Gold & Tech: Contrary Buys

01/16/2004 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Out-of-favor tech and gold stocks remain among the favorite sectors of Bernie Schaeffer, editor of The Option Advisor. He says, "These groups can potentially benefit from a slew of upgrades, while the mega-caps are already as highly recommended as one can reasonably expect." Here's one of his top plays in each sector.

"SanDisk (SNDK NASDAQ) is a top producer of storage products based on flash memory. The stock was a stellar performer through early November, gaining more than 480% from its January low. After reaching such rarified air, the security is now pulling back to support at its rising 10-month moving average. Additional support lies near 50, which represents a 50% retracement of the rally from its January low to its November high. Regardless of SNDK's impressive performance this year, investors continue to show signs of skepticism toward the shares. Short interest tacked on 6% in November, rising to 10.6 million shares. This accumulation of bearish bets represents more than 15% of the float and could help fuel a covering rally. SNDK is also flying under Wall Street's radar, as there are only six ratings on the stock. More analysts becoming aware of this outperformer should lift the shares higher. Buy the SanDisk July 50 call (up to a maximum price of $14.50).

"Pessimism continues to ride high toward the gold sector despite the fact that the price of bullion has broken through the critical 400 level. As for Goldcorp (GG NYSE), we find skepticism building. The equity's short interest continues to hover near a two-year high at 6.3 million shares. This build-up of bearish bets is almost four times the stock's average daily trading volume, raising the likelihood of the security benefiting from a covering rally. Wall Street is even doubtful of the firm, with 11 of the 12 analysts following GG rating it a "hold" or worse. Any upgrades could boost the shares higher. Technically speaking, the stock is pulling back to support at its rising 20-week moving average. What's more, peak January and April put open interest sits at the 15 strike, adding another layer of potential support. Buy the Goldcorp July 12.50 call (up to a maximum price of $4.10)."

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