Friday, December 16, 2011

Bearish on BDX, sort of

Becton, Dickinson and Co. (BDX) makes a broad array of medical technology, from catheters to molecular diagnostic tools. It has been on the aquisition track the past few years, buying a high-end rival in 2009 and a pharmaceutical company this year. And it sold a unit in 2010.

BDX has also been on the bear  track since July 7, in a move that carried the price from nearly $90 down to the present $70.50.

With a return on equity of 25%, BDX is in growth-stock territory by my standards. So my current bearish opinion is mainly a momentum play, buttressed by a debt-to-equity ration of 0.51 and a price-to-sales ratio of 1.95.

The company is carrying a fair load of debt, although not crushing, and it is priced on the high side, with a 95% premium. Both are reasonable arguments for the price to decline a bit further.

Analyst opinion is also tilted toward the bearish side, at 61% negative.

Today's decline dropped below the nearest resistance at $70.61, and the next step down is at $69.59. So altogether there is 1.2% of easy pickings to the downside.

However, the company in November raised its quarterly dividend to 9.8%, which creates an updraft, especially in this era where dividends are held in high esteem by investors. Institutional ownership stands at 79%, meaning there a lot of long time horizon shares that won't be sold on  a whim.

Those bullish facts aren't deal killers by any means. However, they do counsel that a trader's bearishness be tempered by caution.

When I'm very bearish, I buy straight puts. When I'm cautiously bearish, I tend to go for vertical spreads -- a bear call spread in this case. That way, my losses are limited (and so are my gains), and I still profit if the stock goes into a sideways swing.

The downtrend at this point is pronounced enough that I wouldn't consider a pure sideways play, such as a four-legged iron condor.

Bottom line: I opened a BDX bear call spread today, short the $70 call and long the $75 call.

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