Energy Bet: Buy Call on H&E Equipment

By Linda McDonough • January 26, 2017

Trade: Buy to open the March 17, 2017 call on H&E Equipment (HEES) with a strike price of $30 at 65c or lower (Symbol:HEES170317C30)

Event: Fourth quarter earnings on or around Feb.25. Conference call information to follow.

Rationale: Oil rig counts have increased faster and more dramatically than expected. Oil and gas customers, who used to account for the bulk of H&E’s revenue and profits, have shrunk to just 5% of its business. As demand from this group returns, earnings will explode.

Current earnings estimates look for 97c in 2016 down from $1.25 in 2015. Estimates look for just a small bump, up to 99c, in 2017. I expect the company to provide a much more bullish forecast on its fourth quarter earnings call.

Based on the rapid and dramatic increase in oil rigs being put in place by leading oil driller Baker Hughes, utilization of H&E’s rental fleet should escalate.

Baker Hughes now has 551 oil rigs in place in the U.S., up from a low of 300 in June and up 33% since the end of the third quarter when H&E last gave guidance.
H&E has been able to remain profitable, increase its margins and maintain its dividend during one of the worst energy production downturns in history. Earnings are like a coiled spring, waiting for life to return from these profitable customers.
Oil and gas customers who made up the majority of revenue and profits in 2014 now account for just 5% of revenue. As demand from these customers rebounds, H&E, should prosper.

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black arrow

01/26/17 ‐ 12:04pm ET January 26, 2017 at 12:04pm ET

Thanks for an energy call! I got in at 0.50 cents
I wonder if I can switch gears a little to POSAT I did not eat their cereal again and stiuck with Old Fashion Oatmeal.
Any ideas when we say Hasta la Vista to the Post trade?
Cheers [is that still a bar in Boston?]

Linda McDonough

01/26/17 ‐ 2:42pm ET January 26, 2017 at 2:42pm ET

I am watching the POST closely. I don’t want to be greedy but think the stock should move lower. Earnings come next week on February 2nd with a call the morning of the 3rd. Thank you for not eating their cereal- every bit helps!
I do believe Cheers is still in Boston- a beautiful spot overlooking the Public Garden.

black arrow

01/26/17 ‐ 3:42pm ET January 26, 2017 at 3:42pm ET

OK thanks for getting me back on track next week ok. its going to close under the 20 day MA , so it is moving our way.
Thanks,

Sunny Chen

01/26/17 ‐ 12:48pm ET January 26, 2017 at 12:48pm ET

place limit order@ 0.5, get filled right away @0.35.

Peace54

01/26/17 ‐ 2:25pm ET January 26, 2017 at 2:25pm ET

I’m a newbie and I have a question regarding the $30 strike price at .65c or lower.
Thanks!!

Linda McDonough

01/26/17 ‐ 2:45pm ET January 26, 2017 at 2:45pm ET

Welcome aboard- This call option gives the buyer (you) the option to buy HEES at $30 anytime between purchase and the March expiration date. My expectation is that the stock moves higher and the price of the call rockets up. I typically issue a sell recommendation on the options once they have a good gain and do not expect to hold them and exercise the right to buy the stock.

I may or may not have answered your question so please let me know what I might have missed.
Best,
Linda

Peace54

01/26/17 ‐ 2:45pm ET January 26, 2017 at 2:45pm ET

What you recommend at this time.

Derek: Las Vegas, NV

01/26/17 ‐ 3:51pm ET January 26, 2017 at 3:51pm ET

The trade is still valid. The current ask price for the Mar, 17 $30 call is at $.55 ($55) p/contract, which is below the the max entry price of $.65 p/contract

Derek

Derek: Las Vegas, NV

01/26/17 ‐ 3:56pm ET January 26, 2017 at 3:56pm ET

I got in HEES at .53 at TradeKing.

Derek

Derek: Las Vegas, NV

01/26/17 ‐ 4:05pm ET January 26, 2017 at 4:05pm ET

For those who are interested, there has been 6 positive technical indicators triggered just in the last week. They are: Triple Moving Average Crossover (4 day, 9 day, 18 day), MACD, Commodity Channel Index, Momentum and the Price Crosses Moving Average (21 day).

