Option Investor
Newsletter

Daily Newsletter, Tuesday, 2/24/2015

Table of Contents

  1. Market Wrap
  2. New Option Plays
  3. In Play Updates and Reviews

Market Wrap

Empress of the Doves

by Jim Brown

Click here to email Jim Brown

Janet Yellen produced no surprises with her Senate testimony today and her dovish posture was in full view. Yellen said a rate hike in the near future was "unwarranted" and future moves would be data dependent suggesting it will be a long time. Consensus estimates immediately moved from a June hike to a September rate hike.

Market Statistics

Yellen told senators that dropping the word "patient" from the FOMC statement did not necessarily mean that rate hikes would follow two meetings later. The existence of the word patient has meant at least two more meetings before a hike but she was careful to say that it could be longer than two meetings. She also emphasized that rate hikes would not be sequential like the past cycle where the Fed raised rates 25 basis points at every meeting. Yellen said the Fed would be slow and suggested a hike followed by several meetings with no change and then repeat the process. She also seemed to indicate the hikes might even be less than 25 basis points. The Fed wants to err on the side of caution and not get locked into some predetermined pattern. Analysts now view the future rate hikes to be episodic rather than routine.

Yellen expressed concern about the economic drag from Europe and Asia and the potential impact on the USA. She also mentioned the slow rebound in the housing market as a concern. Of course there was also a focus on the lack of inflation and the dormant wage growth.

If the Fed is truly going to be data dependent it could be months before patient is removed from the Fed statement. The major economic reports have been weakening and that suggests the Fed should be nervous about rushing the rate hike process. The data is not cooperating with the Fed's desire to hike rates. Before the testimony the Fed Funds futures were predicting a rate hike in August and after the meeting the futures are now pointing to October.

Yellen also reiterated that the sharp decline in oil prices was a major stimulus event for the economy. While oil prices are holding down inflation the cheap fuel will spur additional economic activity in the months ahead.

Art Cashin said it appeared Yellen had taken the Hippocratic Oath of "First do no harm" to the economy. Yellen will have a tougher job on Wednesday with her testimony to the House because there are a lot of members there with strong negative feelings about the Fed. The questioning is likely to run longer and be more heated.

The dovish performance today lifted the markets to new highs once again and powered the Nasdaq to a 10th consecutive day of gains as it moves ever closer to that psychological level at 5,000. The Nasdaq was weak all morning but finally joined the party in late afternoon.

The economic reports today offered a little more in the way of bad news. The Richmond Fed Manufacturing Survey declined from 6 in January to zero for February. This came after setting a four-year high at 20 back in October. At the present rate of decline I would not be surprised if it fell into contraction next month.

New orders fell from +4 into contraction territory at -2 and backorders fell even further from -9 to -10 and the fourth month in contraction territory. The difference between new orders and inventories fell from -21 to -22 and also the fourth month in contraction. The average workweek component declined from +8 to -6 and the employment component declined from 13 in December to 4 in February.

With all the components declining the outlook is weakening. It is possible the port problems over the last 6 months have impacted manufacturing because of missing parts but that would not impact new orders so that excuse may not be valid.

The separate Services Survey rose from 14 to 18 and the second month of gains. However, the employment component fell from 14 to 4 after a high of 24 in November.



After Consumer Confidence hit a seven-year high last month at 103.8 we were due for a pullback. The headline number declined to 96.4 in February with the -7.4 point decline a lot more than analysts expected. The present conditions component declined from 113.9 to 110.2. However, the expectations component was the hardest hit with a -9.8 point decline from 97.0 to 87.2.

Consumers said jobs were harder to get and they did not see any better expectations for the summer months. Those that expected an increase in income declined from 19.5% to 15.1%. Those expecting an income decrease rose from 10.8% to 12.0%.

Consumers planning on buying a car fell from 13.1% to 11.0%. Home buyers increased slightly from 5.4% to 5.6% and appliance buyers rose slightly from 44.4% to 45.8%.

The decline in confidence could have been blamed in part on the severe winter storms and rising gasoline prices but that would be grasping at straws. There were no clear indications of discontent. However, the increase in those that felt jobs were harder to get could mean we are going to see a weaker than expected jobs report on March 6th.


The Texas Service Sector Outlook rebounded slightly from -2.8 to +1.7 for February. These numbers are down from the 27.7 high back in September. The employment component rose from 5.8 to 12.0 and the second biggest gainer in the survey. Input prices rose from 11.4 to 18.9 and wages and benefits rose from 13.5 to 16.4 suggesting profits are getting squeezed.

Eventually Texas is going to start reporting some negative numbers with as many as 100,000 workers being laid off from energy companies according to Dallas Fed projections.

Lastly the Case Shiller home prices for December rose +4.3% YoY and were flat with November. Despite low inventory levels the big rebound in prices from the 2009 lows appears to be over. Four cities in the ten city index saw prices decline in December. Those were Boston, Chicago, Las Vegas and San Diego.

The only material economic event on Wednesday is the New Home Sales for January. The biggest hurdle will be Yellen's testimony to the House. The big worry is that she will reflect on her Senate testimony today and decide she was too dovish and attempt to correct that view on Wednesday. Also, the likelihood of numerous hostile interviewers could also generate some unintentional responses. However, I believe she will tough it out and the market will take the testimony in stride.

The GDP revision on Friday is the next challenge. This is for Q4 so it is past tense. The dock slowdown had not really taken hold and the holiday shopping season was in full bloom. Estimates are for a revision to +2.2% growth. The dock slowdown will have a material impact on the Q1 GDP.


In stock news Toll Brothers (TOL) posted a +76% increase in earnings to 44 cents compared to estimates for 30 cents. Revenue rose +33% to $853 million. The average price of a delivered home rose +13% in Q4. However, in the Case Shiller numbers above the average price was flat at +4.7% YoY in December. This could mean Toll is going to be facing some pricing pressure in the months to come. Toll was positive on the coming selling season and raised guidance for homes sold from 5,000-6,000 to 5,200-6,000 with an average price range of $725k to $760K. Toll does sell to a higher end customer that is somewhat insulated from the problems in the lower end of the housing sector. People buying $750k homes don't normally have credit problems and they are making a lot of money.


Home Depot (HD) posted earnings that rose +43.8% to $1.05 compared to estimates for 89 cents. Revenue rose +8.3% to $19.162 billion and also a beat. Free cash flow jumped to $8.242 billion. The company said Black Friday was the biggest sales day in the company's history. Full year sales rose +5.5% to $83.2 billion.

Home Depot raised its dividend +26% to 59 cents payable on March 26th to holders on March 12th. Management also authorized an $18 billion stock buyback to be completed by 2017. In 2015 they plan on buying back $4.5 billion in shares. Sales are expected to grow 3.5% to 4.7% in 2015. Same store sales in Q4 rose 6.1%.

At the end of 2014 the company said it had 2,269 stores in the USA, Canada, Mexico, Puerto Rico, Guam and the U.S. Virgin Islands. The company said it was hiring 80,000 workers for the spring selling season.

Dow component Home Depot's +4% gain added the equivalent of roughly 30 Dow points to keep the Dow in positive territory most of the morning.


First Solar (FSLR) reported earnings of $1.89 compared to estimates for 71 cents. Revenue of $1.01 billion missed estimates of $1.27 billion by a wide margin. Guidance for revenue in the range of $550-$650 million was also a miss with estimates at $857 million. They expect a per share loss of 25-35 cents in Q1. The earnings report was complicated by Monday's announcement of a spinoff. First Solar identified 13.5 gigawatts of opportunity in new solar projects. By comparison they completed 509 megawatts in Q4.

