We were stopped out of Starbucks, Constellation Brands and the call position on Netflix when the market imploded on Friday. Constellation declined -$8.69 on no news. Starbucks fell -7% and Netflix nearly -8%. This was purely market related and none of those three had any news.
When Linkedin gave up -$84 or $12 billion in market cap on weak guidance and Tableau Software also lost -50% on weak guidance suggesting enterprise spending was slowing, investors hit the sell button on everything and ran for the exits.
It did not appear to make any difference what sector but technology and retail were the hardest hit. Nike, UnderArmour, Starbucks, Panera Bread, etc, were all crushed in the rotation out of retail on the weak payroll numbers. Tech investors took their clues from LNKD and DATA.
The market drop was a LEAP investor's nightmare with major declines in individual stocks that erase weeks of gains in only a few hours. If you have stop losses they are hit. If you don't have a stop loss this could be the dip that keeps on dropping. There is no easy answer.
In theory this could be a good buying opportunity but the market is behaving irrationally. There may be some portfolio managers that were caught off guard on Friday and will try to catch up on Monday and reduce their holdings in those sectors.
I am reloading the Starbucks position with a new strike price but I am holding off on the Constellation position until it is back over the 50-day average.
Original Play Recommendations (Alpha by Symbol)
BAC - Bank of America - Company Profile
Banks are not going in the right direction. The prior week the sector saw an uptick that suggested the worst was over. That died on Tuesday and the sector has not recovered. BAC may hit our stop loss this week if the market does not reverse higher soon.
Original Trade Description: January 31st:
It has been a rough few years but finally the worst is over for this sector and stock. You cannot ignore a company that earns $15 billion a year.
Bank of America has been ignored since late December and their earnings report in early January did not generate a lot of excitement. The bank said it earned 28 cents that beat estimates for 27 cents. That equates to a profit of $3.3 billion. They ended the full year with a $15.9 billion profit. From where I am sitting that is outstanding since it was up from only $3.38 billion in 2014.
The bank did not get a bounce from earnings because the CFO said increasing revenue was difficult in this market because the bank is more heavily exposed to low interest rates because it has a large retail banking business and very little profit centers like stock and bond trading that support Goldman and JP Morgan. The earned their profits the old-fashioned way one retail customer at a time and by slashing costs wherever possible. They eliminated 10,000 of its 223,715 employees and closed 129 branches. That leaves them with 4,726 locations.
BAC has $21.3 billion in energy loans and had $75 million in energy charge-offs in the quarter. The bank had $19.53 billion in revenue for the quarter and ended the year with $1.2 trillion in deposits. Once interest rates begin to rise the profits are going to explode higher.
BAC returned $4.5 billion to shareholders in 2015, $1.3 billion in Q4, through stock buybacks and dividends.
The last nine analyst ratings changes have been upgrades. On Friday, Credit Agricole upgraded them from sell to buy and skipping the hold level in the middle. Sandler ONeil, Wells fargo, Nomura, Bernstein and Robert W Baird have all upgraded BAC to buy.
Multiple analysts published notes last week recommending Bank of America at the current three-year low. Their legal troubles are about over with the vast majority of the financial crisis problems behind them. They are well away from any level that could be worrisome in the Fed's stress test scenarios. They are making money and staying out of trouble and they are paying nearly a 2% dividend.
To summarize, I believe the worst is over for the large banks and Bank America is in the sweet spot for when interest rates do rise.
Note: This same position was recommended in the Premier Investor Newsletter as a long stock play. I thought the timing was perfect to make it a LEAP play as well.
Long 2017 $15 LEAP @ $1.22, see portfolio graphic for stop loss.
GE - General Electric - Company Info
GE was volatile for the week but ended with a small improvement from the prior week. As a Dow stock it is impacted by the Dow's movement as people buy and sell the DIA ETF after big moves in individual stocks on headlines like earnings reports. GE is holding over support at $28. No change in the position.