Derek

greenmaster

01/27/17 ‐ 10:20am ET January 27, 2017 at 10:20am ET

Well I hope your right on this one Linda. Will make up for the CAT puts that are not going well at all. I bought hees mar-30 calls at .50 cents. Something has to work out. K. Thanks.

greenmaster

01/27/17 ‐ 10:31am ET January 27, 2017 at 10:31am ET

Linda. I did a check and the earnings report is due on Feb-20. Almost a month away. You stated at first, Feb-25. Then again to another question, Feb-2nd. Which one is it? Please advise. Thanks.

greenmaster

01/27/17 ‐ 10:38am ET January 27, 2017 at 10:38am ET

1 good thing it looks about HEES,It’s nearing it’s 52 week high. 29 Cents to go. Could be a good indicator of the future of this stock. We shall see. Also, I’ve been watching NVS for a while now. They had a positive earnings report. Don’t give up on that stock. I have some longer term 80 calls on it. It got down near it’s 52 week low and is now bouncing back up. I think it’s a good prospect. Will see on that one also. Thanks.

greenmaster

02/02/17 ‐ 11:06am ET February 2, 2017 at 11:06am ET

HEES. Might be a Good short play. Nothing worse than buying calls on a stock that is heading south. Not a good thing. We only have a few weeks for this stock to get up there to Near or above $30.00. This kind of stuff makes me nervous. It just hit a new 52 week high and now it’s headed south. Good thing I have other positions working for me. Stops the bleeding to an extent. Bummer.

Linda McDonough

02/03/17 ‐ 8:32am ET February 3, 2017 at 8:32am ET

The timing is so difficult on these options. I’d been eyeing HEES for a bit and waited a few days too long. That doesn’t mean it won’t rebound. These are the March calls so we have more time for it to play out. The stock doesn’t need to go above $30 to make money in the calls. I’ve had positions like this before where it looks dire but a few days of good trading produces a good profit. I’d sit tight for now.
Linda

greenmaster

02/06/17 ‐ 11:29am ET February 6, 2017 at 11:29am ET

Well today, I went and bought the HEES May 30 C to try and make sure these calls work out. Gives me much more time. Now I can relax.

Linda McDonough

02/06/17 ‐ 7:33pm ET February 6, 2017 at 7:33pm ET

Nice move. More time is usually better, especially when the stock’s performance is tied so closely to the price of a commodity.
Linda

greenmaster

02/08/17 ‐ 11:12am ET February 8, 2017 at 11:12am ET

HEES. What is the problem with this stock? Linda. You say pricing tied to the commodity? I should have pondered this Option play a little better. Energy stocks have been very poor performers here recently. I just figured out what’s wrong with this stock?
Guess I was right when I said a good short play? Here we go again. Long calls is what will be needed to make this option play work out. Good luck to us all.

George Goldman Parvu

02/06/17 ‐ 5:15pm ET February 6, 2017 at 5:15pm ET

Hi Linda,
I am new here my first day, and willing to hear from your instructions with a new trade.
You have posted two stock trades since January. Been new trader here, it is to late to enter them or just
wait for your new recommendation…?Your advice…??? Thank you in advance.

Linda McDonough

02/06/17 ‐ 7:32pm ET February 6, 2017 at 7:32pm ET

Hello George,
Welcome aboard! I will soon be adding a “buy up to price” for my stock recommendations which will make it easier for subscribers to determine the highest price to pay for a stock and see if it’s still worthwhile to get involved. I do include a target price for each stock, so many of my “old” trades can still be acted upon. As much as I would like, they don’t always head up in a straight line, giving subscribers more opportunities to get involved. I feel very good about our two most recent stock recommendations, Ichor Systems (ICHR) and ANI Pharm (ANIP).

I have issued two new option recommendations as well. With options, it’s always best to check in with me to see if the trade is still timely. Both the Winnebago put trade and the H&E Equipment call trade are still good to trade on. Both have March expirations, giving you enough time for the stocks to move in the right direction.

The easiest way to see the most recent buy alerts is simply under the Alert tab. You can then see stock and option alerts listed separately.

Please do let me know if you have any other questions, I’m happy to help.

Best,
Linda

Greg

02/23/17 ‐ 3:04pm ET February 23, 2017 at 3:04pm ET

Hi Linda,

Just checking in on your thoughts concerning the HEES Q4 earnings presented this morning. I listened in on the HEES conference call and it seemed pretty positive going forward for 2017 and 2018 as you mentioned it would when you recommended to buy the options. As you saw the stock was up over 4% earlier this morning then fell back. Do you have any thoughts going forward? Seems like we just need to wait it out and hopefully capture some gains prior to the 3/17 expiration.

Thank you

Linda McDonough

02/23/17 ‐ 7:46pm ET February 23, 2017 at 7:46pm ET

Greg,
I agree. I went through all the numbers and listened to the call and was feeling great about the position until it started heading south mid-day. I think holding is best. I’m considering adding a further out call as I thought all the news was encouraging.
Best,
Linda

Melody Pfingsten

02/23/17 ‐ 11:47pm ET February 23, 2017 at 11:47pm ET

Linda, thanks for info on pi, I bought it at 28.88 and sold today at 30.25 so made almost 1400.00 yippie!
Now I was wondering about ldl since it went down so much with earnings today. Is it time to buy again for a smaller gain.
Hees was a bummer but I bought 1k outright as the options have not worked out so well for me, I think with additional time it will be fine.
I also wanted to thank you for door. I sold in my retirement account for 4500.00 profit today, again thanks.
I was wondering what you think about VMC as this one has been painful.
Thanks for your guidance.
Melody

