recovery long-term may want to consider a repair strategy to reduce their break-even point. By writing two at-the-money calls for each out-of-the-money call purchased, investors can lower their break-even point at very little or no cost to them (other than potential upside beyond the written strike price). For instance, investors could write two 47.50 Jan ’12 calls for $4.61 and purchase one 60 Jan ’12 call for $1.00 for each 100 shares owned.
Profit from Abbott’s Spin-Off Plans
Abbott Laboratories, a developer of a diversified line of healthcare products spanning multiple segments, surprised investors on Wednesday by announcing plans to separate into two companies. One of the companies will be a diversified medical products provider, while the other one will be a research-based pharmaceutical company. The firm hopes that the market will value its higher-growth company at a greater multiple, and ultimately unlock value for shareholders.
Spin-off transactions have a well-documented track record of unlocking value for investors. A study by Lehman Brothers’ Chip Dickson of 88 spin-offs between 2000 and 2005 found that they beat the S&P 500 by an average of 45% during their first two years as independent companies. And since these spin-offs aren’t hyped up as much as IPOs, they tend to be relatively under-the-radar investments. Combined, these factors may justify a second look at ABT’s move.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.