First Solar will partner with SunPower (SPWR) to spin off a YieldCo vehicle. The assets to be spun off were previously held for sale and this complicated the accounting. The Desert Sunlight and Topaz projects were completed and were expected to be sold. By retaining them for inclusion into the spinoff the company believes it will generate significant value for shareholders in the long-term. Essentially the solar farms will be spun off into a separate company that sells electricity to utility companies and structured to pay a high yield to shareholders in the form of dividends.


Cracker Barrel (CBRL) reported earnings of $1.93 compared to estimates of $1.62. Revenues rose +8.2% to $756 million to beat consensus at $734.1 million. Same store sales tose +7.9% with a +3.2% increase in the average check. In addition the average menu price increased +2.5% for the quarter. CBRL guided to earnings of $1.30-$1.40 compared to estimates for $1.33.

The company credits lower gasoline prices with higher customer traffic and the higher sales per customer. They said in the prior quarter earnings they were already seeing a boost in business from falling gasoline prices so the pattern did continue.


BHP Billiton (BHP) reported earnings of $1.60 that fell -47.3% from the $3.03 in the year ago quarter. Revenues fell -11.9% to $29.9 billion. They produced record amounts of copper, aluminum and nickel but the prices declined in the commodity crunch. BHP said it was shutting down 40% of its shale oil rigs and would operate only 16 by June. The company has seven major projects under development with a combined budget of $13.5 billion.


Trex (TREX) reported earnings of 16 cents that beat estimates by a penny. Revenue rose +16.3% to $74.2 million compared to estimates for $70.3 million. Guidance for revenue of $120-$121 million for Q1 was in line with estimates.

All those details sound very mediocre but I doubt few investors remember this company was on the verge of bankruptcy in 2009. The new CEO Ron Kaplan turned the company around and shares hit a new historic high on today's earnings. The stock is up +1,050% since Kaplan took the helm.


Agrium (AGU) reported earnings misses on both earnings and revenue but the shares still posted a $4.00 gain. Earnings of 46 cents missed estimates for 60 cents. Revenue of $2.71 billion missed estimates of $2.96 billion. However, they guided for full year 2015 earnings of $7.00 to $8.50 and estimates were only $7.54. The company said after the drop in natural gas prices they hedged their 2015 requirements between $2.50 and $4.00 MMBtu. Earnings were not good but the guidance was great.


After the bell Hewlett Packard (HPQ) reported earnings of 92 cents beat estimates of 91 cents. Revenue fell -5% to $26.84 billion and that missed estimated for $27.38 billion. The company warned that earnings for the current quarter would be in the 84-88 cent range and analysts were expecting 96 cents. Shares of HPQ fell -$4 in afterhours.

Hewlett Packard reported flat or lower quarterly revenue in all of its operating units. They blamed the strong dollar for much of the weakness and guided to currency issues in 2015 as well. Two-thirds of their business is international and 50% of that is in Europe. HP expects full year earnings of $3.53-$3.73 with a 30 cent hit due to currency issues. This is well below analyst estimates for $3.95.

There will be a $1.50 hit to earnings for the proposed split of the company later this year. The company will split into HP Inc and Hewlett Packard Enterprises by November 1st. One company will continue in the PC/Printing sector and the other company will concentrate on enterprise hardware and software for the cloud and cloud services.


Casino stocks with operations in Macau received another blow today. A senior Macau official said the city wants to study restrictions on mainland Chinese tourists to ease overcrowding. The government will ask China's central government in Beijing to analyze Macau's capacity for visitors and consider how "too many tourists" impacts the quality of life for residents. China's president has asked Macau to "diversify away from its reliance on casinos and turn the city into a world tourism and leisure center." Macau casino revenue fell for the eighth consecutive month in January due to stricter travel rules from mainland China and a yearlong crackdown on corruption that has high rollers trying to avoid scrutiny, which includes the analysis of money transfers from the mainland to Macau for gambling.

Shares of WYNN fell -5%, LVS -4% and MGM -3%.


Crude oil declined -25 cents to $49.26 and is on the verge of breaking below that short term support at $49. The rebound in oil prices appears to be fading and now traders are betting on a new low in the weeks ahead. The January low was $43.58 on January 29th. Many analysts believe the next decline will see a break of the $40 level.

There was a slight boost to $54 and change on Monday on news the OPEC president may call an emergency meeting in the coming weeks if the price of crude continues to be weak. That $54 level was touched three times in February and that appears to be the short term top.

If crude prices continue to decline the equity market will suffer. We need to watch this over the next few days and act accordingly.

Hedgeye posted this picture last week and it is very appropriate.



In related news President Obama vetoed the Keystone XL pipeline late this afternoon. He said he did not object to the pipeline just the timing. He has had the State Department reviewing the pipeline for the last six years to determine if it was in the national interest.

We entered WWII on December 7th 1941 and the war ended on September 2nd, 1945, a period of four years. During that time we built thousands of tanks, airplanes, ships, millions of guns, uncounted tons of ammo and bombs and trained and transported more than 12 million soldiers and all those supplies to the various countries to fight and win. So why does it take more than six years to decide if a pipeline to transport cheap Canadian oil to the U.S. across only 3 states is in the national interest? TransCanada (TRP) could have actually built the pipeline 3 times in that six year period.


Markets

It was questionable at the open whether the markets were going to rally or not. The negative economics led to lower opens and then the worry over a Yellen surprise kept traders on the sidelines until well into her testimony. Once they decided she was not going to say something negative the shorts began to cover.

Traders coming off the sidelines added to the gains and it turned into a pretty decent market day. Advancers were 2:1 over decliners and all the major indexes closed at new highs. The Nasdaq was a new 15 year high but at 4,968 it is closing in on that March 2000 high at 5,132. It appears to be only a matter of time.

The S&P added a decent +6 points to close at 2,115 and edging closer to resistance at 2,125. The S&P was only up +1 point most of the day but finally moved higher into the close after Yellen quit speaking.

Personally I would be perfectly happy with 6 point gains every day. Slow and steady wins the race and gains that slow allow traders to enter and exit at will without any stomach churning volatility.

While the markets look like they are going to continue moving higher there are some considerations. The Nasdaq is well into overbought territory and it did not really turn positive until early afternoon and then it was shaky. After 10 consecutive days of gains it is time for a rest.

The second problem will be a further decline in crude prices. This will weigh on the energy sector, which is 12% of the S&P and a couple of large stocks in the Dow.

While I believe the market will go higher in the weeks ahead it might not be straight up. March is the 4th best month in the S&P in the third year of an election cycle. Since 1963 the Dow has not had a down March. The S&P has only been down once out of the 13 years. The Nasdaq began in 1971 and has only been down once in March in year three of the election cycle. The Russell 1000 and 2000 came along in 1979 and they have a perfect record of gains in the last 9 cycles. The data is from the Stock Trader's Almanac.

While history does not have to repeat it generally does. The positive March cycle is related to end of Q1 portfolio restructuring and the quarterly expiration of options and futures.

However, March also has a rocky record of losses after expiration Friday. The Dow has been down 17 of the last 27 years in the last week of March.

To put this in perspective the next three weeks should have a bullish bias. That does not mean it won't be choppy with doses of volatility. Once into March expirations I would look to tighten up my stop losses and be prepared for a decent decline. That is of course if we don't get it before then. Once traders figure out market cycles they tend to trade ahead of them and sometimes that disrupts that cycle.

S&P short term support is 2,104 and 2,090. Resistance 2,125.