Original Trade Description: December 20, 2015:
GE has been slowly drifting higher since the 2009 market lows. Most of 2014 and 2015 the stock was stuck churning sideways. The situation changed in early October this year after a big activist investor got more involved. It's making a difference. The S&P 500 is down -2.6% year to date. Yet GE is up +20% in 2015 and should continue to outperform in 2016.
GE is in the industrial goods sector. According to the company,
"GE is the world's Digital Industrial Company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. GE is organized around a global exchange of knowledge, the 'GE Store,' through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry. www.ge.com"
One of the biggest changes at GE has been the company's long-term transformation to get rid of its financial assets that have been an albatross around its neck for so long. Management is focusing on the company's roots, which is industrial products and innovation.
The company recently held their annual meeting with analysts. The year ahead brings a lot of challenges. The global market is still struggling. The U.S. economy is limping along at +2% growth. Plus the strong dollar hurts sales outside the U.S. In spite of these headwinds GE's CEO Jeffery Immelt is bullish on 2016.
Management is forecasting 2016 earnings to rise +15% on revenue growth of +2% to +4%. That is impressive for such a massive company like GE who does so much business overseas. They also foresee paying investors $8 billion in dividends and spending $18 billion on stock buybacks in 2016. GE provided a long-term 2018 earnings forecast of more than $2.00 per share compared to $1.30-1.20 a share in 2015. They expect to return $55 billion to shareholders in dividends and buybacks between now and 2018. That sort of investor-friendly action could help GE weather any market volatility in 2016.
The stock has been showing relative strength the last few months. The stock held up pretty last week too during the market's volatile moves. GE tagged multi-year highs on Wednesday. The point & figure chart is bearish and forecasting a long-term target at $53.00.
The action in GE's stock over the last few weeks is either a new top or it's a new base. We are betting it is the latter. Tonight I am suggesting investors wait for GE to close above $31.35 and then buy calls the next morning.
Recommendation: Buy-the-dip @ $28.00 (intraday trigger) start with a stop at $25.85.
Long Jan 2017 $30 call, entry $1.30, initial stop loss $25.85
JPM - JP Morgan - Company Info
JPM dropped on Tuesday to trigger the position at $57.88 at the open. The late week rebound failed to produce a gain for the week but it was stronger than Bank America. No change in the position.
Original Trade Description: January 31st
JP Morgan is the largest U.S. bank with assets in excess of $2.3 trillion. It calls itself a financial services firm that operates in four segments. Those are consumer & community banking, corporate & investment banking, commercial banking and asset management. The bank earned $22.41 billion in 2015 on revenue of $89.72 billion.
For Q4 the bank reported earnings of $1.32 that beat estimates for $1.30. Revenues were $22.89 billion. Earnings were held back because of a 21% decline in profits in commercial banking because of energy loans. The CFO said we are ready to increase loan loss reserves as needed if the energy sector remains weak for a long period.
Legal expenses declined from $1.1 billion to $606 million in Q4 as they wind down all the remaining problems left over from the financial crisis. JP Morgan would have been rock solid but they were pressured by the Fed into taking over Bear Stearns and Washington Mutual at the height of the financial crisis. Most of their legal settlements over the last five years came from loans sold by those two firms and JP Morgan inherited those problems when they agreed to acquire them.
The bank is so strong they were able to digest more than $6 billion in losses caused by a rogue trader nicknamed the London Whale. That turned out to be just a blip in their financials where it could have caused serious harm to a lesser firm. They still produced record profits in that year despite the loss.
On January 26th the bank entered into an agreement with Ambac Financial Group to pay $995 million to resolve the last of their claims from the financial crisis. With this agreement, Ambac will drop objections to the $4.5 billion agreement between Blackrock and Pimco for faulty home loans in 2008.
JP Morgan continues to confound the experts and grow despite the long list of legal problems they inherited in 2008. Now that those problems are mostly behind them the bank is free to concentrate on increasing profitability. As interest rates rise their massive loan and deposit base will make them even more profitable.
