Investment Alert: Buy Medtronic (MDT) Under $89
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
We last reported on Medtronic in March when the stock was hovering around the high-$70s. Fast forward a quarter to two and it’s up a little more than 10% yet we think there’s still more to go.
And there’s a compelling reason why: September and October call options have enjoyed a lot of call volume flows at the 92.5 strike with further batches added at the 95 strike price. Plus, there are three other reasons why Medtronic has bullish tailwinds that we explain below.
- Medtronic has formed a multi-month cup base and has lots of upside on a break above resistance.
- Options flows in the September and October expirations are heavily positive with a concentration around the 92.50 strike price.
- A break above the $92.50 level signals high odds of a rally up towards $105 and beyond.
Technical Pattern Forecasts Upside
When we last looked at Medtronic, the primary investment thesis was rooted in a fundamental argument. The company was simply producing too much cash relative to its current valuation to keep it contained at those low prices.
Now the stock has had a good run higher, but it’s looking attractive for a different reason. Technically, it has formed a multi-month base and appears to be on the cusp of breaking out.
If the stock breaks through the $92.50 line in the sand, it appears to have good upside potential to rally towards the $100 threshold and beyond.
Options Flows are Positive
The $92.50 and $95.00 strikes in September and October are both seeing bullish call activity spike. Often these flows are representative of insiders with knowledge buying in anticipation of good news.
The trade essentially has 4 tailwinds supporting upside move:
- Big money options players are betting on higher prices over the next few months.
- Technically a long-term base has formed so the stock has enough energy to bound higher.
- Fundamentally there is still upside potential to fair value of $100.
- Seasonally the stock has on average run by 4.8% over the next 12 weeks based on almost half a century of data.
A rising tide floats all boats and similarly when the tide goes out it’s hard to swim against it, so if the major markets plummet, well, it will be hard for Medtronic to fight the current. However, the stock currently ticks a lot of boxes: fundamental, technical, seasonal and big money flows.
We can’t know for sure which way it will go but the odds favor a bull run.