Friday, February 10, 2012

COO: Through a glass darkly

Cooper Companies Inc. (COO) makes contact lenses and also specialized lenses for glasses that correct medical conditions of the eye. Headquartered in Pleasanton, California -- across the Bay from San Francisco -- COO's main distribution centers are in New York, the U.K. and Belgium.

COO's chart is that of a company seeking a comeback in the affections of traders. It hasn't yet broken free of the correction that carried the price from a high of $84.20 in September 2011 down to $52.60 in mid-November 2011.

Since that low, the stock has risen with a single, 11-week pause up to $76.63 on Feb. 6. From that point it has stairstepped lower for four days in a series of lower highs and lower lows.

COO had the second-most bullish chart of 16 stocks added to the Zacks top buy list today. The top spot went to VOXX International Corp., which I analyzed on Jan. 19. I bought VOXX shares at the time, exited to avoid a correction, and today have re-entered on a breakout, buying shares again.

Frankly, most of the charts I saw today might as well have come from the bear pile. It was a sickly selection.

COO's chart has enough ambiguity that its future can be seen only through a glass darkly.

For COO to code as being in an uptrend, it must beak above $84.20, a level 13% above the present price of around $74.25. Even though COO still counts as being in a correction, there is money to be made as it moves up to challenge the prior high.

COO has a return on equity of 10%, a respectable level that counts as slow and steady rather than runaway growth. Its debt/equity ratio is 0.20, which is on the low side.

Institutions own nearly all the stock, and have bid the price up. It takes $2.65 in stock to gain an interest in a dollar in sales.

COO has average volume of 375,000 shares -- less than highly liquid -- but has a great selection of options, with 13 strike prices, many with three-figure open interest in the out months, such as May. However, open interest is non-existent to very low for March, the month I would use for a credit vertical spread.

Implied volatility is rising but remains at low levels compared to the most recent six months. My vehicle of choice in trading COO would be long call options for May expiration, which fits nicely with where the open interest lies.

COO reports earnings after the close on March 8. The semi-annual payout, which yields 0.08% a year, goes ex-dividend sometime in July.

Decision for my account: The price took a sharp drive in the past half hour (I'm writing about 2 p.m. Eastern). If the price moves above today's high of $74.76, I'll look to buy May calls. 

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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