JPM has an investor day on February 23rd. Earnings are April 13th.
JPM shares found support in the January sell off around $56 although they dipped to $54 on the January 25th market crash. The influx of acquisition cash on the 29th caused a +$2.22 gain to $59. I expect that gain to fade and give us a better price on the LEAP call when we are finally triggered. I am putting an entry point over $60 just to make sure we do not get trapped in any post Friday decline. My ideal entry target would be a dip back to $58.
I am recommending a breakout trigger and a buy the dip trigger. Use the one that is hit first but not both.
Position 2/2/16 with JPM trade at $58.00
Long Jan $62.50 call @ $3.15, see portfolio graphic for stop loss.
KMB - Kimberly Clark - Company Info
KMB is showing great relative strength with a close just $1 off its recent high. Consumer staple stocks are outperforming and with a positive market we could see a new high next week.
Original Trade Description: December 6, 2015:
There are not many public companies that have been around as long as KMB. The company has a history going back more than 140 years. It looks like investors are still bullish on it with KMB trading near all-time highs.
KMB is in the consumer goods sector. According to the company,
"Kimberly-Clark (KMB) and its well-known global brands are an indispensable part of life for people in more than 175 countries. Every day, nearly a quarter of the world's population trust K-C's brands and the solutions they provide to enhance their health, hygiene and well-being. With brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend, Kimberly-Clark holds No. 1 or No. 2 share positions in 80 countries."
The company has beaten Wall Street's earnings estimates the last three quarters in a row. A stronger labor market in the U.S. combined with lower gasoline prices should be a tailwind for consumer spending in the globe's biggest economy. Meanwhile KMB is pursuing high-growth opportunities in emerging markets.
Technically the stock has been trading sideways in the $117.00-123.00 zone the last seven weeks. The recent bounce near the bottom of its trading range might suggest a bullish breakout soon. The point & figure chart is bullish and forecasting at $163 target. Tonight I am suggesting investors wait for KMB to close above $123.00 and then buy calls the next morning with an initial stop loss at $116.95.
Long Jan 2017 $130 Call, entry $7.50, see portfolio graphic for stop loss.
01/31/16 new stop @ 121.65
12/27/15 new stop @ 119.40
12/16/15 Trade begins. KMB opens at $124.75
12/15/15 Triggered with KMB @ $124.44, above our $123.00 trigger
M - Macy's - Company Info
Another week and no material movement. Macy's is struggling with resistance at $41.50. Shares only declined -12 cents for the week despite some volatility in both directions. The trend is still slightly higher but that resistance is a problem.
Original Trade Description: January 17th, 2016:
Leading up to the 2008 financial crisis shares of Macy's (M) were already in decline. The stock fell nearly -90% from its 2007 highs and by late 2008 M traded near $5.00 a share. The market didn't bottom until early 2009. At that time M was trading about $6.25. The stock rallied the next six years in a row. It looked like 2015 would make it seven years in a row. Then momentum suddenly reversed in July 2015. The stock surged to all-time highs near $73.00 on rumors of an activist investors getting involved. That proved to be the peak. Macy's collapsed from about $73.00 in July to $34.50 in December - a 52% plunge. Recent action suggest Macy's has bottomed and all the bad news is priced in.
M is part of the services sector. They are in the department story industry.
According to the company, "Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2014 sales of $28.015 billion. The company operates about 900 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, Bloomingdale's Outlet, Macy's Backstage and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com websites. Bloomingdale's in Dubai is operated by Al Tayer Group LLC under a license agreement."
U.S. retail sales were very disappointing last year. All of 2015 saw retail sales rise +2.1%. That's down from the five-year average of +5.1%. All year long analysts were expecting consumers to spend more because they were saving more money at the gasoline pump due to falling oil prices. That extra spending never showed up. This lack of spending weighed on several retailers and M's stock continued to sink. Macy's management took advantage of their falling stock price and bought back over 30 million shares last year.
