Editor’s Note: We are providing an equity trade for conservative investors and an options trade for aggressive traders.

EQUITY TRADE INSTRUCTIONS

Symbol: JCI (NYSE)
Limit: Buy below $33
Holding Period: 6 months
Target Price: $38
Target Gain: 15%

OPTIONS TRADE INSTRUCTIONS

Symbol: JCI190418C00032000
Limit: Buy the Call option below $3
Strike Price: $32
Expiration Date: April 18, 2019
Target Gain: 100%

COMPANY DESCRIPTION                     

Johnson Controls International plc was founded in 1885 and is headquartered in Cork, Ireland. It operates as a diversified technology and multi-industrial company worldwide. It designs, sells, controls, and installs heating, ventilating, and air conditioning systems. In addition, it designs, sells, installs, services, and monitors electronic security and fire detection systems. Further, the company produces and supplies lead-acid automotive batteries for passenger cars, light trucks, and utility vehicles, as well as advanced battery technologies to power start-stop, hybrid, and electric vehicles. Link to company website.

TRADE RATIONALE

We doubled our money on a JCI call option a few months ago after the company released quarterly results that exceeded expectations. Three weeks later, we closed out the equity half of the trade when JCI reached our target price of $39.

Our timing was just about perfect. Shortly after we exited our position, JCI fell 10% due to concerns that it may have trouble selling its power solutions unit at the $12 billion sales price it is expecting. However, it is unlikely that the company would have gone through the acquisition of Lux Products earlier this month if it wasn’t confident that the other deal would go through as planned.

In addition, the stock has fallen another 10% over the past three weeks along with the overall market. Now priced 20% cheaper than it was two months ago, JCI earns a perfect score of 10 from my IDEAL Stock Rating System meaning it appears undervalued and poised to rally.

From a technical perspective, JCI just bounced off its lower Bollinger Band near $32 and has plenty of room to travel before reaching the upper band presently near $37. Its RSI is a little lower than I’d like for it to be (33), but the trend is now mildly upward despite its share price declining on six of the previous seven trading days.

The company is scheduled to release its next set of quarterly results during the second week of November, a few days after the results of the midterm election are known. I’m expecting JCI to issue stronger than expected earnings guidance for 2019 based on the outcome of the two transactions closing this quarter.