Stock Analysis on Global Santa Fe – GSF

Andrew Bary mentioned Global Santa Fe (NYSE: GSF) as one of the plays on “rock-bottom price/earnings ratios” in this week’s Barron’s (page 24).  GSF stood out to me as a better opportunity to trade options on.  Implied volatility is higher than the other stocks he mentioned while at the same time I see a better chart for it.  Potential support sits around 59.10 or 60.20 using the 100 day and 50 day moving averages respectfully.  The near term ceiling could be at 63 though.  The 10 and 20 day moving averages just met at 63 and might be headed for a bearish crossover.
Fundamentals fall into place easily with GSF if you can stomach the volatile oil industry, but with the majority of their contracts in place already through 2008, that worry is not valid.  With a trailing p/e of 15.12, forward p/e of 6.87 and PEG of only 0.19, GSF is cheap by any measure.  GSF offers a forward annual dividend yield of 1.5%, which is nothing to write home about, but can’t hurt the cause.  Although you know it’s not sustainable, quarterly earnings growth (yoy) is 93.9%.
Looking at the analyst report from Ford Equity Research,  you see the trailing p/e is in the historically low range.  Throw in the lower forward p/e and that leaves some room for error.  Of course every stock has something negative to offer.  GSF offers negative price momentum last week, but seems to be dusting itself off this week with an up day yesterday and a good start today.
Motley Fool, posted further support of Andrew’s praise yesterday and schaeffersresearch.com rates GSF 8 out of 10.
I just finished good run with NE and I’m hoping that now it’s GSF’s turn.  I’m not saying that NE would be a bad move, but the option premiums don’t offer the same return that GSF’s do.
 
Finally we get to the good stuff, how to trade on GSF.  For me, options are the only way to enter a position, so I have to decide between a naked put and a covered call.  The following are the choices I see worth considering along with their potential annualized returns using the bid price while GSF trades at 62.75:

Naked put:
·          May 62.50 – 33.2%
·          June 60 – 16.3%
·          June 62.50 – 24.5%
Covered Call:
·          May 62.50 – 36.86% if exercised
·          June 60 – 18.94% if exercised
·          June 62.50 – 28.79% if exercised

Which one to pick is a personal choice for each trader.  For me, I need to catch up on my IRA trading and will be looking at the June 62.50 covered call.  That gives a good return and covers me some in a dip. 

Had I not needed to up my holdings in my IRA, I think the naked put to write would be the May or June 62.50.