Emerson Electric Co.: When Stability Leads to Momentum

We continue with winning ways today as we explore options of Emerson Electric Co. (NYSE:EMR) today. Emerson with its market capitalization of $44.65B is a diversified global technology company. The Company is engaged in designing and supplying products and technology, and delivering engineering services and solutions in a range of industrial, commercial and consumer markets globally.

Why I’m Attracted to Emerson Electric

Emerson Electric is without any doubt a “traditional” company that does not have the kind of fast-paced velocity and momentum that options traders seek out in stocks. However, the very fact that the company is a dividend aristocrat is the perfect reason why option traders stand to benefit from buying EMR calls.

For one, many market watchers believe that the market is ripe for a correction or even a bear market in the worst-case scenario. The start of a correction will automatically see traders rushing to buy the “traditional” stable stocks that are not likely to lose much value during a downturn in the market.

Hence, the logic behind my attraction to Emerson Electric is that the stock is a consistently stable and fundamentally sound stock. The company has been consistently paying increasing dividends since 1957 and I expect that the long tradition of paying dividends will continue. We can trust the momentum to pick up when the markets start migrating to blue chip companies and options trader stands to profit if they already hold call contracts before the mass exodus starts.

Diversified Across Product Lines and Target Markets

Emerson Electric is diversified across five operating segments namely;

  • Process Management, which contributed 35.5% of total revenue in fiscal 2013
  • Network Power, which contributed 26.4% of total revenue in fiscal 2013
  • Industrial Automation, which contributed 19.4% of total revenue in fiscal 2013
  • Climate Technologies, which contributed 14.3% of total revenue in fiscal 2013
  • Commercial & Residential Solutions, which contributed 7.0% of total revenue in fiscal 2013

This wide diversification across product categories ensures that the company’s revenue is not solely dependent on a single product category. In addition, the company is diversified across bases of operation and target markets. For instance, the company has 240 worldwide manufacturing locations, out of which 160 are outside the United States. The company also boasts a strong presence in more than 150 countries.

Massive Insider Purchases

I strongly believe that massive insider purchase (beyond the mandatory number of stocks that insiders are expected to hold in a company) can provide valuable insight into the prospects of the company. Insiders can sell their holdings in a company because of a number of inexhaustible reasons but the only reason that will make insiders buy up massive number of their company’s stock is that they envisage an appreciation in the share price on the horizon. Hence, I was naturally interested when two directors of Emerson Electric bought high volumes of the company stock.

For instance, Randall Stephenson purchased 7,455 shares of Emerson Electric and Arthur Golden bought some 3000 shares of the stock. The shares were bought at an average price between $67.06 and $67.12 per share. In their entirety, Mr. Stephenson spent $499,932 on buying the company stock and Mr. Golden spent $201,360 on buying the stock.

How to Trade EMR Options

I strongly believe that Emerson Electric has stability that could be converted into momentum to reward option traders. I am long EMR and I have a $73 price target on the stock in the next two quarters. I recommend buying the EMR Jan 2016 70.000 call (EMR160115C00070000) at an asking price of $2.75.

— Daily Option Alerts

You May Also Like

About the Author: Daily Option Alerts