- New Trades -
MasterCard Inc. - MA - close: 93.51
Shares of MA were slowly building on their bullish trend of higher lows last week. Then the market surged on Friday's jobs report. MA rallied past resistance at $93.00. Our trigger to open bullish positions was met with a close above $93.25. Our plan is to launch bullish positions on Monday morning (May 11th). Nimble investors might want to wait and try and buy a dip near $92.00, which should be new short-term support.
Trade Description: May 3, 2015:
We are adding MA back to the watch list. Here's our recent watch list play description from April:
Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.
Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities â€“ such as shopping, traveling, running a business and managing finances â€“ easier, more secure and more efficient for everyone."
MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.
The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.
Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.
Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.
"Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014," said Ajay Banga, president and CEO, MasterCard. "This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa."
Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.
Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.
Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.
Breakout trigger: Wait for a close above $93.25
Then buy calls the next morning with a stop at $88.00.
BUY the 2016 Jan $95 call (MA160115C95) current ask $5.95
05/11/15 trade begins
05/08/15 triggered with a close @ $93.51 (above $93.25)
Option Format: symbol-year-month-day-call-strike
Chart of MA:
Originally listed on the Watch List: 05/03/15
Nike, Inc. - NKE - close: 102.44
NKE is finally starting to move again. We have been patiently waiting for a breakout from its $98-102 trading range. Our plan was to wait for NKE to close above $102.00 and then buy calls the next day.
Friday's market rally pushed NKE to $103.30 intraday. The stock settled at $102.44. Our plan is to launch positions on Monday morning (May 11th).
Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory.
It's an appropriate brand name for the American athletic wear giant.
Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.
If you're not familiar with the company, "NIKE, Inc., based near Beaverton, Oregon, is the worldâ€™s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."
The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.
The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.
The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."
One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.
Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.
Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again).
Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.
Breakout trigger: Wait for a close above $102.00
Then buy calls the next morning with a stop loss at 97.45
BUY the 2016 Jan $110 call (NKE160115C110) current ask $4.00
05/11/15 trade begins
05/08/15 Triggered with a close @ $102.44 (above 102.00)
05/03/15 move the stop loss from 95.75 to 97.45
04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike
Chart of NKE:
Originally listed on the Watch List: 03/29/15