The Dow is moving through a gauntlet of resistance with the high today at 18,230 and long term uptrend resistance from July. This is a minor range that has been broken before. The next material hurdle will be 18,300 to 18,325. Home Depot was a major support for the Dow this morning and was responsible for keeping it positive in the early going. Once the post Yellen rally really kicked off the number of Dow gainers increased significantly.

Support 18,100 and 17,965. Resistance 18,300 to 18,325.



The Nasdaq may be about ready to give up its leadership role. Since most of the Nasdaq gains have been on the back of Apple (AAPL) and this stock needs a rest the Nasdaq should rest as well. Since year end the Nasdaq 100 has gained about 224 points. More than 218 of those points have been from only five stocks. The Nasdaq 100 is a market capitalization weighted index. That means stocks with large market caps like Apple have a large impact on the index. Since December 31st Netflix has been responsible for 10 Nasdaq points. Gilead added +15, Biogen +17, Amazon +35 and Apple +141 Nasdaq points. Those five stocks were responsible for +218 of the Nasdaq's 224 point gain.

If the Apple rocket finally runs out of fuel it will be hard for the Nasdaq to overcome. Apple is 12% of the index. Apple shares were negative today and could easily give back quite a few points. Apple has gained +23 points or roughly 20% since its earnings.


Coupled with the potential for profit taking in Apple is the psychological resistance at Nasdaq 5,000. While 5,132 is the Nasdaq intraday high from March 10, 2000 and 5,048 was the high close, the 5,000 level is considered milestone resistance. The Nasdaq struggled at that level twice during March before crashing back to reality.

Getting through that 5,000 level could be a real challenge.


We all know that the Nasdaq can remain in rally mode far longer than anyone expects. Most of us have suffered repeatedly from trying to short an "obviously overbought" Nasdaq in the past. Overbought can always become more overbought. However, when reality returns the declines can also be dramatic. I am not predicting one here but we are nearing nosebleed territory.

Support 4,950 and 4,900, resistance 5,000.



The Russell 2000, NYSE Composite, S&P-400 Midcap are all at record highs. The Russell is nibbling away at the new highs by 2-4 points a day rather than taking big bites, which suggests fund managers have not yet gone all in on the small caps. OR, maybe they have gone all in and there is no cash left in the bank.

While I would like to see the Russell continue adding points I would like to see some excitement hit the small caps. Until then I would be cautious. The NYSE Composite is showing the same pattern. Today's new high was only 18 points over Friday's high. This index is creeping higher rather than sprinting.




While I do have a bullish bias for stocks for the next three weeks I do want to emphasize that it may not be straight up. We are due for some negative volatility and it could come at any time. As a trader I would buy the dips but probably not the first day. Remember stocks do go up and down and not always in a straight line.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email

 

 


New Option Plays

Industrial Strength

by James Brown

Click here to email James Brown

Editor's Note:

In addition to tonight's new candidate(s), consider these stocks as possible trading ideas and watch list candidates. Some of these stocks may need to see a break past key support or resistance:

Bullish ideas: UAL, TMO, UA, ALK

Bearish ideas: DECK, KORS, YY



NEW DIRECTIONAL CALL PLAYS

Illinois Tool Works - ITW - close: 99.48 change: +0.23

Stop Loss: 97.65
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 1.8 million
Entry on February -- at $---.--
Listed on February 24, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
ITW is in the industrial goods sector. The company employs almost 50,000 people and operates in 57 countries.

According to the company, "ITW is a Fortune 200 global diversified industrial manufacturer of value added consumables and specialty equipment with related service businesses. The Company focuses on solid growth, improving profitability and strong returns across its worldwide platforms and divisions. These divisions serve customers and markets around the globe, with a significant presence in developed as well as emerging markets. ITW's revenues totaled $14.5 billion in 2014."

ITW has several different business segments. These are: automotive (18% of total revenues, test & measurement and electronics (15%), food equipment (15%), polymers & fluids (13%), welding (13%), construction products (12%), and specialty products (14%). Management has managed to boost ITW's profits by selling off its slower-performing assets.

ITW turned in +29% earnings growth for all of 2014. Their most recent earnings report was January 27th. ITW saw Q4 earnings rise +28% to $1.18 a share, which was five cents above estimates. Revenues slipped -1.4% to $3.5 billion. Their profit margin improved 190 basis points to 19.6%. Organic sales growth was up +2.3%.

The company is guiding 2015 earnings in the $5.15-5.35 range (about +12%). They see revenues in the $14.19-14.35 billion zone. That's a -2% decline from 2014 due to foreign currency headwinds. They're aiming to boost their operating margin to 23% by 2017.

Investors didn't care that ITW's guidance was a little soft. The stock has been in rally mode ever since their Q4 report in late January. The last several days have seen shares of ITW break through resistance at $98.00. Today the stock is trading at all-time highs. The point & figure chart is bullish and forecasting at $116.00 target. We like ITW's relative strength and want to buy calls if shares can break through round-number resistance at $100.00. Tonight we are suggesting a trigger to buy calls at $100.25.

Trigger @ $100.25

- Suggested Positions -

Buy the Jun $105 CALL (ITW150619C105) current ask $1.20

Option Format: symbol-year-month-day-call-strike

Daily Chart:



In Play Updates and Reviews

Dovish Fed Testimony Keeps Rally Going

by James Brown

Click here to email James Brown

Editor's Note:

The Fed head's dovish testimony today helped keep the U.S. market rally going. The markets reacted with both stocks and bonds posting gains. Stocks indices hit new highs while bonds bounced from their February lows.


Current Portfolio:


CALL Play Updates

Hanesbrand Inc. - HBI - close: 122.33 change: -0.51

Stop Loss: 118.45
Target(s): To Be Determined
Current Option Gain/Loss: +127.4%
Average Daily Volume = 800 thousand
Entry on February 03 at $114.14
Listed on February 29, 2015
Time Frame: Exit PRIOR to HBI's stock split on March 4th
New Positions: see below

Comments:
02/24/15: After a strong two-day surge higher shares of HBI paused on Tuesday and posted a -0.4% decline. After the closing bell the company announced they were paying $200 million to buy Knights Apparel. Knights sells college-branded items like T-shirts and sweatshirts.

We only have a few days left. Tonight I am raising the stop loss to $118.45. We will likely exit this trade this week (probably Friday) to avoid holding positions over HBI's 4-for-1 split on March 4th.

Earlier Comments: February 2, 2015
How many stocks can you name that are up +400% in the last three years? HBI is in the consumer goods sector. They make apparel under a variety of brand names. Shares of HBI have been a big performer the last few years, outperforming the broader market.

According to the company, "HanesBrands, based in Winston-Salem, N.C., is a socially responsible leading marketer of everyday basic apparel under some of the world's strongest apparel brands in the Americas, Asia and Europe, including Hanes, Champion, Playtex, DIM, Bali, Maidenform, Flexees, JMS/Just My Size, Wonderbra, Nur Die, Lovable and Gear for Sports. The company sells T-shirts, bras, panties, shapewear, men's underwear, children's underwear, socks, hosiery, and activewear produced in the company’s low-cost global supply chain."

A good reason shares have been rising so consistently has been HBI's bullish guidance. Last year the company raised its earnings guidance three quarters in a row. Their most recent earnings report was January 29th (last week). HBI's Q4 results were $1.46 a share with revenues surging +20% to $1.55 billion. The bottom line number was two cents above estimates while revenues met estimates.