Of course stock buybacks will also do so much. On January 6th Macy's slashed their full-year guidance due to weak sales during the holiday shopping season. Cold weather apparel and goods were not selling due to an unusually warm winter. Macy's said their comparable-store sales dropped -4.7% during the November-December time frame. The company reduced their full-year outlook from $4.20-4.30 a share down to $3.85-3.90 a share. Wall Street was expecting $4.24. That same night Macy's announced a major restructuring program. They will close 36 stores this spring. Plus they will reduce staff and cut costs in an effort to save $400 million a year. Shares rallied the next day.
If a company can cut its earnings guidance and rally then all the bad news is probably priced in. If you haven't noticed lately the stock market is plunging. The S&P 500 is already down -8.0% in the first ten trading days of 2016. Shares of Macy's are moving the opposite direction and the stock is up +8.2% year to date. The recent lows near $34.00 look like a bottom. However, we would like to see M breakout past technical resistance at its 50-dma and past its recent highs.
Long 2017 Jan $45 call @ $3.40, see portfolio graphic for stop loss.
NFLX - Netflix - Company Info
The Netflix call was stopped out on Wednesday at $86.25. We are still short the $90 put. I wrote last week that we were not going to stop out on the put because I think the stock will find a bottom and be a lot higher by the end of 2016. If we are put we will sell some very expensive covered calls against the position.
The next material support is $79. The Nasdaq implosion on Friday caused a $7 drop after shares spent two days trying to form a bottom at $89. Once it appears Netflix has stopped going down we will replace that stopped call with a lower strike. We still have $9.45 in net premium received from selling the put after subtracting the $5.59 loss in the call. That will cover much of the price of a new call once a bottom is reached. Calls are still very expensive today despite the big drop.
Original Trade Description: January 24th.
Netflix has a plan for total domination of streaming video. On December 31st they were active in 60 countries. In early January they announced they had expanded into 130 additional countries a full year ahead of schedule. The original plan was to complete the expansion by the end of 2016. This gives them a huge additional base of prospective users of more than 450 million broadband accounts. Everyone around the world knows of Netflix. Many have been waiting for them to open in their country. Netflix could gain more than 25 million new users in 2016 alone. They currently have just under 75 million. The 190 countries does not include China. They are working on getting into China but the government has put numerous censorship roadblocks in their path that need to be overcome. They expect to be in China in 2017. They added 4.04 million international subscribers in Q4 and that was just from the existing 60 countries.
Netflix said it was targeting young, outward-looking, affluent consumers with international credit cards and would spread out from that base.
Last year Netflix raised prices for new subscribers by $1 to $10 a month for unlimited high definition streaming. Existing subscribers were left at the $8 level. Now the company is saying those grandfathered under the $8 plan will see their exemption expire in May. They can continue paying $8 a month for standard definition but the rate will rise to $10 for HD shows and movies. Premium subscribers getting 4K UHD videos will be paying $12 a month. With 75 million subscribers this represents a cash windfall with the $8 rate rising 50% to the $12 level if you want UHD. Netflix said they were already seeing very fast adoption of the $12 plan by existing users. Plus, premium subscribers can stream to 4 devices simultaneously rather than just 2.
Netflix plans to stream more than 600 hours of original content in 2016 compared to 450 hours in 2015. There will be 31 new and returning original series, up from 16 in 2015. There will be two dozen original feature films and documentaries, 30 children's series and a variety of comedy specials.
Analysts believe Netflix earnings are going to soar in 2017 as the adoption of streaming in those 130 new countries begins to accelerate. That is good news because Netflix shares are highly overvalued according to normal metrics. Revenues have been rising 25% annually and streaming content obligations rose by 15% in 2015. They are paying a lot for content but they are essentially taking it off the market to prevent anyone else from competing. They can now use that content in 190 countries so they are leveraging their assets to expand future revenue. Their current PE of 346 is less than half of Amazon's 851 PE. They are operating on the same business model as Amazon. If you build it subscribers will come. When they finish their expansion phase, which is limiting earnings today, they will be highly profitable with more than 200 million subscribers by 2020. That equates to $2 billion a month in revenue. That is a month, not a year.
