An article I wrote April 18th stated I saw the opportunity for a short term trade using options. I suggested a straight options buy would work well. This was the trade I suggested:
The Options Play (From April)
Buy the June 2012 '20' put (priced at $1.30)
The stock was in a regular pattern and bearish so I bought into the trend. It had recently touched its high and was headed back down and I thought it would get in the low 19s before it turned again. I would then wait and resell it for a profit.
Reasoning Behind This Trade
I was trading with the trend, as the stock followed the industry it worked in. The utility sector was in a down trend, and this makes up a good majority of ABB LTD's (ABB) clientele.
In mid June I sold the put option for a profit when the stock was at 16.03. Although I rarely buy straight options, this call turned out to be a good trade for me.
If we look at the stock again today, it still does not look like it is going to move up as soon as I thought it might.
A Big Downside for Conglomerates as a Whole
It is no surprise that the first half of this year saw weak results that were blamed upon a weak Europe and a slowing China. Most large industrial companies repeated a similar refrain. "Don't worry, "they sang to investors, "the second half would be better." But the same song seems to have changed a little. Competitors of ABB like Siemens (NYSE: SI) have stated that the rebound promised may not be forthcoming. And that projecting accurate guidance for a full year may not be very accurate at this point. Significant deterioration in both Europe and China, with conditions getting worse, will hamper any long term guidance numbers at this point.
The cold hard reality is that Europe represents anywhere from 15-40% of many large industrial companies' revenue base and China represents the picture of future growing markets. Not only is this having a negative effect upon ABB and Siemens but also other large industrial conglomerates like General Electric (NYSE: GE).
If we take a general look at this whole global competitive industry, we will see slow growth coming from most companies. Both Grainger (NYSE: GWW) and Fastenal (NASDAQ: FAST) are industrial suppliers that have reported slowing growth. And three companies that market globally like ABB (Caterpillar: NYSE: CAT; Joy Global: NYSE: JOY; Eaton: NYSE: ETN) are all reporting slowing growth particularly in key emerging markets. If automation markets continue to slow, ABB will continue to suffer. I do not see a slow down and I would not be an advocate of buying the stock for a long term investment until I know what is happening with the second half of the year a little more.
With the big slow down, ABB may not move up much this year. If you don't mind investing in the company and then seeing it go nowhere then now is the time to invest.