HBI said that 2014 was its second consecutive year of record results. Net sales rose +15% while its profit grew +28% and adjusted EPS soared +45%. Hanes Chairman and CEO Richard A. Noll commented on their results saying,

"We had another outstanding year in 2014, generating significant shareholder value and again achieving record results for sales, operating profit and EPS. We are in the midst of a multiyear period of strong growth supported by our powerful company-owned global supply chain, Innovate-to-Elevate product platforms, and acquisitions. Our guidance for 2015 translates into another year of double-digit EPS growth and what would be another record year for sales, profit and EPS, despite the challenges of currency exchange rates."

HBI's new guidance sees 2015 revenues in the $5.77-5.82 billion range. That's +9% growth but a little bit below Wall Street's estimates. HBI is forecasting earnings in the $6.30-6.50 range, which equals about +11% to +15% growth.

Management also raised its cash dividend +33% to $0.40 a share. On top of that they issued a 4-for-1 stock split. The split is coming up soon. HBI will start trading split adjusted on March 4th, 2015. We think HBI could see an old-fashioned split run.

Tonight we are listing a trigger to buy calls at $114.10. We'll start this trade with a stop at $109.90. Plan on exiting before the March 4th stock split date.

- Suggested Positions -

Long MAR $115 CALL (HBI150320C115) entry $3.21

02/24/15 new stop @ 118.45
02/17/15 new stop @ 114.85
02/12/15 new stop @ 112.40
02/03/15 triggered @ 114.14 on an intraday gap higher. Suggested entry was $114.10
Option Format: symbol-year-month-day-call-strike


Honeywell Intl. - HON - close: 104.30 change: +0.44

Stop Loss: 101.65
Target(s): To Be Determined
Current Option Gain/Loss: +3.2%
Average Daily Volume = 3.0 million
Entry on February 12 at $103.05
Listed on February 10, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: HON spiked lower this morning but the stock bounced near Friday's low around $103.50. I am suggesting readers wait for a new rise past $104.60 before considering new positions.

Earlier Comments: February 10, 2015
HON is in the industrial goods sector. Shares have managed to outperform its peers. The Dow Jones Industrial Average is up +0.26% this year. The XLI industrial ETF is -0.3% for 2015. Yet HON is up +2.5% so far. That's not bad and it's not counting the stock's 2% dividend yield.

According to the company, "Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes, and industry; turbochargers; and performance materials."

Earnings have been somewhat mediocre. Back in December HON lowered expectations for their fourth quarter results. When they finally reported Q4 results in January they managed to beat estimates by one cent with a profit of $1.43 a share, which is a +15% improvement from the year ago period. Revenues dropped -1.2% year over year at $10.27 billion but that still beat Wall Street's revenue estimate of $10.17 billion. HON's Q4 results were hurt by a -6% slowdown in their aerospace business but management is bullish that this segment will see strong growth going forward.

HON's Chairman and CEO Dave Cote commented on his company's results,

"In the fourth quarter, Honeywell delivered 4% organic sales growth and achieved 15% earnings per share growth (excluding the pension mark-to-market adjustment), exceeding the high end of our guidance range and capping off another year of terrific performance in 2014... Strong execution in our businesses and continued momentum across the portfolio throughout the year helped us to deliver on our aggressive 2014 sales, margin, and EPS targets. We achieved significant margin expansion in 2014 with benefits from our key process and productivity initiatives, and increased organic growth
Discussing their 2015 outlook the company said, "We remain cautious in our planning with regard to the global economy, but are confident that our balanced portfolio mix of short- and long-cycle businesses is well-positioned to deliver on our 2015 commitments that include higher organic sales, continued margin expansion, and double-digit earnings growth."

In an interview with Bloomberg, Mr. Cote sounded optimistic. He said, "For the first time in five years, I'm actually a little more bullish on where the global economy is going than economic forecasters are." Discussing the impact of crude oil on the economy, he said, "impact of lower oil prices is causing this major redistribution from oil-producing to oil-using economies, and those oil-using economies are quite large."

The market seemed unfazed by the company's cautious outlook. The stock actually rallied on its report. HON's recent strength has pushed shares to new all-time highs. The point & figure chart is already bullish and forecasting at $135.00 target. The P&F chart is also on the verge of a new triple-top breakout buy signal. Tonight we are suggesting a trigger to buy calls at $103.05

- Suggested Positions -

Long JUN $105 CALL (HON150619F105) entry $3.10

02/17/15 new stop @ 101.65
02/12/15 triggered @ 103.05
Option Format: symbol-year-month-day-call-strike


Humana Inc. - HUM - close: 164.44 change: -0.08

Stop Loss: 158.25
Target(s): To Be Determined
Current Option Gain/Loss: +50.0%
Average Daily Volume = 1.1 million
Entry on February 20 at $155.75
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: HUM's performance today was impressive. After an $8 surge yesterday the stock only lost 8 cents today. I would have expected a bit more profit taking.

We are raising the stop loss to $158.25. I am not suggesting new positions at this time.

Earlier Comments: February 17, 2015:
The big healthcare names have been showing relative strength. HUM is one of the biggest health care plan providers in the U.S. What makes the healthcare names so attractive is the government's Affordable Care Act (a.k.a. Obamacare). This new program has generated millions of new customers. It should. Currently the law states that if you don't have healthcare insurance you have to play a penalty. It was 1% of your income last year. This year the penalty rises to 2% of your income.

The ACA just completed its latest enrollment period and over 11 million people signed up, which was above expectations. This is a bullish tailwind for the industry as a whole and fuels investor optimism that business will continue to improve for the big health care providers.

HUM describes itself as "Humana Inc., headquartered in Louisville, Ky., is a leading health and well-being company focused on making it easy for people to achieve their best health with clinical excellence through coordinated care. The company’s strategy integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement, behavior change, proactive clinical outreach and wellness for the millions of people we serve across the country."

Earnings were definitely mixed last year. Q3 results announced last November were a miss on the bottom line while revenues were up +18% for the quarter. HUM lowered their full year 2014 guidance at that time. Their most recent earnings report (Q4) was announced on February 4th. Earnings were $1.09 a share, a +36% improvement from a year ago. Yet they still missed Wall Street estimates by six cents. Revenues rose +21% to $12.33 billion but that missed estimates as well. HUM is reporting definite improvement and it feels like Wall Street analysts have just been too optimistic.

Shares of HUM are not seeing any sell-off based on the earnings miss. Management reaffirmed their prior guidance of $8.50-9.00 per share for 2015 compared to consensus estimates of $8.86. Another positive for HUM stock is a massive $2 billion buyback program the company announced last September. The expiration for this repurchase program is December 31st, 2016. However, it is worth noting they may not spend it all. They had barely spent 20% of their last stock buyback program before announcing the newest one.

Investors don't seem to care about HUM's earnings miss. The expectation is that the ACA will continue to generate a steady supply of new business for the industry. Thus investors have been buying the dips in HUM. The stock has a bullish trend of higher lows and higher highs. Today the stock is breaking out past resistance near $155.00. The point & figure chart is bullish with a long-term target of $173.00. Tonight we are suggesting a trigger to buy calls at $155.75.

- Suggested Positions -

Long MAY $160 CALL (HUM150515C160) entry $6.40

02/24/15 new stop @ 158.25
02/23/15 new stop @ 152.45
02/20/15 triggered @ 155.75
Option Format: symbol-year-month-day-call-strike


iShares Russell 2000 ETF - IWM - close: 122.66 change: +0.16

Stop Loss: 119.65
Target(s): To Be Determined
Current Option Gain/Loss: -6.4%
Average Daily Volume = 41 million
Entry on February 13 at $121.55
Listed on February 12, 2015
Time Frame: 10 to 12 weeks
New Positions: see below

Comments:
02/24/15: The stock market's drift higher continued on Tuesday. I would consider new positions at current levels.

