Monday, February 13, 2012

TDG: Airplane parts

Transdigm Group Inc. (TDG) makes parts used to build civilian and military aircraft, and then has a continuing market selling authorized replacement parts as long as the airplane is in flight service.

Since airplanes tend to remain in service on average for 30 years, TDG has a stable market.

TDG was the best of 16 charts selected at random from 675 large cap stocks. The runner up was IWR. AMG and DHR completed the final four.

The Cleveland, Ohio company's stock has been on a continual rise from $97.03 on Jan. 23 up to $118.45 last Thursday, Feb. 9. The longer-term weekly chart shows a continual rise from $23.00 in November 2008 up to the current level.

The price moved into blue-sky territory, above all prior trading, in March 2010.

Friday saw a lower high and low compared to the prior day but with an intraday rise. Today's trading has been uptrending within Thursday's range.

So TDG has a strongly bullish chart at all levels of analysis.

TDG is a high performing stock with a heavy load of debt.

The return on equity is 30%, which is high even for a growth stock. The long-term debt amounts to 69% of equity.

The analysts' consensus is that TDG is a buy. Institutions love this stock. They own 98% of the shares and have bid up the price to a high level. It takes $4.44 in stock to gain control of a dollar in sales.

TDG counts as moderately liquid, with 541,000 shares traded daily, on average. Half a million shares generally puts a dent in the options open interest, and TDG follows that pattern.

It has a good selection of strike prices with three-figure open interest on those near the money. But the outliers have no open interest at all.

Implied volatility is 27.5% and has been on the rise since late last week, when it his a six-month low of 21.7%. So my strategy would be to buy options for a net debit. That's good in the case of TDG, since the current out month under my rules, which is May, has ample open interest.

Decision for my account: I've bought call options on TDG.

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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