Agilent Technologies (A) develops, manufactures, and sells test and measurement (or T&M) equipment for a variety of research, medical, and industrial applications. Customers include those who want to measure some sort of physical variable quantitatively and electronically. Agilent's customers tend to be in the aerospace, defense, communications, computer/networking hardware, semiconductor, pharmaceutical, oil/petroleum, biotechnology, and medical industries. It sells its products primarily through direct sales, but it also utilizes distributors, resellers, manufacturer's reps.
It is one of the better major players in the (Scientific & Technical Instruments) industry. But like certain industries it is affected also by macro-economic conditions and it has seem some sales slippage because of this. If an investor wanted to make money with this stock, how would one do it right now?
Looking at the stock's chart, it peaked in mid March but had been giving signs of weakness as it limped its way upwards from the last week of January until it peaked. Since its high, it has dropped to around 38.22. This is devaluation in the stock of 17%. Will it continue down or is it going to turn around soon?
One of the problems we run into with Agilent is a majority of its revenue comes from the (Test & Measurement) industry and it is a mature market with greater than 90% penetration in most of its segments. These markets will have a slow growth rate, maybe 6.5% a year. Agilent is somewhat diversified, and this may help, but it will still have to weather any moderate economic slowdowns like many other companies in any industry would feel.
One of the adaptations to open up cheaper markets is the introduction of the 1000B Series oscilloscopes. A problem developed that customers would express to the company that they loved its oscilloscopes, but sometimes they are beyond their budgets. What did Agilent do? The new 1000B series oscilloscopes offer features not normally found on oscilloscopes in this class. The four new two-channel models, with bandwidths from 50 MHz to 150 MHz, offer powerful capabilities at an attractive price for engineers, technicians and educators. But-it is delivering advanced scope features at a starting price 30 percent lower than we've ever offered before. But it will take time to saturate the markets.
I believe the company will continue in a slow steady bearish trend for a bit longer. Investing it long term is not the time, but a short term income strategy would work well with the stock. Moving in the bearish direction, let's try a bear put spread.
(Click to enlarge)
The Options Play
- Buy a November 2012 put with a strike of '38' (priced at $4.40)
- Sell a November 2012 put with a strike of '37' (priced at $3.80)
- Net Debit to Start: $0.60
- Maximum Profit: $0.40
Reasoning behind the trade
- Presently trading at 38.22 we are in a good position to hit 38 soon.
- Macro-economic conditions are bearish & influencing its market.
- In a prolonged bearish trend now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