Earlier Comments: February 12, 2015:
The IWM is the iShares exchange traded fund (ETF) on the small cap Russell 2000 index. The market rally in 2014 was mostly a large-cap affair. The S&P 500 index delivered a +11% gain and the small caps lagged behind with a +3.6% gain for 2014. That could change this year.

Small caps tend to see bigger moves, both up and down, than their larger-cap rivals. Right now the small caps are poised to breakout higher.

Many people look to the small cap index as a sentiment indicator for the broader market. The small cap Russell index has (about) 2,000 stocks. Compared to 500 in the S&P large cap index and only 30 stocks in the Dow Industrials.

Small cap companies in the Russell 2000 tend to be more U.S. focused so they're not encumbered by the strong dollar as much as the large cap global companies can be.

Right now the IWM is on the verge of breaking out past its all-time highs set in December (in the $121.40 area). Tonight we are suggesting a trigger to buy calls if the IWM can trade at $121.55.

We are not setting a target tonight but I will note that the IWM's point & figure chart is forecasting a long-term target of $154.00.

- Suggested Positions -

Long MAY $125 CALL (IWM150515C125) entry $2.50

02/17/15 new stop @ 119.65
02/13/15 triggered @ 121.55
Option Format: symbol-year-month-day-call-strike


Lear Corp. - LEA - close: 110.12 change: -0.19

Stop Loss: 106.75
Target(s): To Be Determined
Current Option Gain/Loss: -12.0%
Average Daily Volume = 771 thousand
Entry on February 24 at $110.65
Listed on February 23, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: LEA's performance today was disappointing. Shares spiked up to a new high near $111.75 and then faded lower the rest of the session. Our suggested entry point to buy calls was hit at $110.65. This trade is open. However, I am suggesting readers wait for a new rally past $110.50 before considering new calls.

Earlier Comments: February 23, 2015:
Last year was a great one for the auto industry. According to Autodata we saw 16.5 million new cars and light trucks sold in the U.S. in 2014. That's almost one million more than 2013. The momentum continues.

Vehicle sales rose +11% in December 2014. That surged to +14% in January 2015 (from a year ago). Ford said their January sales were up +15% and General Motors reported +18% increase. Globally IHS Automotive is forecasting more than 88 million vehicles sold in 2015.

That means a lot of car seats need to be manufactured. LEA is in the consumer goods sector. They make auto parts. According to the company, "Lear Corporation (LEA) is one of the world's leading suppliers of automotive seating and electrical distribution systems. Lear serves every major automaker in the world, and Lear content can be found on more than 300 vehicle nameplates. Lear's world-class products are designed, engineered and manufactured by a diverse team of approximately 132,000 employees located in 34 countries. Lear currently ranks #177 on the Fortune 500. Lear's headquarters are in Southfield, Michigan."

Last year the company consistently beat Wall Street's earnings estimates. Their most recent earnings report (2014 Q4) was announced on January 30th. Net income soared from $72.8 million to $261.8 million (+259%). LEA's adjusted earnings per share rose +47% to $2.27. That was 19 cents above expectations. Revenues rose +6.9% to $4.55 billion, which also beat estimates. The boost was driven by a +10% surge in the sale of car seats.

Currently LEA expects 17.4 million automobiles will be manufactured in North America this year. That's a gain of about +3% from 2014. LEA does a lot of business in China and they estimate 22.9 million cars will be built in China. IHS automotive is estimating 25.2 million cars will be made in China in 2015. Considering the current pace of car sales, LEA is guiding 2015 revenues in the $18.5-19.0 billion range. That compares to current Wall Street estimates in the $18.65-18.99 zone.

Another factor driving the stock higher is an activist investor that suggested LEA split up to unlock shareholder value. This story hit on February 3rd and sent shares of LEA soaring. LEA management said they're always willing to listen to shareholders. LEA responded with a reminder that "Since 2011, Lear has returned more than $2.1 billion to shareholders in the form of share repurchases and dividends. Since 2010, Lear has achieved a total shareholder return of 203%, which is approximately double the return for the S&P 500 over the same time period. In 2014, Lear's total shareholder return of 22% outperformed the S&P 500's return of 14%. Building sustainable shareholder value is a foremost priority for Lear."

Two weeks later LEA followed that up with an announcement they were bumping their stock buyback program up to $1 billion. At the end of 2014 their stock repurchase program was down to $339 million. The Board of Directors also raised their quarterly cash dividend +25% from $0.20 to $0.25 a share.

Technically shares of LEA have been consolidating sideways for almost three weeks. That changed today. The stock has broken through resistance at the $110 level. Tonight we are suggesting a trigger to buy calls at $110.65.

- Suggested Positions -

Long JUN $115 CALL (LEA150619C115) entry $3.75

Option Format: symbol-year-month-day-call-strike


L-3 Communications - LLL - close: 132.44 change: +0.49

Stop Loss: 126.20
Target(s): To Be Determined
Current Option Gain/Loss: -9.1%
Average Daily Volume = 925 thousand
Entry on February 20 at $131.50
Listed on February 19, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: Traders bought the dip in LLL this morning and shares rebounded to close up +0.37%, outperforming the S&P 500. I would consider new positions at current levels.

Earlier Comments: February 19, 2015:
Last year the S&P 500 index gained about +11%. Shares of LLL managed to outperform the big cap index with a +18% gain in 2014. That's in spite of the rocky earnings performance in recent quarters.

LLL describes itself as "Headquartered in New York City, L-3 employs approximately 48,000 people worldwide and is a prime contractor in aerospace systems and national security solutions. L-3 is also a leading provider of a broad range of communication and electronic systems and products used on military and commercial platforms. The company reported 2013 (revised) sales of $12.6 billion." They operate four business segments: aerospace systems, electronic systems, communication systems, and national security solutions.

In May 2014 the company reported mediocre earnings but raised their 2014 guidance. Results changed with their July 31st report. They missed the bottom line by 5 cents while revenues beat expectations. Yet LLL management lowered their guidance. The stock collapsed. You can see the big spike down as a result. After a choppy third quarter performance LLL reported earnings on October 30th. They barely beat the bottom line estimate by a penny while revenues missed. Management lowered guidance again but shares rallied in spite of the news.

Since that October report shares of LLL have been churning higher with a bullish trend of higher lows and higher highs. Their Q4 earnings results seem came in relatively healthy. Earnings were in-line with expectations at $2.27 a share. Revenues were down -0.8% from a year ago but their $3.21 billion in sales did come in above expectations. Slower sales to the U.S. were partially offset by rising sales to international clients. This is a significant trend in the defense industry as contractors try to replace sales they're losing with the U.S. government with international sales. Management offered cautious guidance for 2015 with earnings estimates in the $7.35-7.65 range, which is essentially in-line with Wall Street. However, LLL is forecasting revenues of $11.75-11.95 billion, which is above analysts' expectations.

The last several weeks have seen some bullish headlines for LLL. In early December the company announced an additional $1.5 billion stock buyback program through June 30, 2017. On February 10th LLL raised their quarterly dividend from $0.60 to $0.65.

Earlier this morning Bloomberg ran an article discussing the potential for M&A in the defense space. The U.S. defense budget peaked in 2010 and has been shrinking ever since. As more contractors fight for the same dollars it could spark some mergers. The Bloomberg article suggested that LLL could make some acquisitions and also suggested that LLL is a potential target from its larger rivals. Lately Wall Street loves all the M&A headlines with stocks soaring on these stories.