Buying Netflix requires a leap of faith that investors will return to it as a momentum growth stock. After the earnings report shares have been weak as traders looking for an earnings bounce move on to other stocks in hopes of repeating the process. Shares closed at $100 on Friday after a low of $97 during Wednesday's market crash.
I am suggesting we target that $97 level for a long entry. However, the LEAPS are so expensive we have to use a combination play to make it work.
One option would be to buy the stock and sell a January $110 LEAP covered call, currently $17.50. if we buy the stock at the $97 target we are protected against a decline to $80 by the premium we receive. If Netflix does not drop significantly and rebounds to more than $110 then we make roughly 20% or $20 over the next year. We cannot complain about a 20% gain in this market. If Netflix shares did decline significantly so $90 or so, the option premiums will shrink significantly and we could buy back the $110 LEAP for a profit and then buy a LEAP at a lower level for less money.
Another option would be to use a combination position where we buy the LEAP and then sell a put spread or a naked put to offset the cost of the LEAP call. One example would be to buy the $110 call for $17 and sell the $90 put for $14.25 giving you a net debit of $2.95 to be long Netflix for the next year. If shares declined under $90 you "may" be obligated to buy the stock at $90 "if" it was put to you. With the volume of puts on Netflix that potential is minimal but it does exist. If you were put I would sell a covered LEAP call to cover any losses and you still have your $110 long call for when the stock rebounds.
The option I am recommending is the combination play. If Netflix trades at $97.25 we enter the following trade. I am using the even dollar strikes in case there is another stock split in 2016.
Position 1/26/16 when NFLX traded at $97.25
Long January 2017 $110 LEAP call @ $15.00, see portfolio graphic for stop loss
Short January 2017 $90 LEAP put @ $14.95, no stop loss.
Net debit 5 cents. If we are put the stock our cost will be $74.95 and a bargain.
NKE - Nike - Company Info
Nike hit its high for the week on Monday at $63.47 and it was downhill from there. Retailers were getting crushed without a good reason. This was sector rotation at its finest. Friday's decline stopped just above current support at $57.
Original Trade Description: January 24th
Nike split 2:1 on December 23rd at $132 and the stock went straight down from there. When a stock is a major fund holding and it splits, there is a rush to the exits by some funds. They can sell the new shares nearly tax-free when it is classed as a stock dividend and they still have the same number of shares in the original position. Some funds have restrictions on the number of shares they can hold in any single position. A stock split doubles the number of shares and sometimes puts them over the limit and they sell the extras. These factors cause what is called "post split depression." Nike shares have now experienced that depression.
Shares declined from the $66 level the day of the split to $56 last week on fears the holiday retail selling may have been weak. Given Nike's predominant position in athletic leisure apparel they will always be the dominant seller compared to Under Armour and LuluLemon.
The reported earnings in late December of 90 cents, that rose +22% and beat estimates for 85 cents. Revenue rose +4% to $7.686 billion but missed estimates for $7.808 billion because of the strong dollar. Excluding the dollar impact revenues rose +12% and well over $8 billion.
The company guided for earnings growth in the "mid teens percentages" and said there was no weakness in China. They announced a $12 billion stock buyback program in November and raised their dividend by +14%.
Nike is targeting $50 billion in annual revenue by 2020 with online direct ecommerce sales of $7 billion, up from $1 billion in 2015. Online sales rose +51% in 2015.
Competitor Under Armour is targeting total sales of $8 billion by 2018 to put that aggressive Nike target into perspective.
Nike plans to begin selling in Mexico, Chile and Turkey in 2016. Nike began e-commerce sales to Canada, Switzerland and Norway in the last quarter.Sales in China rose +28% despite the economic downturn. North American sales rose +10% with futures orders up +14%.
Earnings are March 22nd.
I am recommending we buy the $65 LEAP with a Nike trade at $62.25 to confirm the rebound from the lows last week.
