Shares of Deere (DE, $30.26, down $2.84) are getting crushed this morning after the company missed Wall Street’s expectations once again. The company reported profits of $345 million, or $0.81 a share compared to last year’s quarter of $422 million, or $0.94 a share. Wall Street had expectations of $0.99 a share.

Back in May when Deere was at $80, the company missed estimates by a penny. In August, when the stock was at $60, they missed by four cents. Although I didn’t recommend any put option plays at the time, I did say “stay out of the headlights”.

And I said this:

“The sell-off in Deere has put the stock near its 52-week low but the real key was when the stock fell below $80. Once that happened you could clearly see the breakdown was coming. Deere’s earnings report was the straw that broke the camel’s back.”

Yeap, I blew this one. We missed the downtown train on that one, folks. Sorry. The Deere December 60 puts (DEXL, $30.53, up $2.63) were probably selling for $5 back in August…

Now the company misses by 18 cents a share. Of course, Wall Street’s only worried about the company’s agriculture equipment sales which are expected to grow only 5% next year, down from 15% not so long ago. Yikes.

Deere has gotten a 60% haircut in just six months and fallen from $80 to $30. The stock now has a PE of 6, a book value of $18 and trades at 1 1/2 times that. Historically, that is what you call a blue-light special. However, there is a new wave of the market that is being ushered in and people are trading instead of buying and holding.

I’ve been saying for years that the buy-and-hold theory has been dead money and it is only now that I am hearing the talking heads say the same thing. The real wealth in the market comes from option trading and here at OptionsMentoring.com, we can teach you this. There are so many strategies you can deploy in markets like these and it is one of the best environments ever to be trading.

There may come a time when Deere provides us with a trading opportunity to go long but there still appears to be some downside risk. Bearish options traders are targeting the December 25 puts (DEXE, $0.85, up $0.17) which have traded over 2,000 thus far.

Rick Rouse
Rick@OptionsMentoring.com

Morgan Stanley (MS, $18.10, down $10.60) is down $4+ from its opening price of $22.83 and $5 since my earlier blog. The opening price was nearly $6 lower from where the stock closed Tuesday. We are talking about a 35% drop in for a company that smashed Wall Street’s exceptations. Morgan announced early in an attempt to show the Street that it’s withstanding the financial turmoil that has dramatically affected Wall Street.

Morgan’s leverage ratios improved which is a good thing and both Morgan and Goldman Sachs (GS, $100.00, down $33.01) are performing far better than most other financial stocks despite declining profits. The thing with Goldman is that it is now trading a 1x book value. Goldman’s “supposed” book value is $99.

Yeah, it’s hard to trust the numbers but there is no more rulebook. The sell-off in some of these names are unbelievable. And while the sell-off can be swift from one day to the next, so can the rallies. Gold was up $50 to $829 this morning as the dollar was weakening.

The point is I think Morgan’s worth a flyer here at these levels and I’m looking at the October 20 calls (MSJD, $5.00, down $7.00) and the January 25 calls (MSAE, $4.00, down $4.18). Both calls have traded lower - the 20’s have traded as low as $4.40 and the 25’s have traded as low as $3.70. We could hit those levels again if the sell-off continues into the close but at some point the short-sellers are going to have to cover this stock.

Rick Rouse
Rick@OptionsMentoring.com

Shares of General Electric (GE, $27.59, up $0.19) hit a 52-week low yesterday before rebounding to close in positive territory. The stock hit a new low of $27.20 and is now down 25% for the year. GE has been in a major downtrend since announcing crappy 1Q earnings back in April. The stock was at $36.75 before their April announcement and fell $4.70, or 12%, the day they reported on volume of 366 million shares.

The big issue with GE is that in mid-March it had reaffirmed previous 1Q and yearly earnings guidance before dropping the “disappointment bomb” on Wall Strret. Not only did GE miss 1Q earnings ($0.44 versus expectations of $0.51), they said full-year earnings would be well below what they had forecast.

GE gets half its profits from financial services unit, GE Capital, which was where earnings took a hit. Most figured GE had kept the subprime damage in check but when earnings were revealed this division accounted for $0.05 of the $0.07 on the miss. The company rarely misses its numbers and many on Wall Street were stunned at just how far off GE was from estimates.

GE makes a variety of energy products and that will be the key driver of earnings over the next few years. The company is enjoying double-digit growth from the Infrastructure division but other areas have been “soft”. GE is still treading water and it may be a little too early to put the toes in the water. The company will be reporting earnings in the next 2-3 weeks and all eyes will focused on their numbers.

Like I said before, I’m not ready to purchase any call options on the stock just yet but I am watching the 2009 January 30 calls (VGEAF, $1.25, up $0.10) and the 2010 January 30 calls (WGEAF, $2.67, up $0.10). It may take a quarter or two for the company to gain Wall Street’s trust back but this stock is getting pretty cheap. Besides trading at a five-year low, the stock is sporting a juicy 4.5% dividend.

GE’s price/earnings ratio is under 13 and its price/book value ratio is a little over 2x. These ratios often help determine whether a stock is undervalued or overvalued. The higher both are compared to other stocks means the stock could be overvalued. A lower P/E or P/B could be mean the stock is undervalued and that appears to be the case with GE right now. However, I still don’t believe the stock is out of the woods just yet and I will also be watching to see what GE says when it reports earnings in July.

Rick Rouse
Rick@OptionMentoring.com

Cooper Tire & Rubber (CTB, $7.92, down $0.37) delivered more bad news on Tuesday. The company said it is cutting 2Q production at its North American facilities, blaming lower tire demand and a possible shortage of raw materials. Cooper Tire was vague in its statement and did not say how much it was cutting production or where the cuts will take place. The cutback in production will cost the company up to $14 million.

This stock has been slammed and is now down roughly 75% from its 52-week high of $28.50. The sell-off in the stock accelerated in May on expectations that car sales would be weak and has continued through June. Cooper is suffering big-time from rising oil prices as petroleum is key to tire making and accounts for 60% of the products used in them. Over the past year, crude oil prices have more than doubled, from $55 a barrel to more than $135+ nowadays, which is affecting Cooper’s bottom line.

Last month, the company reported profits of $0.03 a share versus estimates of $0.10. Revenue for the quarter was $679 million, slightly less than the $680 million analysts had predicted. Yeah, it was a dismal quarterly report but there may be hope for Cooper.

The company reported sales in the International Tire Operations grew nearly 30% to $232 million due to increased volume and pricing. Cooper also repurchased 800,000 shares of its own stock for $14 million in Q1 and still has another $40 million set aside for additional buy-backs. And who’s to blame them? The fim has a book value of nearly $14 a share, meaning Cooper’s assets or an acquisition of the company would be worth this much. Of course there are many factors that make up a company’s book value but based on the share price, Cooper is trading for half its book value.

The biggest risk for the stock is rising raw material expenses which cost the company $6 million last quarter. These expenses represent a big risk for the company going forward (as if they already haven’t) and there’s no telling when Cooper will rebound. Certainly not anytime soon but with the China market representing the company’s next big area of growth, Cooper could be a stock worth holding over the next few years. There hasn’t been much action in the 2010 January 10 calls (YBGAB, $1.35) lately but they may also represent a good buying opportunity as well.

The aforementioned options do not expire for another 18 months and both the options and the stock could get cheaper in the weeks and months ahead. Let’s watch the stock over the summer and see how it reacts. By the time the fall and winter rolls around, which is traditionally Cooper’s strongest quarters, we should have a better idea of what lies ahead for the company.

Rick Rouse
Rick@OptionsMentoring.com