Monday, November 1, 2010

Oclaro, Inc (NASDAQ: OCLR) Q4 2010 Analysis

Recent price: 8.62$
P/E Ratio: 51.81
3 month Target Price: 19.07$

Company Description
Oclaro, with headquarters in San Jose, California, is a Tier 1 provider of innovative optical and laser components and solutions for a broad range of diverse markets, including telecommunications, industrial, consumer electronics, medical and scientific applications. The company is on a mission to be a predominant force in the optical industry, and has been making bold moves to establish a leadership position in each of the markets it serves, expand its addressable market, and increase its share of existing markets.

Confidence Margins
Strong resistance $15.99 (+85%)
Light resistance $14.12 (+64%)
Light support $8.00 (-7%)
Strong support $6.10 (-29%)

This is a company that has been punished by its investors. This will prove to be a very profitable trade because it has already seen much of the downside after its earnings release.

Entry strategy
For the cautious investor:
Buy the stock for 8.70$ or less.

For the risk-taking trader:
Buy the 17.50$ January 2011 out of the money call options for about 10$ a contract.
This position will require the investor to keep an eye on his portfolio to make sure he doesn’t endure any unplanned losses. The support levels imply a mild possibility for the stock to reach them.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 14$, or keep it until about 16$ if you are very bullish.

For the risk-taking trader:
These options are currently undervalued because investors assume that there should not be much movement upwards for this stock. Sell them if the stock reaches the same levels as in the case of the cautious investor.

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