There are many indicators I use when analyzing a stock. One indicator I look for are relatively cheap dividend stocks. Another strong indicator is insider buying, such as the ones described here. Finally, another indicator is looking at unusual option activity, as I recently brought up here, while some on Oct. 19 caught my eye:
Sara Lee (SLE) engages in the manufacture and marketing of a range of branded packaged foods. Option volume exploded on the stock with the exact same volume of 24,533 contracts exchanged on the Oct 19 calls and 16 puts. Moreover, approximately 30,000 contracts were exchanged on each of the Jan 17.5 calls and 15 puts. This seems to be a big investor simply rolling over his position into a later date. The stock looks reasonably cheap at 8.5x P/E, 1.3x EV/S, and 2.6% secure dividend. The stock has moved up from recent lows, but still looks relatively cheap and has a good enough yield where I think it's a decent buy.
New Gold (NGD) engages in the acquisition, exploration, extraction, processing, and reclamation of mineral properties. Call option volume skyrocketed, specifically the Nov 11 calls with close to 55,000 contracts traded. This indicates strong bullishness in the stock going forward as it moved lower 5.3% and yet these call options actually increased close to 20% in value. The stock is reasonably priced at 15x P/E, has great net cash position of approximately $250M, and a relatively strong profit margin in excess of 45% and operating margin of 36%. At these levels and extreme bullishness in the options, I think this makes for a good commodities play.
ONEOK (OKE), a diversified energy company, operates as a natural gas distributor primarily in the United States. Call option volume was especially heavy in the Nov 72.5 and 75 strike prices indicating a move higher in the next month. The company moved lower just under 1%, but the Nov 72.5 calls jumped close to 170% higher on a very unusual 681 contracts traded against only 1 contract in open interest. This shows a very aggressive buyer and may be related to the Nov. 1 earnings announcement. The stock has some great valuations at .6x P/S and .9x EV/S along with a great 3.2% dividend yield, which leads me to think it's a solid buy at these levels.
Arcos Dorados (ARCO) is the world's largest McDonald's franchisee, in terms of system-wide sales and number of restaurants, and the largest quick service restaurant chain in Latin America and the Caribbean, with restaurants in 20 countries and territories. Option volume was particularly unusual in the Oct 25 calls and Nov 30 puts with no clear signal of bullishness or bearishness. This Argentinean based company just came public on April 2011 and pays a six cent quarterly dividend, good for a 1.1% dividend yield, and trading right near its IPO price. It had just over $3B in revenue this prior year and a strong $250M cash position as of June 30 with very little short term debt. The company just had a big secondary of over 40M shares at $22/share, which was well received and for me that's a good entry price.
Tekelec (TKLC) engages in the design, development, manufacture, marketing, sale, and support of telecommunications products and services. The company had a favorable earnings report sending the stock up over 20%. There was very unusual volume specifically in the Oct. and Feb. 5 puts. It looks like a bearish investor was rolling over his losing position to a later date. However, I don't see much reason to be bearish on the stock when it has no debt and close to $4/share in net cash, trades at just over 1x P/B even after this big jump, and has approximately a strong 25% of shares owned by insiders. I'd rather be bullish than bearish on this stock despite the options activity.
Live Nation Entertainment (LYV) operates as a live entertainment company internationally. The company had a massive 4,000 contract volume on the Nov. 7.5 puts against only 185 in open interest. This aggressive investor looks to see a big downside from the Nov. 3 earnings announcement. The company did lose approximately $105M in net income this past year, has a negative return on equity in excess of 5%, and has a negative tangible book value in excess of $6/share. However, the stock trades at just .3x P/S and .4x EV/S, meaning any meaningful improvement in margins will lead to big gains to their bottom line. Moreover, they had just over $80M in FCF this past year. Adding it all up though, I don't think in this horrible economic environment, there's much growth, if any, selling high priced tickets to concerts and live events, when people are just barely able to pay the bills. I'd be cautious with LYV.
CenturyLink (CTL), together with its subsidiaries, operates as an integrated communications company. This is a company I recently wrote about here, and the options volume was very unusual today. there was exactly 13,300 contracts traded in each the Nov 35 calls and Nov 29 puts. With the Nov 35 calls moving up 6% while the stock edged lower, it looks to be a big investor bullish on CTL rising over the next month, possibly due to a nice earnings report on Nov. 2. Long-term, as I mentioned in my article, I think the company will have issues keeping its current dividend payout of approximately $1.75B annually against only $1.1B in FCF that came in last year. In the short-term this looks bullish, but long-term, I'd keep my eye on their FCF performance.