Monday, February 13, 2012

ENS: Battery powered

Enersys Inc. (ENS) makes industrial batteries for global markets.

Its products power such things as electric lift trucks, ground support and mining equipment, and automatic guided equipment. Those last are the behemoths that operate on their own as they follow tapes or lasers through industrial sites. I think of them as robot wannabes.

The Reading, Pennsylvania company's batteries also provide back up power for a large number of enterprises, ranging from sports to medicine.

No battery lasts forever, so ENS potentially has a perpetual market, selling batteries time after time to the same customers, as though they were razor blades.

ENS was the most bullish chart of 22 stocks added today to the Zacks top-buy list. QCOM was the runner up. EHI and EVBN completed the final four.

The price has been  on a steady rise from $24.08 on Dec. 20, 2011 and set a higher high today of $33.84. The price has yet to challenge its all-time high of $40.32 set in May 2011, which was followed by a sickening six-month plunge down to $17.50 in August 2011.

ENS is in the enviable position of having respectable returns with low debt. The return on equity is 13%, and long-term debt amounts to just 28% of equity. In a perfect world, I like to see return on equity above 20% and debt below 10% of equity, but the ENS levels are quite acceptable.

Nearly all outstanding shares are in the hands of institutions -- that means the big guys like the stock -- and yet the price is a bargain. It takes only 71 cents of stock to control a dollar in sales.

ENS has moderate liquidity, with 590,000 shares traded daily, on average.  The options selection is a bit limited, and only four of the June strikes carry triple-digit open interest.

Implied volatility, although high at 45.8% compared to the broad market, is trading near its six-month low of 40.9%. It has been trending down the past few days.

The high volatility and moderate stock price makes ENS a reasonable covered call play. Fortuitously, we're at prime time for March covered calls, since the Februaries expire next weekend.

Decision for my account: I've opened a March covered call position,buying the shares and selling the $35 strike calls, for a 3% if-exercised return (36% annualized).

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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