This Company Is In The Sweet Spot Of 2 Huge Internet Trends

A big part of my job as managing editor of StreetAuthority involves talking with our premium newsletter experts to get a sense of what they like in the market, where they think it's headed and how they plan to help their followers profit.

That means I get paid to hear from some of the top investing minds in the country on a regular basis. What could be better?

I want to share some of that wisdom. I'm featuring insights and top picks from each of our experts over the next couple of weeks as a way of saying thanks for being a StreetAuthority.com reader.

Today's pick comes courtesy of Amber Hestla.

	Amber Hestla

As a former U.S. military intelligence analyst, Amber Hestla learned how to analyze data to predict outcomes. These days she applies those skills to financial markets for ProfitableTrading.com, a StreetAuthority sister site. Amber's specialty is generating income using options strategies that minimize risk. In her advisory, Income Trader, Amber uses a step-by-step approach to guide readers through the options market in search of the best income plays each week. 

So far, so good: Every trade that Amber has closed in Income Trader since the first issue in early February has been a winner -- that's one winning income trade a week since Feb. 6.

Here's more from Amber: 

A Company Whose Coffers are Benefiting from Two Internet Megatrends
There are two undisputed Internet megatrends -- growing worldwide usage and the need for tighter security.

F5 Networks (Nasdaq: FFIV) benefits from both.

The company's flagship product, F5 BIG-IP 5000, is a high-performance "switch" -- a device that manages data for large networks. Customers include cell phone network operators such as AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). Major network software providers, including Microsoft (Nasdaq: MSFT), Oracle (NYSE: ORCL) and SAP (NYSE: SAP) also utilize F5's wares.

 

This equipment acts as a gateway between users and the data servers, while maintaining security.

As a way to visualize these services, think about connecting to Netflix (Nasdaq: NFLX). You request a movie, and the switch decides which of the Netflix's servers should deliver that movie to you. The switch is responsible for finding a server not being fully utilized to send your request so that it can be processed quickly.

It also defends against so-called distributed denial-of-service (DDoS) attacks, which try to overwhelm a company's servers and prevent legitimate users from accessing service. A recent survey found that more than a third of large companies experienced a disruptive attack in 2012. More than a quarter of the attacks led to costs between $50,000 and $100,000 an hour, with the average attack lasting more than 30 hours.

Given the expense of a single DDoS attack, the $32,000 price tag for a F5BIG-IP 5000 is a bargain.

Last week, F5 announced earnings for the most recent quarter that beat analysts' expectations. Revenue was up 5% from a year earlier, and, going forward, F5 said it expects earnings per share to increase as much as 7% in the current quarter compared with a year ago.

FFIV is also one of the best managed companies in its industry, as you can see from this chart:

F5 is performing significantly better than average in each of these measures and every other metric I checked. But instead of buying shares outright, I recommend readers sell a put and get paid to buy shares at a discount.

Specifically, I recommend selling FFIV Oct 70 Puts for around 65 cents. Selling these puts will generate immediate income of about $65 per contract. Assuming FFIV trades for $70 or more on Oct. 18, we keep the premium and make a profit of $65 on $1,400 (the "down payment" to initiate the trade). That's a 4.6% return in 77 days. If we can repeat a similar trade every 77 days, we'd earn a 22.8% return on our capital in 12 months.

If FFIV trades for less than $70 on Oct. 18, you'll keep the $65 per contract, but you'll have to buy FFIV at $70 per share. In this case, you'll own F5 at a cost basis of $69.35 (the $70 "strike" minus the 65-cent premium, which you keep), a 21.1% discount to recent prices.

At $69.15, we'd own shares at about 13.6 times estimated 2014 earnings, and we'd be able to sell covered calls on the position to generate additional income.

(Note: Options aren't for everyone. Please check with your broker about any special capital and paperwork requirements that you may need to fulfill.)

P.S. -- Amber has an eye for seeing what others miss -- and she's uncovered a glitch in the options world that could be worth thousands of dollars per year to traders. To see here report, and what she's uncovered, click here.