Position 2/1/16 with NKE trade at $62.25
Long January 2017 $65 LEAP Call @ $5.00, see portfolio graphic for stop loss.
SBUX - Starbucks - Company Info
Starbucks was another retailer that was crushed last week. As a Nasdaq stock it was doubly hit on Friday for a -6.5% decline on no news. The close at $54.49 was just below support at $55 and stopped us out at $54.75.
Nothing changed with Starbucks. This was just a market event and we cannot compensate in advance when the markets go crazy.
I am recommending we reload this position using the January $60 LEAP, currently $3.95.
Original Trade Description: January 24th.
We were stopped out of the Starbucks position by a penny on the January 20th market crash. The company reported great earnings and failed to decline. The only hiccup was a temporary decline in sales growth in Europe because of the terrorist attacks. CEO Howard Schultz said they were headed for a record quarter in Europe until the Paris attack and then everything came to a screeching halt. He also said buying and traffic patterns were returning to normal and 2016 should be a good year. They reported 9% same store sales increases in the U.S. and 6% elsewhere other than Europe. Earnings growth is expected to be 15% annually for the next five years. They are opening 500 stores a year in China for the next 5 years and Schultz expects China's revenue to exceed the U.S. in the years to come. Schultz said at the current low stock price they were "backing up the truck" to buy as many shares as possible.
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. SBUX broke out of that sideways funk after it reported earnings in January 2015.
In late 2014 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 continues to serve up strong earnings and revenue growth too. The fourth quarter of 2014 saw a huge jump in SBUX gift cards. One out of every seven Americans received a SBUX gift card.
SBUX has been reporting very strong overseas sales growth and consistently healthy same-store sales growth globally.
Position 1/29/16, closed 2/5/16:
Closed: Long Jan 2017 $65 LEAP Call @ $4.01, exit $2.47, -1.54 loss
RELOAD on Monday
Buy Jan 2017 $60 LEAP Call, currently $3.95, no initial stop loss
STZ - Constellation Brands - Company Info
I hope conservative investors took my suggestion and exited on Monday. That was not an official recommendation but I warned that the close above uptrend resistance could be a challenge. Unfortunately, I did not realize what a serious challenge it would be. This was another retail casualty with the stock dropping -$17 from Monday's high at $155. Friday's loss was especially ugly at -$8.69 on no news.
We were stopped out at $140.65 on Friday in the market implosion. I am not reloading this position until it is back over the 50-day average.
Original Trade Description: January 10, 2016
New Year's was just a few days ago and many people were thinking hard about their new year's resolutions. For most folks it's a desire to be healthier. Instead of working hard for six-pack abs you may want to just stop by the store for a six pack of whatever STZ is selling. This company appears to be running at full speed and the stock shows it.
STZ is in the consumer goods sector. According to the company,
"Constellation Brands is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world's leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company's premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky... Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,700 talented employees."
STZ has been killing it on the earnings front. They have beaten earnings the last three quarters in a row. Management has raised their guidance the last three quarters in a row. Their most recent earnings report was last week on January 7th. Analysts were expecting a profit of $1.30 a share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.42 a shares. Revenues were up +6.4% to $1.64 billion. Strong beer sales has helped fuel double-digit shipment increases. The company announced they were building another brewery and raised their guidance again.
This bullish outlook sparked a couple of new price target upgrades ($174 and $185).
The stock soared to new highs and broke through key resistance near the $145.00 level. The market's current decline, should it continue, will likely pull STZ back toward $145.00, which should be new support. Tonight I am suggesting a trigger to buy calls on a dip at $145.00. We'll start with a stop loss at $139.45. More conservative investors may want to wait and see if STZ dips closer to the $140-142 area as an alternative entry point.
Position 1/11/16, closed 2/5/16:
Closed: Long Jan 2017 $165 call, entry $7.90, exit $5.50, -2.40 loss
01/17/16 adjust stop loss lower from $139.45 to $138.25
01/11/16 triggered @ $145.00
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