Another story this month is how the U.S. government is opening the door for more international sales of military drones to its allies. This is a opportunity for LLL. They make the satellite communication equipment necessary for the drones. LLL also makes the training simulators to operate drones.

Technically shares have been consolidating sideways under resistance at $130.00 for more than two weeks. Today's display of relative strength is also a bullish breakout past resistance. The point & figure chart is already bullish and forecasting a long-term target of $174.00. Tonight I am suggesting a trigger to buy calls at $131.50.

- Suggested Positions -

Long APR $135 CALL (LLL150417C135) entry $2.20

02/20/15 triggered @ 131.50
Option Format: symbol-year-month-day-call-strike


Mallinckrodt - MNK - close: 117.82 change: -2.36

Stop Loss: 113.95
Target(s): To Be Determined
Current Option Gain/Loss: -13.0%
Average Daily Volume = 1.4 million
Entry on February 23 at $118.75
Listed on February 21, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: Ouch! MNK almost completely erased yesterday's gain. Biotech stocks did not participate in today's market rally. Shares of MNK retreated -1.96%. If the stock doesn't bounce here the next support is probably $115.00.

Earlier Comments: February 21, 2015:
Healthcare and biotech stocks were big performers last year and that outperformance appears to be continuing into 2015. One stock that is really outperforming its peers is MNK. Shares delivered a +89% gain in 2014 and they're already up +18% in 2015.

MNK describes itself as "Mallinckrodt is a global specialty biopharmaceutical and medical imaging business that develops, manufactures, markets and distributes specialty pharmaceutical products and medical imaging agents. Areas of focus include therapeutic drugs for autoimmune and rare disease specialty areas like neurology, rheumatology, nephrology and pulmonology along with analgesics and central nervous system drugs for prescribing by office- and hospital-based physicians. The company's core strengths include the acquisition and management of highly regulated raw materials; deep regulatory expertise; and specialized chemistry, formulation and manufacturing capabilities. The company's Specialty Brands segment includes branded medicines such as OFIRMEV and Acthar; its Specialty Generics segment includes specialty generic drugs, active pharmaceutical ingredients and external manufacturing; and the Global Medical Imaging segment includes contrast media and nuclear imaging agents. Mallinckrodt has approximately 5,500 employees worldwide and a commercial presence in roughly 65 countries. The company's fiscal 2014 revenue totaled $2.54 billion."

MNK's global medical imaging business has fallen from about one third of the company's sales to about a quarter as the specialty pharmaceuticals business continues to grow. One reason for the growth is MNK's acquisition strategy. Last year they purchased Cadence Pharmaceuticals for $1.3 billion, which added Ofirmev to MNK's stable of therapies. MNK also spent $5.6 billion to acquire Questcor Pharmaceuticals. This added Questcor's Acthar gel to MNK's drug business.

MNK has been really delivering on the earnings front. Last August they reported their Q3 2014 numbers with revenues up +14.6% and earnings of $1.20, which was $0.35 above expectations. Management also raised their 2014 guidance. In October 2014 they raised their 2015 guidance. Then in November MNK announced their Q4 2014 results with revenues up +44.8%, above expectations, and earnings of $1.68 per share, which was $0.27 higher than estimated.

The revenue and earnings parade continued when MNK reported their Q1 2015 numbers on February 3rd. The company's profit more than doubled with earnings up +109% to $1.84 per share. That beat Wall Street's estimate by 26 cents. Revenues accelerated as well with +60% improvement to $866.3 million. However, this time analysts had ratcheted up their estimates to $885 million. MNK said their gross profit margin improved to 50.6% from 47.3% a year ago. MNK is currently forecasting 2015 numbers of $6.70-7.20 a share on revenues in the $3.65-3.75 billion range.

Mark Trudeau, Chief Executive Officer and President of Mallinckrodt, commented on their recent results,

"Mallinckrodt is off to a good start in fiscal 2015 driven by strong performance across all of our businesses. We achieved meaningful top- and bottom-line growth particularly in the Specialty Brands and Specialty Generics segments, increasing the proportion of total company net sales from specialty pharmaceuticals to over 75% in the quarter. The strategies we have pursued have gone far toward transforming us into a leading specialty biopharmaceutical company, and we are highly focused on maintaining momentum and expanding our portfolio to provide durable, sustained growth."
Investors appear to believe in MNK's growth story. The stock has a steady trend of higher lows and higher highs. Shares are currently hovering at all-time highs in the $115-118 range. We are suggesting a trigger to buy calls at $118.15.

- Suggested Positions -

Long APR $120 CALL (MNK150417C120) entry $4.60

02/23/15 triggered on gap open at $118.75, trigger was $118.15
Option Format: symbol-year-month-day-call-strike


ServiceNow, Inc. - NOW - close: 78.75 change: +0.08

Stop Loss: 73.90
Target(s): To Be Determined
Current Option Gain/Loss: +17.0%
Average Daily Volume = 1.1 million
Entry on February 05 at $75.15
Listed on February 04, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: The last couple of sessions have been quiet for NOW. After a multi-day rally higher the stock could be digesting gains in a sideways consolidation. I'm still concerned that the $80.00 mark is potential round-number resistance.

I'm not suggesting new positions at this time.

Earlier Comments: February 4, 2015:
Tonight we are looking at a company that saw its sales grow more than 60% last year. They're forecasting more than 40% growth in 2015. That company is cloud-based services ServiceNow.

NOW describes itself as "ServiceNow is changing the way people work. With a service-orientation toward the activities, tasks and processes that make up day-to-day work life, we help the modern enterprise operate faster and be more scalable than ever before. Customers use our service model to define, structure and automate the flow of work, removing dependencies on email and spreadsheets to transform the delivery and management of services for the enterprise. ServiceNow provides service management for every department in the enterprise including IT, human resources, facilities, field service and more. We deliver a 'lights-out, light-speed' experience through our enterprise cloud – built to manage everything as a service."

This company has been consistently guiding their earnings forecast higher. They've done it at least the last four earnings reports in a row. Their most recent earnings report was January 28th. NOW reported their Q4 results of $0.03 a share compared to a loss of 2 cents a year ago. Analysts were expecting a profit of 2 cents a share. Q4 revenues soared +58% to $198 million, which was above expectations.

Some of the highlights from their fourth quarter include billings up +62% year over year and up +34% quarter over quarter. Deferred revenues were up +20% for the quarter. NOW added 211 net new customers, bumping their total to 2,725. Their customer renewal rate was 97%.

NOW said their 2014 revenues soared +61% compared to 2013. Their backlog at the end of 2014 hit $1.4 billion. That's a +57% jump from a year ago. NOW's President and CEO Frank Slootman said, "We finished 2014 with strong metrics across the board, maintaining consistently high year-over-year growth rates. In addition to a growing list of new customers that now includes more than 25% of the Global 2000, we continue to see existing customers expand their relationship with us, resulting in the highest quarterly upsell rate since our IPO." NOW's CFO Michael Scarpelli said, "Within the Global 2000, annualized contract value per customer has increased 40% year-over-year. These expanding contracts have helped us grow our combined backlog and deferred revenue 57% year-over-year."

NOW offered bullish guidance. They expected Q1 revenues to grow +50% in the $207-212 million range compared to Wall Street's estimates of $202.4 million. NOW's 2015 guidance is forecasting revenue growth in the +41% to +47% range in the $960-1,000 million zone versus analysts' estimates of $948 million.

