Trading Cardinal Health on a Bullish Trend

Trading Cardinal Health on a Bullish Trend
October 1, 2015

 
Cardinal Health Inc (NYSE:CAH) is enjoying a successful run as the company’s shares almost tripled in the last two and a half years. Their management is clearly on the right path.

CAH evolved from a food wholesaler, into a drug distribution company, and now they are active as a global healthcare services company. They also have a constant presence on the Fortune 500 list. This tells us a lot about the business size, as the company is involved in helping pharmacies, hospitals and surgery centers – and help enhancing efficiency and improve quality.

In the middle of 2015, the company expanded its distribution network with the acquisition of Harvard Drug Group for $1.12 billion US dollars. According to sources inside the company; the payment was made partly in cash and partly by raising debt, (a common practice for a company that is preparing to acquire another). If everything goes according to plan, the new network will be fully functional and integrated at the start of the fiscal year 2016.

On top of that, Cardinal Health will also expand its telemarketing division with this acquisition, so all in all, we have good prospects on the fundamental side. Even if we factor in recent volatility in the US equity markets, (Dow Jones and S&P500 plunging), Cardinal Health looks set to continue on its positive path.

Currently CAH shares are trading at around $77/share after piercing the $90/share level in March. However, the lower move from that moment on did not seem to be an impulsive one. This opens a possibility for a call option to be traded but, as long as the downward channel is not broken, chances are that the slide may still continue for a while.

What I would do here is to use the general state of the US economy and when the dollar is driven by economic news, and these are positive for the US economy, then buying a call option on CAH would be the way to trade it.

If the NFP (Non-Farm Payrolls), (to be released at the end of this week) beats all expectations then, call options with expiration date at the end of October would be appropriate. As a fixed target, it is hard to believe that the Cardinal Health share price has gone from around the thirty level all the way to almost one hundred – and is not piercing higher. So look for another attempt at the psychological level to come sooner rather than later.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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