Option Trade - Baker Hughes Inc. (BHI)
Thursday August 02, 2012

Strong Earnings Provides New Momentum For BHI!

**OPTION TRADE: Buy the BHI Oct 2012 50.000 call (BHI121020C00050000) at or under $1.30, good for the day. Place a protective stop limit at $0.50 and a pre-determined sell at $2.60.

by Ian Harvey

August 02, 2012

Introduction

The market showed positive signs of life in the late part of last week, and stocks ended the week much higher. The large-cap oil well services company Baker Hughes (NYSE: BHI) also rose to a new high in late July, following better-than-expected quarterly results.

Description

Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry. Baker Hughes is a supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. It also provides industrial and other products and services to the downstream refining, and the process and pipeline industries. The Company may conduct its operations through subsidiaries, affiliates, ventures and alliances. It operates in more than 80 countries worldwide. The Company operates in five segments. Four of these segments represent its oilfield operations and their geographic organization: North America (U.S. Land, Gulf of Mexico and Canada), Latin America, Europe/Africa/Russia Caspian and Middle East/Asia Pacific. It’s Industrial Services and other segment includes downstream chemicals, process and pipeline services, and the reservoir development services group.

Latest Earnings

BHI recently reported earnings and surprised most analysts. The company reported net income of $439 million compared to $338 million for the same period last year. BHI’s earnings of $1 per share handily beat most analysts who had predicted it would be at least 20 cents lower. The company was able to hold its own in North America, but really improved revenue in Europe and the Middle East, CEO Martin Craighead said.

The Technicals

Technically, the stock gapped up on Baker Hughes’ earnings announcement over several areas of resistance (previous highs). Last Friday, the stock moved higher and was able to close above its 200-day simple moving average — a feat it has not accomplished in almost a year.

A reversal from under its 50-day moving average and a breakaway gap through its 200-day moving average are strong technical signals that target the stock at the mid-$50s.

Other supporting technical signals include a close above its bearish resistance line (red dotted line) and a strong buy signal from the MACD indicator.



In the past year, the stock has hit a 52-week low of $37.08 and 52-week high of $78.92. Baker Hughes (BHI) stock has been showing support around $46.55 and resistance in the $48.25 range.

The average volume for Baker Hughes has been six million shares per day over the past 30 days. Baker Hughes has a market cap of $20.81 billion. Shares are down 4.8% year to date as of the close of trading on Tuesday.

The company has a P/E ratio of 11.3, equal to the average energy industry P/E ratio and below the S&P 500 P/E ratio of 17.7.

Analysts Ratings

A number of analysts have recently weighed in on BHI. Analysts at Barclays Capital reiterated an overweight rating on shares of Baker Hughes in a research note to investors on Monday, July 23rd.

Separately, analysts at Sterne Agee raised their price target on shares of Baker Hughes from $47.00 to $50.00 in a research note to investors on Monday, July 23rd. They now have a buy rating on the stock. Finally, analysts at UBS AG raised their EPS on shares of Baker Hughes in a research note to investors on Monday, July 23rd. They now have a buy rating and a $65.00 price target on the stock. They previously had a $60.00 price target on the stock.

Therefore, based on the facts above the following options trade is recommended…..

**OPTION TRADE: Buy the BHI Oct 2012 50.000 call (BHI121020C00050000) at or under $1.30, good for the day. Place a protective stop limit at $0.50 and a pre-determined sell at $2.60.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
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Options traders win because they are successful.


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