These strong numbers and the consistent growth makes them a popular candidate among Wall Street analysts. After NOW's most recent earnings report several analyst firms raised their price target on NOW's stock.

Technically shares have just recently broken out through major resistance near $70.00. The point & figure chart is bullish and forecasting a long-term target of $97.00. The last few days have seen shares consolidating sideways in the $70-75 range. Tonight we are suggesting a trigger to buy calls at $75.15.

- Suggested Positions -

Long MAY $80 CALL (NOW150515C80) entry $3.93

02/17/15 new stop @ 73.90
02/12/15 new stop @ 71.90
02/05/15 triggered @ 75.15
Option Format: symbol-year-month-day-call-strike


NXP Semiconductors - NXPI - close: 85.91 change: +1.41

Stop Loss: 83.25
Target(s): To Be Determined
Current Option Gain/Loss: -11.0%
Average Daily Volume = 3.7 million
Entry on February 12 at $84.15
Listed on February 11, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: Semiconductor stocks displayed relative strength today with the SOX index up +1.3%. NXPI managed to outpace its peers with a +1.6% gain. This stock is now challenging the top of its short-term trading range in the $83-86 zone. I'd wait for a rally past the February 13th high of $86.50 before considering new positions.

Earlier Comments: February 11, 2015:
According to Apple Inc. CEO Tim Cook 2015 will be the year of Apple Pay. That's good news for NXPI. Apple launched its Apple Pay mobile payment system last September. In just the last four months it has taken off. About 8% of retailers already support it and estimates suggest that 38% of retailers will support Apple Pay by year end.

Tim Cook discussed the growth of Apple Pay in his company's recent conference call. Every $3 spent using mobile payments with Visa, Mastercard, and American Express, about $2 of that is used through Apple Pay. Panera Bread said that 80% of its mobile payment usage is through Apple Pay. Whole Foods noted that customers using mobile payments surged +400% once Apple Pay started.

All of this is good news for NXPI because they make the key chips necessary for Apple Pay to work.

The company describes itself as "NXP Semiconductors N.V. (NXPI) creates solutions that enable secure connections for a smarter world. Building on its expertise in High Performance Mixed Signal electronics, NXP is driving innovation in the automotive, identification and mobile industries, and in application areas including wireless infrastructure, lighting, healthcare, industrial, consumer tech and computing. NXP has operations in more than 25 countries, and posted revenue of $4.82 billion in 2013."

Earnings have been good. NXPI managed to beat Wall Street's estimates on both the top and bottom line the last five quarters in a row. Back in July NXPI raised their guidance. Influential hedge fund manager David Tepper, who runs Appaloosa Management, launched a new position in NXPI back in the third quarter of 2014. In early December shares of NXPI were upgraded with a $100 price target by Oppenheimer.

NXPI's most recent earnings report as February 5th. Revenues surged +18.9%. Management delivered bullish earnings guidance for the first quarter. Since this report at least four analyst firms have raised their price targets on NXPI (most of them into the mid $90s).

Today NXPI just hit all-time highs. The stock had been consolidating sideways in at $75-82.50 trading range. This breakout looks like an entry point. I'm suggesting a trigger at $84.15 to buy calls.

- Suggested Positions -

Long Apr $90 CALL (NXPI150417C90) entry $2.36

02/21/15 new stop @ 83.25
02/17/15 new stop @ 80.35
02/12/15 triggered @ 84.15
Option Format: symbol-year-month-day-call-strike


Starbucks Corp. - SBUX - close: 93.45 change: -0.13

Stop Loss: 89.40
Target(s): To Be Determined
Current Option Gain/Loss: +60.2%
Average Daily Volume = 5.1 million
Entry on February 10 at $90.25
Listed on February 05, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: Has the rally in SBUX stopped or is the stock just catching its breath before making another run higher? Shares have spent the last three days percolating sideways inside the $93-94 zone.

I am not suggesting new positions at this time.

Earlier Comments: February 5, 2015:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. The good news is that looks the consolidation is over.

Five-Year Plan

Late last year SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +8.1%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pop. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates. Investors applauded the news anyway and sent SBUX soaring to new all-time highs the next day.

SBUX said their worldwide comparable store sales rose +5% while traffic only rose +2%. It was the 20th consecutive period that same-store sales were up +5% or more. It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week.

SBUX's guidance was pretty lackluster but Wall Street didn't care. The company actually guided down for the Q2 2015 (current quarter) as they expect earnings in the $0.64-0.65 range. Analysts' were expecting $0.68 a share. SBUX also provided 2015 guidance of $3.09-3.13 versus Wall Street's estimate of $3.12. The company is still projecting 2015 sales growth of 16% to 18% as they see sales ramping up in the second half of 2015. They also updated their outlook on China as they plan to add 3,400 stores by 2019.

Investor sentiment on SBUX is bullish. Shares have not seen barely any profit taking following its post-earnings pop. Now, after two weeks of digesting gains, the stock is pushing higher and poised to breakout past resistance at $90.00. The point & figure chart is bullish and forecasting at $104.00 target.

Tonight we are suggesting a trigger to buy calls at $90.25 with an initial stop loss at $85.80.

- Suggested Positions -

Long Apr $95 CALL (SBUX150417C95) entry $1.03

02/21/15 new stop @ 89.40
02/12/15 new stop @ 87.85
02/10/15 triggered @ 90.25
Option Format: symbol-year-month-day-call-strike


Synaptics Inc. - SYNA - close: 83.67 change: +0.96

Stop Loss: 75.90
Target(s): To Be Determined
Current Option Gain/Loss: +16.0%
Average Daily Volume = 1.0 million
Entry on February 18 at $80.25
Listed on February 17, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: The string of unbroken gains continues. Both SYNA and the NASDAQ composite have delivered ten up days in a row. This trend is unlikely to last much longer. I would expect a dip soon. Broken resistance in the $79.50-80.00 area should be support. I am not suggesting new positions at this time.

Earlier Comments: February 17, 2015:
Technology stocks have taken a leadership role in the market this year. One tech stock that is showing relative strength is SYNA with a gain of +14.6% year to date. The company is a leading developer in the human interface solutions industry. Many consider the company a dominant force in the touch, display ICs and finger print sensing.

According to SYNA's marketing material, "Synaptics is the pioneer and leader of the human interface revolution, bringing innovative and intuitive user experiences to intelligent devices. Synaptics' broad portfolio of touch, display, and biometrics products is built on the company's rich R&D and supply chain capabilities. With solutions designed for mobile, PC and automotive industries, Synaptics combines ease of use, functionality and aesthetics to enable products that help make our digital lives more productive, secure and enjoyable."

SYNA had a roll in Apple Inc's (AAPL) iPhone 6 success. SYNA recently bought Renesas, the company that makes the LCD drivers for AAPL's iPhone 6 and 6+. Thus the tens of millions of iPhone 6s sold is a win for SYNA. We can see the impact in SYNA's earnings. The fourth quarter was HUGE for iPhone 6 sales.

In early December SYNA raised their revenue guidance for the fourth quarter (their 2015 Q2) from $415-450 million to $440-460 million. When SYNA reported earnings in late January they beat these raised expectations. Wall Street was looking for Q4 results of $1.22 a share on revenues of $449 million. SYNA delivered $1.46 a share with revenues soaring +125% to $463.7 million.

If that wasn't good enough SYNA management then raised their Q1 (their Q3) revenue estimates to $450-490 million compared to analysts' estimates of $422 million. Several analyst firms upgraded their price target on SYNA follow these results.

