Joy Global is up nearly 8% making new 52 week highs on takeover rumors.
Options volumes exploded, trading almost 10x avg daily volume, with most of the activity in short dated call buying, as expected, so far:
2800 Aug 65 calls bought
2400 July 62.50 calls bought
1600 Aug 62.50 calls bought
1500 July 61.50 calls bought
1400 Aug 22nd 60 calls bought
Implied Volatility is up sharply, nearly 7 points for the at the money short dated strikes or about 30% just today:
With today’s gains, the stock is only up about 11% on the year, besting the XLI and the broad market, but lagging industrial peer CAT, up 22%.
Obviously I have no clue to the merits of the rumors, but the stock is certainly not extended, even at 52 week highs. Backing the chart out to the last 5 years, it becomes clear that there is plenty of room to run overhead, and given the fact that analysts expect earnings to be less than half of the $7.61 that they reported in 2012, a material uptick in earnings could make the stock look very cheap at only 16x trailing earnings.
Some would look at this price action (largest volume day in 2 years) and be a tad skeptical given the fact that the markets are at all time highs and there appears to be some frothy M&A going on in almost every sector, but if the global economic recovery is on, then this would the sort of asset that many slow growth industrials might be very interested in with a deal that could look like $8 to $10 billion.
We don’t chase unusual activity, and we certainly don’t chase rumors, but JOY could be a stock that we would circle back on if the stock were to settle back towards $60 in the weeks leading up to their fiscal Q3 report expected in late August.