Stock-Shock! – PCG Shareholders Prepare For Blackout; While We Pocket 877% (PCG, NUS)

Electrifying!

We’re closing our NUS trade before moving on to bigger and better game today.

Not that NuSkin wasn’t a hide worth tanning – verily, it was…

Check it out –

Full details of the tackle can be found HERE.

In brief, we’re holding a credit of $1.11 and the December 16^th synthetic short with a 40 strike.

And today…

With NUS at $37.17, the CALL can be repurchased for $2.20 and the PUT sold for $4.60.

Execute and you NET $3.51 on just $0.40 spent.

And that makes for an 877% return.

Bone-Jarring Profits!

And now on to a fresh trade.

We’ve got a high-tension wire act from California’s voltaic know-it-alls at Pacific Gas and Electric Corp. (NYSE:PCG), whose stock has been a highly-charged conductor of profits for the last ten weeks.

But maybe not for much longer.

Why?

Well, in spite of the fact that there’s extreme heat in California right now and PCG is operating at capacity;

And in spite of the fact that energy prices, in general, are inflated (and growing more so) across the globe;

And in spite of the fact that everyone expects California to be the first jurisdiction on the planet to go wholly auto-electric…

None of that, in our view, justifies the price action we’ve witnessed of late in PCG stock.

That’s a lot of ‘spite’, brother.

Before we get to the chart, though, have a look at some numbers.

In short, the company’s fundamentals are whacked.

This is an electric utility, ladies and gentlemen, not a brain-chipping, totalitarian nanotech start-up.

And…

• It’s got a P/E of 167.79 (which is against the law in most G-d-fearing jurisdictions).
• Worse still, Forward P/E is just 10.52, meaning analysts expect a contraction in stock price of roughly 16x, or an earnings jolt of the same magnitude over the next twelve months.
• And yet, five year earnings estimates by those same analysts see standard utility-size growth of just 4.55% per year.  Go, figure…
• Moreover, EPS SHRUNK over the last five years by 15.10% per annum,
• And by 10.10% Q/Q, as of the last report.
• Beyond that, there’s no Dividend to speak of,
• Price to Book is 1.18, and
• Debt to Equity is far too high (even for a utility) at 2.22.

Now look at the chart –

Technicals are like this –

1. First, an overbought RSI reading in August (in red) led to…
2. Negative divergence on both RSI and MACD indicators (green arrows).  This is indicative of a loss of bullish momentum.  Control is now passing to the bears.
3. We also see price tracing a rising wedge (in red, at top), a bearish pattern that triggers large-scale selling when the bottom trendline is broken.  And it appears we’re now getting close.
4. Once that occurs, weak support will arrive at the short-term MA at $12.25 (and rising).
5. Thereafter, we have strong support at the bunched, longer-term MAs in the $11.50 range.
6. Volume, too, has surged as the stock topped (in black), another indication that shares are turning over from older hands to new bag-holders.
7. There’s a single gap that requires filling through $11.20 (in blue).

And it’s with all the foregoing in mind that we offer you this –

A Jew and His Gold recommends you consider selling the PCG December 16^th 13/14 CALL spread* for a credit of $0.46 (1.16/0.70) and buying the PCG December 16^th 14/13 PUT spread** for $0.55 (1.37/0.82).  Total debit is $0.09.

[*Sell the 13 CALL and buy the 14 CALL.  **Buy the 14 PUT and sell the 13 PUT.]

Rationale: for nine cents we earn the possibility of netting a max $0.91.

Max loss is $1.09 (difference between the CALL strikes plus the initial debit).

Breakeven on the trade is $13.41, and with price already at $13.22 – we’re now in-the-money by $0.19.

And that’s always nice…

With such a risk/reward profile, it makes sense to consider taking on multiples of the trade.

As your purse permits, of course.

Evil-doers will pay – because the Al-mighty hates them.

May we ever find favor in His eyes, and praise His great name far and wide,

that all may know there is but One G-d in heaven and on earth.

Yishtabach shemo l’ad!

Many happy returns!

Matt McAbby

Follow @HughLOHaynew