“BRCD” Brocade Communications Systems Inc was trading @$6.69 a share at yesterday’s closing.
After hours, the company released earnings . BRCD had a profit of $0.11 a share. However, Wall Street considered their full year outlook disappointing.
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BRCD will open trading Feb 23rd at a loss of about 20%, around $5.50 a share. At this point , a few brokerage houses downgraded the company. from a buy recommendation to a hold.
At this time the stock is down already 20%. Investors who bought the stock based on a buy recommendations were left holding the stock at $5.30 a share.
The brokerage houses who lowered the opinions included Jefferies, Stifel Nicolaus and RBC Capital Mkt.
In my humble opinion, this is the right time to buy BRCD at $5.30 share. Additionally, there is a good possibility that the company will be taken over by a larger one.
Let’s see how BRCD will be trading in 3 months from today.
INVESTMENT IDEA
Buy ISHARE of ‘DVY’ at $44.30 a share. DVY yields a dividend about 3.8%. Write covered calls against the stock for September 18th with a target price of $45 a share. If investor buys 1,000 shares it will cost him $44,300. The sale of the covered calls will yield $1,850. The net cost is $42,450. If the ETF will be taken away by September 18th,` the gain will be about $2,550. This appreciation of about 6% plus the 3.8% dividend ,will derive a 10% income for 7 months.