Intermediate Trade: Franklin Resources (original) (raw)

I prefer a bullishly biased vertical call spread.

The Trade: Buy 1 BEN July 45callandsell1BENJuly45 call and sell 1 BEN July 45callandsell1BENJuly50 call for a $0.70 debit.

Financial asset management company Franklin Resources (BEN) has traded over the past 52 weeks between 31and31 and 31and45 (rounded), with that high hit only a few days ago.

BEN's current annual rate of return on its common dividend is 2%.

The company has an excellent balance, which shows that total cash exceeds total debt by about 9billion,orover9 billion, or over 9billion,orover16/share in net cash. The stock trades at a forward PE of 16x.

Franklin Resources should finish this year with earnings near 2.70/share.Stripoutthat2.70/share. Strip out that 2.70/share.Stripoutthat16/share from BEN's current price of near 43andyouget43 and you get 43andyouget27. Thus BEN's PE minus its net cash is only 10.

Technically, BEN has a stochastic and RSI pattern that are typical of stocks that made a new high only to be hit with a wave of selling. Thus, the technicals are not bullish as I read them, but they are not bearish either. In other words, they need what technicians call "work" in order to improve.

However, I think that the technicals are trumped by the excellent fundamentals that the company has, and the stock should continue to grow for the better.

The trade tactic I prefer now for BEN is the bullishly biased, out of the money, vertical call spread expiring in July.

The trade is as follows:

-- Buy 1 BEN July $45 call;

-- Sell 1 BEN July 50callfora50 call for a 50callfora0.70 debit.

The suggested target to close for a gain is a bid of 1.20andthesuggestedstoplosstargetisabidof1.20 and the suggested stop loss target is a bid of 1.20andthesuggestedstoplosstargetisabidof0.20. Best to scale into the position using limit orders.

At the time of publication, Skip Raschke held no positions in the stocks or issues mentioned.