Customer Service: Call 1-888-271-5237 Monday-Friday, 9 AM - 5 PM CT
Forgot Username or Password?
There's been a lot of hype surrounding today's iPhone 6 unveiling. If you've been following my trades, you've logged profits from this bullish theme in Skyworks Solutions (NASDAQ: SWKS), Universal Display (NASDAQ: OLED) and Apple (NASDAQ: AAPL) itself.
But I'm not done yet. The best investors look beyond the headlines for the most unique and profitable opportunities. The obvious trades are usually crowded. Think about the Corning (NYSE: GLW) "Gorilla Glass" trade or buying AT&T (NYSE: T) when the wireless provider had the first crack at the iPhone.
Today's recommendation is a blue-chip stock that should benefit from the release of the latest iPhone, but more importantly, it is a beneficiary of the changes in the way we exchange money.
Fast, secure mobile payments are becoming the norm, and soon enough your smartphone (perhaps the iPhone 6) will act as "digital wallet," storing your credit and debit card information and processing payments.
Several sources have reported that American Express (NYSE: AXP) has struck a deal with Apple to work on an iPhone payment system. Details are rumored to be released at the iPhone event today.
While American Express isn't the only player in this game, I believe it is being overlooked and has the best potential to profit from this trend. The company has already taken steps to integrate with the new normal of mobile payments, giving it access to millions of customers and merchants around the world.
Amex lacks the merchant penetration of Visa (NYSE: V) and MasterCard (NYSE: MA) mostly due to its higher transaction costs. This new system should help bring down costs at the merchant level.
Even without this payment system in place, I like the credit card company. Compared with its peers, its client base is made up of bigger spenders who don't stretch out their payments. A good portion of its customers pay in full in exchange for fraud protection and other perks, which keeps credit risk low.
Of the three major credit card stocks, AXP has the lowest P/E ratio, and I think analysts have yet to fully realize or incorporate the company's potential in their models.
Thankfully, anything related to Apple seems to have a knack for expediting the realization of a trend, and I suspect mobile payments will be a hot topic in the months to come.
In addition to today's potential catalyst, the charts are forming a bullish wedge. The 200-day moving average is acting as support while the 50-day is closing in from above. This could result in a nice breakout.
In the near term, we will use $92.50 as our first profit target, which is the 23.6% Fibonacci retracement from the 52-week high. Beyond that, I see shares hitting $95 in the next few months.
AXP Call Option Trade
Today, I am interested in buying AXP Jan 85 Calls for a limit price of $6.15.
Risk graph courtesy of tradeMONSTER.
This call option has a delta of 67, which means it will move roughly $0.67 for every dollar that AXP moves, but it costs only a fraction of the price of the stock.
The trade breaks even on expiration at $91.15 ($85 strike price plus $6.15 options premium), which is 2.5% above current prices.
If the stock hits our first upside target of $92.50, our call option will be worth at least $7.50. Place a good 'til cancelled (GTC) order to sell three-quarters of your position at this price.
The next target for the stock will be $95. At that level, our call options will be worth at least $10, which is where we will place a GTC order to sell the remaining portion of our contracts.
Recommended Trade Setup:
-- Buy AXP Jan 85 Calls at $6.15 or less (use limit orders)
-- Set stop-loss at $3
-- Set initial price target at $7.50 for a potential 22% gain 2-3 weeks
-- Set secondary price target at $10 for a potential 63% gain 2-3 months
If you have a question or comment about today's strategy, please send it to firstname.lastname@example.org.
Many investors hold strong opinions about the 200-day MA... but is it actually important?