Here is a company with incredible global potential-- AAB LTD (ABB). The company has a good dividend, but stock value has slid lately as it follows its clientele sector down. But it does offer an attractive short-term options play.
ABB LTD services utility, industrial, and commercial companies, providing power and automated technologies. The goal in helping these companies is to improve performance and lower environmental impact. Its largest segment of business is its "Power Products" division that accounts for close to 30% of its revenue.
ABB LTD. Continues to move with the markets where its clientele reside. The company peaked in early February of 2012 at a level of about 22.00. Since then it has dropped in value about 7.5% to 20.27.
The Utilities Sector as a whole peaked toward the end of February and has been bearish since then. There has been no expansion in the industry for a number of reasons. With the unseasonably war weather the U.S. had last winter, the use of electricity was at a minimum. In return, the revenue of the utility companies is not as strong and the money that would be used for services ABB LTD provided also is affected. Therefore the stock value continues to follow the markets it works in.
The larger part of this company's revenue will come from the expanding emerging markets and the need to continued expansion. Therefore the mining industry, as it expands based upon a greater need for raw resources in construction, ABB will also find work.
It recently won a around $100 million deal from Rio Tinto for 17 distribution substations to support increased production at iron ore mines in Western Australia. Rio Tinto is expanding its iron ore operation because of the continued economic development in the emerging markets is demanding more iron ore. In order for it to increase production, it needs more power.
ABB comes in with the technology to raise the voltage level of its existing distribution substations. This is the type of business that will help ABB expand its revenue. To increase its business, Rio Tinto needs to increase its electricity and use the power more efficiently. ABB LTD is the expert here.
While the economy recovers, ABB LTD may be a good one to put on a watch list. We believe it will still continue down at this point.
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But this does not mean that as short term trade using options cannot capture an income. A straight options buy would work well here.
The Options Play
Buy the June 2012 '20' put (priced at $1.30)
The stock is in a regular pattern. It is bearish, so we are buying into the trend. It recently touched its high and is headed back down and should get into the low 19's before it turns again. At this point, the option can be resold for a profit.
Reasoning behind this Trade
We are trading with the trend. The stock is following the industries it works in. Utility sector is in a down trend, and this is a good majority of ABB LTD clientele.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.