Linda McDonough

02/24/17 ‐ 9:47am ET February 24, 2017 at 9:47am ET

Melody-
So happy to hear about the profits in PI and DOOR. It’s extremely gratifying to me to hear about subscribers’ successes. I noticed the huge drop in LDL and am working through the numbers to see if I can recommend it at these prices. Unfortunately VMC is suffering with the infrastructure group- I would use a $110 stop loss on half your position. VMC’s business is “lumpier” than other infrastructure companies because all of its products require decent weather to be used but that means it can bounce back faster. It is not reliant on new funding to achieve its revenue targets.
Best,
Linda

Melody Pfingsten

02/24/17 ‐ 5:07pm ET February 24, 2017 at 5:07pm ET

Linda, I wanted to let you know I sold out of hees for 1100.00 profit today. Just my thought but sometimes if your subscribers have the money to buy the stock outright instead of call options they can make money like hees. I doubt it will hit 30 in time for the options but if you purchase outright you can make money. Of course this would work for puts as well just sell the stock short.
Thanks again!

Larry Pasquale

02/24/17 ‐ 7:02pm ET February 24, 2017 at 7:02pm ET

Hi Melody,

I wanted to make sure I wasn’t confused, the profit you made wasn’t on the recommended call option that expires on 3/17/17, it was from you purchasing Hees stocks correct?

Melody Pfingsten

02/25/17 ‐ 2:43pm ET February 25, 2017 at 2:43pm ET

Larry, that is correct. Personally, I have not done to well with Linda’s option picks. I have done well if i buy the stock out right and then wait for it to go up or down a couple of points; obviously if it was a put i shorted the stock.
Linda has had some successful options but for whatever reasons I choose not to do those.

Christopher

02/28/17 ‐ 1:32am ET February 28, 2017 at 1:32am ET

Melody, the option doesn’t have to hit the strike price to be profitable. You don’t have to hold them to expiration.

For example, the closing price of HEES today is 26.96 and the 30 call has a delta of .1274 and a theta of -.0140. Tomorrow if it rose in price to 27.96 (i.e by $1) the 30 call option should theoretically rise by about .1134. The closing spread was .10/.20 so the spread would rise to around .21/.31 so a midpoint of around .26. I bought the calls at .22. This would put the calls into being profitable, I could then sell them and take the smallish profit if I chose or wait longer and see if the underlying will continue higher.

Melody Pfingsten

02/28/17 ‐ 11:50am ET February 28, 2017 at 11:50am ET

Christopher,
Thanks for the information on options. I understand time/price is what causes the option to go up or down. I have done options both calls and puts for 30 years. If you look at Linda’s option portfolio she either makes a lot or looses a lot of the option money, my point was this is just another way to make a profit. If the strike price on HEES is 30 and it cost 1.35 to get in. The stock would have to be a 31.35 at expiration to make any money. It has not gotten close to 30 so you will likely loose a lot of your money here.

Christopher

03/01/17 ‐ 2:12am ET March 1, 2017 at 2:12am ET

Hi Melody,

Maybe I’m reading your statements incorrectly, but by your statements you seem to be implying that an option must be held to expiration and for a call option be above the strike price in order to make money and I just wanted to point out that that is not correct. You don’t need to hold it to expiration. Rather, just like with the stock purchase, you just have to be able to sell the option for more than you paid for it.

Options have different risk/rewards than stocks. You risked more than $2400 per 100 shares of HEES by buying the stock. I risked $22 for each call contract. Your risk was greater, but its great that it worked out for you that you made a nice profit.

The take away is that investors should try to understand the risk/reward of any particular investment they make and be comfortable with it. If you are more comfortable with stocks, then by all means invest in stocks,

black arrow

02/27/17 ‐ 9:07am ET February 27, 2017 at 9:07am ET

I noticed HEES was up quite a bit on Friday and the candle is a Bullish Engulfing which as name implies is bullish. Congrats to Melody on a nice profit with hees as well as the others you got on feb 23!
Best Wishes

Skippie2000

03/08/17 ‐ 10:03am ET March 8, 2017 at 10:03am ET

Are you going to make a determination this week on closing out this position?

Linda McDonough

03/08/17 ‐ 2:53pm ET March 8, 2017 at 2:53pm ET

Hello,
The price of these calls has dropped so much that it’s likely better to wait and see if we can get a big jump next week. I’ve had situations (like the PYPL calls we had recently) that looked like they were left for dead but then jumped into the money near expiration. HEES would obviously need to move significantly for that to happen. Unfortunately I was wrong on how much a swing in the price of oil would pressure these stocks.
Best,
Linda

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