FDX - $93.89 Federal Express ** No Stop **
Our dip entry at $96 is looking a little suspect with the continued drop. Fortunately our insurance put at $95 is taking up the slack. If oil dips I suspect the shippers will rebound. If not we will be out before the April expiration.
Federal Express reported stronger than expected earnings on Thursday with net income up +53% and revenue up +21%. They hit a high near $102 in early March but returned to the bottom of their range at $96 after the earnings announcement. This was the entry we were waiting for.
FDX warned that higher oil prices could crimp earnings in the current quarter. Still according to FDX customer demand was so strong that it was driving new investment in aircraft, facilities and technology.
Comparing the FDX earnings with UPS it appears FDX is the clear winner and taking substantial market share away from UPS. On a broader note Yellow Roadway said on Friday that freight tonnage was at an all time high. They raised rates +4.5% and their fuel surcharge to 11%. FDX is the premium shipper in the sector and they are also having no problems with rates. According to UPS the fuel surcharge is turning into a profit center as the carriers learn how to hedge against oil prices. FDX already hedges but they also warned that rapid rises in crude could negate that hedge. You can bet that the fuel surcharges will continue to climb and earnings will remain at the top end of the spectrum.
Morgan Stanley said the FDX guidance to the top of the range was a positive sign and a couple cents of energy pressure was to be expected.
2006 $100 LEAP Call WFX-AT @ $6.50
SMH - $32.65 Semiconductor Holders ** No Stop **
The SOX held 410 and the SMH is holding $32. There was one major dip on Tuesday but it was quickly bought. If we are going to see any buying into the end of the quarter I believe chips could see a decent rebound. The problem is what to do after any April bounce occurs but we will deal with that when it happens.
The current level is well above any attractive puts for insurance with a -2.50 move on the SMH a big move from this level. However real support could be found at $31 so I am going to recommend a 60 cent May put just in case. I believe we will know if this trade is going to be a winner very quickly.
2006 $35.00 LEAP Call YRH-AG @ $2.75
ADSK - Autodesk Inc $28.87 ** Dropped **
I gave up on Autodesk with the support at $28.50 looking more fragile on a daily basis. With potential market weakness ahead it was not worth any further risk with no insurance put.
Autodesk is the worlds biggest software design maker and the stock has made quite a few investors a lot of money. In 2004 the stock rose from $12 to $39 for a +209% gain. Needless to say the company was hammered once the calendar expired and it dropped to a low of $26 on profit taking. On January 24th, the low for the current market and after a 33% January drop the company was downgraded on valuation my Banc of America. BAC was late to the party but ADSK saw another -12% drop on the news. Smith Barney retaliated that the concerns over share price had already been factored in with the January selling and suggested there was upside potential.
In November ADSK raised guidance for 2006 above analysts estimates and nothing has change from the company. A string of positive press releases continue to paint a picture of business is booming. Earnings are Feb-22nd so we do have event risk but I would like to think the risk is to the upside. The 100-day average has proved to be support in January as is did last August.
Autodesk does not have leaps. Since the normal time in a leap trade is only about two-three months I decided to enter the play with the July $32.50 call instead at $3.20. It is cheaper than a leap and plenty of time to play. The July $30 call is only $4.40 and it is already $1.33 in the money.
I am not going to recommend an insurance put because of the cheap calls. The closest strike at $30 makes the March put $1.60. I can't see paying $1.60 to insure a $3.20 position.
July $30.00 Call ADQ-GF @ $4.40, exit 1.90, -2.50
No insurance put
Stop loss $27.50
Entry point $31.33 (02/07)
DGX - Quest Diagnostic $99.85 ** Stop loss $99.00 **
DGX just can't seem to break that $101 barrier but did succeed in testing it twice in the last two weeks. There is no put in range to protect our position so I am raising the stop to $99.
Quest announced a +21% increase in earnings in January and soared from $89.50 to just over $96 in a week. Instead of consolidating those gains it just keeps moving higher. We entered DGX on Jan-21st as it was moving lower and touched support at the 100-day average at $90. Three days later the rocket ride began from $89. The trick now is to stay far enough away from the price to keep from getting stopped but not give back all of our gains.
Quest Diagnostics Incorporated is the nation's leading provider of diagnostic testing, information and services, providing insights that enable healthcare professionals to make decisions that improve health. The company offers the broadest access to diagnostic testing services through its national network of laboratories and patient service centers, and provides interpretive consultation through its extensive medical and scientific staff.
Quest Diagnostics is also the leading provider of esoteric testing, including gene-based medical testing, and provides advanced information technology solutions to improve patient care. (Source DGX)
2006 $95 LEAP Call YFK-AS @ $6.40
Entry $91.00 (01/21)
ADBE - Adobe Systems $66.60 ** Stop $65.50 **
** Set a profit stop at $69.00 **
Adobe is holding its gains but I am starting to get nervous. I raised the stop to $65.50 and I am hoping for end of quarter window dressing. I am setting a profit stop at $69.
Adobe is the king of the document and image business and continues to announce new products. The company announced earnings in December that rose +33% and beat estimates. Income for the year rose +69% on a +29% increase in revenue. Adobe affirmed guidance for 2005 and the stock has been beating the Nasdaq in percentage gains. In 2004 the stock rose +60%. Since they have already announced earnings we have very little event risk over the next month.
I recommended the February $55 put as insurance at 80 cents. That gave us six weeks for the Q1 earnings to cycle and for ADBE to pick a direction. If we are not profitable by Feb-18th expiration we will close and take our lumps.
Jan-06 $60 LEAP Call WAE-AL @ $7.50
Added new insurance on Feb-22nd
Stop loss $65.00
Entry $58.78 (01/09)
SYMC $20.92 Symantec - Veritas ** no stop **
SYMC finally dipped to support at $20 and our insurance put is in the money and still protecting us. It is put up or shut up time for SYMC and we have about two weeks before our put is at risk. If we don't get a decent bounce I may exit soon rather than wait for April expiration. We have very little risk from here but we are down a couple bucks overall. I was hoping a touch of $20 would generate some buying interest and it did. I heard Kramer saying something nice about SYMC and I did see a broker upgrade it from a sell to a hold. Heck, we have to start somewhere.
I believe that the SYMC/VRTS merger is a match made in heaven and analysts will come to that view as more plans are announced. The companies have no overlapping products but all their products are perfect fits for the others. With one company having anti-virus, data security, backup, recovery and storage management it puts the other stand-alone companies in a very difficult position. EMC and QLGC both fell in the storage sector and Mcafee was crushed in the anti-virus sector.
There is no stop on this position. With the 2007 LEAP Call any minor dips will not result in a material drop in the leap. The April $22.50 insurance put will protect us from any potential disaster. For me this is a buy and forget play until April.
2007 $25 LEAP Call OBL-AE @ $6.30
Entry $25.37 (12/19)
XLE - S&P Energy SPDR $42.05 ** Stopped $43.00 **
The XLE rose to just over $44 on Tuesday but failed to hit our profit exit at $45 before rolling over and stopping us out at $43. We had a nice run from $35 and nobody should be complaining.
I have initiated a new entry on the XLE at $38 in the watch list.
The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year.
Entry $35.55 on 12/12