Buy Alert: January 23, 2013

Marcus Haber | January 23, 2013

Buy Alert: January 23, 2013

Trade Details

Buy Amazon.com (AMZN) February 2013 $300 Calls for $1.40 or better

Why?

AMZN has earnings coming out next Tuesday, and I believe good things are in store. Now, I don’t normally recommend stocks that are already well above their moving averages. But, AMZN is a different story.

First off, all the naysayers will point to AMZN’s high share price and ridiculous-looking P/E (3,860x!) and become convinced it can’t go any higher. Keep in mind, AMZN has a high P/E only because the CEO (Bezos) doesn’t care about valuation (he wisely focuses on growth). He’s more interested in reinvesting Amazon’s profits than showing off pretty ratios

What’s more, the company aggressively built fulfillment centers ahead of the 2012 holiday season. This likely translated into a monster quarter – even better than expected. Plus, the company’s entrance into the ad sales business is growing like crazy.

Let’s buy AMZN calls ahead of next week’s earnings. Since the options are expensive, we’ll have to go further out of the money than I usually prefer. However, it shouldn’t reduce our potential for huge profits if the company’s quarter was as big as I expect.