I decided to open a position in Astec Industries, a company which manufactures equipment used in road building. I established this position due to a few key reasons, both technical and fundamental. The stock has been bouncing between $25 and $30 since the beginning of July and has reached a high of $34 this year, and a low slightly above $20 at the March low. As a result I judge a relatively low downside risk, and a much higher possibility of upside. On a fundamental basis, I believe that the company has a few things that has kept the stock price down, but should be figured out in the coming months. The most important of these is that the highway funding bill was not passed this year, and so there is quite a bit of uncertainty about when and for how much that bill will be passed. In my opinion the question is not whether a bill will be passed, but rather when. Additionally, most of the stimulus funding for road construction will be released next year and provide a boost to ASTE's revenues. Lastly, there is a possibility that a second stimulus might need to be passed in the next year which would be more likely to have infrastructure projects as this was not a large part of the original bill, which could add upside. All in all I think the company is a good pick for both the short and long term. Just as a note, the company does release earnings in the next month, which adds additional risk. The profit/loss info is below:
10/19/2009 -- Sold To Open 1 $25 ASTE November CSP @ $0.75
The important purchase metrics are below for insight into possible profit and loss (these all include commissions):
Cost Basis: N/A
Potential Gain If Called At Expiration: 3.00%
PotentialAnnualized Gain If Called At Expiration: 33.18%
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