Traders should be aware that SYNA's relationship with AAPL might be in danger. A story surfaced on February 6th that AAPL was looking for other suppliers to fill LCD drivers to reduce their dependence on SYNA (and their Renesas business) as the only provider. Rumor has that rivals Himax, Novatek, and Parade Technologies are all vying for Apple's business.

Thus far shares of SYNA are not seeing much reaction to this rumor. Traders have been consistently buying the dips at SYNA's rising 10-dma. Now the stock is poised to breakout past resistance at the $80.00 level. The point & figure chart is bullish and forecasting a long-term target of $117.00. Tonight we are suggesting a trigger to buy calls at $80.25.

- Suggested Positions -

Long JUN $85 CALL (SYNA150619C85) entry $5.95

02/18/15 triggered @ $80.25
Option Format: symbol-year-month-day-call-strike


UnitedHealth Group - UNH - close: 115.43 change: -0.97

Stop Loss: 113.45
Target(s): To Be Determined
Current Option Gain/Loss: +135.8%
Average Daily Volume = 4.2 million
Entry on February 04 at $108.25
Listed on February 03, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: UNH did see some profit taking today with a -0.8% decline but it really wasn't that bad considering the sharp two-day rally in the stock.

Tonight we are raising the stop loss to $113.45. I am not suggesting new positions.

Earlier Comments: February 3, 2015
Healthcare stocks have been consistent winners for investors over the last couple of years. Just check out a long-term chart of the IHF or XLV healthcare ETFs. Helping the group lead that charge is UNH, one of the biggest names in healthcare. The company's various businesses serve more than 85 million people around the world. The company is ranked No. 14 on the Fortune 500 list.

UNH has two different business segments. They have their UnitedHealthcare business and their Optum business. UnitedHealthcare provides health benefit products and services. Their Optum business is a health management services company.

The Affordable Care Act (ACA, or Obamacare) had a rough start but now the system is clearly seen as a huge benefit for the health insurance companies. According to Bloomberg the ACA has added millions of new customers to the healthcare industry. UNH recently joined the public exchanges and added more than 400,000 new individuals. UNH did say they are paying significantly more fees and taxes due to the ACA but thus far their increase in customers and better operating efficiency in 2014 have kept the costs manageable.

The results are showing up in the company's earnings growth. In July 2014 the company beat estimates and raised their guidance. In October 2014 they beat estimates and raised their guidance. In early December UNH reaffirmed their 2014 guidance and offered a 2015 forecast that was in-line with Wall Street estimates.

Their most recent earnings report was January 21st. The results were slightly ahead of expectations with profits up +10% from a year ago to $1.55 per share with revenues rising +7.4% to $33.43 billion. That was enough to surpass estimates of $1.50 a share on revenues of $33.15 billion.

UNH's CEO Stephen Hemsley commented on their business saying, "We enter 2015 with a positive outlook and rising business momentum. Steady innovation and year by year advances in the quality, breadth and value of our services to employers, government sponsors, consumers and care providers are creating opportunities for revenue and earnings growth in traditional and new markets."

Management offered 2015 guidance that was in-line with prior estimates. They expect earnings to grow about +7.4% in the $6.00-6.25 range. Revenues are expected to rise +8.0% in the $140.5-to-141.5 billion range.

The stock exploded higher on its better than expected Q4 numbers. Since the post-earnings rally peaked the stock has seen a nice correction. Traders just bought the dip yesterday near support at $105.00. We want to hop on board this healthcare train and buy the rebound. There appears to be short-term resistance near $108.00. Tonight we're suggesting a trigger to buy calls at $108.25.

- Suggested Positions -

Long MAR $110 CALL (UNH150320C110) entry $2.46

02/24/15 new stop @ 113.45
02/23/15 new stop @ 111.85
02/21/15 new stop @ 107.75
02/17/15 new stop @ 106.85
02/04/15 triggered @ 108.25
Option Format: symbol-year-month-day-call-strike


Zimmer Holdings - ZMH - close: 121.76 change: +0.45

Stop Loss: 117.75
Target(s): To Be Determined
Current Option Gain/Loss: +11.4%
Average Daily Volume = 1.0 million
Entry on February 20 at $120.75
Listed on February 14, 2015
Time Frame: 8 to 12 weeks
New Positions: see below

Comments:
02/24/15: This morning ZMH announced a quarterly dividend of $0.22 per share. This news didn't really do much for the stock but shares did close at a new high. I would still consider new positions at current levels.

Earlier Comments: February 14, 2015:
A large chunk of the developed world is old and getting older. The demographics in the United States, Europe and Japan show an aging population. Even China is seeing a rise in its older citizens. This means big business for the orthopedic market, especially for products like hip and knee replacements. ZMH is poised to become the number one player in hip and knee medical devices with its current merger plans to Biomet.

ZMH is part of the healthcare sector. The company describes itself as "Founded in 1927, and headquartered in Warsaw, Indiana, Zimmer designs, develops, manufactures and markets orthopedic reconstructive, spinal and trauma devices, dental implants, and related surgical products. Zimmer has operations in more than 25 countries around the world and sells products in more than 100 countries. Zimmer's 2014 sales were approximately $4.7 billion. Zimmer is supported by the efforts of more than 9,000 employees worldwide."

Looking at last year's earnings ZMH's performance was mixed but they seemed to be improving. The company beat expectations in both the third and fourth quarter. ZMH reported its Q4 results on January 29th. Earnings per share hit $1.71, which was one cent above estimates. Revenues were down -1.4% to $1.22 billion. That missed estimates of $1.24 billion. Part of that miss was due to currency fluctuations. One the plus side ZMH did say gross margins improved 188 basis points to 74.4% in the fourth quarter.

ZMH management also raised their Q1 guidance. Wall Street was expecting 2015 Q1 earnings of $1.52 a share. ZMH just guided to $1.58-1.60 a share. Following its Q4 report and new and improved guidance several analyst firms have either upgraded or raised their outlook on ZMH. Many of the new price targets are in the $130-150 range. FYI: the point & figure chart is forecasting a long-term target of $169.00.

Right now the focus for ZMH is its merger with Biomet, a private company in the orthopedic space. Biomet was going to go public again last year but in April 2014 they agreed to a merger deal with ZMH. Shares of ZMH soared on the news. The deal is valued at $13.35 billion. It's the fifth largest medical device merger in the last ten years.

This merger is important to ZMH because competition is heating up in the $45 billion orthopedic market. The cost savings of the merger are expected to save $135 million the first year and hit $270 million by the third year. The deal is also accretive to ZMH. Biomet saw strong sales last quarter in its spine and bone-healing business.

The combined company will have about 40% of the hip replacement market and about 33% of the knee implant market. That puts them at the top of the list for these two niches. Overall the post-merger ZMH will be second in the orthopedic market behind Johnson & Johnson (JNJ).

It's important to note that this deal has not yet been approved by regulators. The European Union antitrust committee just announced they will render a decision by May 26th. ZMH believes the deal will be approved in the first quarter of 2015.

Technically shares of ZMH have a long-term bullish trend of higher lows and higher highs. The stock just had a mini-correction with a pullback from $120 to $111 in January. Shares have since recovered. Now ZMH is breaking out past short-term resistance near $118 and is headed for its all-time highs set last month in the $120.70 area. We are suggesting a trigger to buy calls at $120.75.

- Suggested Positions -

Long JUN $125 CALL (ZMH150619C125) entry $4.40

02/20/15 triggered @ 120.75
Option Format: symbol-year-month-day-call-strike




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