New Watch List Entries

DVA - DaVita Healthcare Partners

EXPE - Expedia Inc.


Active Watch List Candidates

AAL - American Airlines Group

HAL - Halliburton Co.

PKG - Packaging Corp. of America

VFC - V.F. Corp.


Dropped Watch List Entries

DOW and TPX have graduated to our active play list.



New Watch List Candidates:


DaVita Healthcare Partners - DVA - close: 70.59

Company Info

DVA is in the healthcare sector. The company provides kidney dialysis services and related lab services. The most recent earnings report was lackluster but DVA did report revenue growth above Wall Street estimates. Management has been buying up smaller domestic rivals and expanding overseas into countries like China, Columbia, Germany, India, Malaysia, Portugal, Saudi Arabia, and Taiwan. In the U.S. DVA has about 35% of the outpatient dialysis market.

Bears on this stock would argue the company is at risk for pricing pressures from Medicare. About 90% of its total U.S. dialysis patients are on some form of government-assisted program. Nearly 80% of are part of Medicare. The latest rules from Medicare said there would be no price changes in 2014 and 2015 but there could be reimbursement reductions in 2016 and 2017.

This pressure from Medicare has not stopped Warren Buffet's Berkshire Hathaway from raising its stake in DVA. Berkshire started investing in DVA back in Q4 2011. They have been slowly building a position and this past quarter (Q1 2014) Berkshire added another 1.1 million shares. Their total position is now 37.6 million shares worth about $2.6 billion. Berkshire tends to be a long-term investors, longer than our timeframe but it is still a vote of confidence for DVA.

Shares of DVA are currently breaking out from a sideways consolidation in the $67-70 zone. I am suggesting we wait for DVA to close above $71.25 and buy calls the next day with a stop loss at $66.40. If triggered our long-term target is the $85 region.

Breakout trigger: Wait for a close above $71.25
then buy calls the next day with a stop at $66.40

BUY the 2015 Jan $75 call (DVA150117C75) current ask $2.25

- or -

BUY the 2016 Jan $80 call (DVA160115C80) current ask $4.30

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

Chart of DVA:

Originally listed on the Watch List: 06/01/14


Expedia Inc. - EXPE - close: 73.30

Company Info

EXPE is in the services sector. The company is in the super competitive online travel industry with rivals like Priceline.com (PCLN) and Orbitz Worldwide (OWW).

EXPE is developing a trend of beating analysts' estimates with strong profit and revenue growth. This past quarter EXPE reported revenues of $1.2 billion. That is the fifth quarter in a row that EXPE has delivered double-digit year over year revenue growth. The company has also seen surging growth in its bookings. Q3 2014 saw 15% bookings growth. Q4 2014 was +21%. Q1 2014 was +29%.

Analyst firm Cantor Fitzgerald recently offered bullish comments on EXPE and raised their price target. The company is having success with its Expedia Traveler Preference program. In Q3 2013 there were about 35,000 hotels in the program. By Q1 2014 that has grown to 51,000 hotels. As more hotels join it will boost EXPE's room nights metric and sales.

Billionaire hedge fund manager David Tepper's Appaloosa Management is also bullish on EXPE. The latest 13F filing showed that Apaloosa had initiated a new stake in EXPE in the first quarter of 2014.

Bears could argue that EXPE, PCLN and OWW could face competition from companies like Google and Facebook as they seek to boost their ad revenues to their large audiences. Reuters has reported that Google is experimenting with some programs with a few hotels. This threat is probably a few years away and could eventually make EXPE as potential take over target.

Technically EXPE experienced a correction from $81 to $67 earlier this year. The stock found support in the $67 area and just recently EXPE has broken out past some key resistance. Currently shares hover just below short-term resistance at $74.00.

I am suggesting we wait for EXPE to close above $75.00 and buy calls the next day with a stop loss at $69.25. Our long-term target is the $90-100 zone.

Breakout trigger: Wait for a close above $75.00
then buy calls the next day with a stop at $69.25

BUY the 2016 Jan $90 call (EXPE160115C90) current ask $7.60

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

Chart of EXPE:

Originally listed on the Watch List: 06/01/14


Active Watch List Candidates:



American Airlines Group, Inc. - AAL - $40.16

Comments:
06/01/14: Airline stocks continued to drift higher last week. AAL if flirting with a bullish breakout past resistance at $40.00. Investors may want to launch positions now. Our strategy calls for waiting until AAL closes above $40.25 then buy calls the next day.

Earlier Comments:
AAL is in the services sector. AAL is the merger between US Airways and American Airlines (AMR). The new company, American Airlines Group, is the largest carrier with nearly 6,700 flights a day, over 330 destinations, to more than 50 countries, with over 100,000 employees worldwide.

Wall Street was worried about the merger between these two big airlines as the U.S. Justice Department initially tried to block the deal. Regulators feared that new company would be too big, hold too much power, and reduce competitiveness and thus impact pricing for consumers. Fortunately, a U.S. district judge just recently approved a settlement worked out between AAL and the Justice Department where the new company agreed to sell certain assets to competitors. Getting the legal hurdle for its merger out of the way it's one more worry that investors can forget.

Summer is almost here and should mean good news for airlines. In addition to more vacation travelers the industry won't have to worry about so many cancellations. The 2014 winter season was brutal. In January and February the Bureau of Transportation Statistics said 6.05% of all domestic flights were cancelled. That number dropped to 4.6% of all flights cancelled in March. Put them all together and you have the worst winter cancellation rate in 20 years.

The Wall Street crowd is bullish on shares of AAL. Goldman Sachs recently put a $46 price target on the stock. In the latest 13F filings it was revealed that Paulson & Co had raised their stake in AAL from 8.5 million shares to 12.2 million. Meanwhile David Tepper is the hot fund manager everyone loves and his Appaloosa Management has AAL as its second largest holding. In the last quarter Appaloosa increased their AAL stake by 22.5%.

On a short-term basis shares of AAL are sitting just below resistance at $40.00. I am suggesting we wait for AAL to close above $40.25 and then buy LEAPS the next morning. We'll start with a stop loss at $36.40. We will tentatively set our exit target at $50.00 for now.

Breakout trigger: Wait for a close above $40.25
then buy calls the next day with a stop at $36.40

BUY the 2015 Jan $45 call (AAL150117C45) current ask $2.65

- or -

BUY the 2016 Jan $45 call (AAL160115C45) current ask $5.70

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

Originally listed on the Watch List: 05/18/14


Halliburton Co. - HAL - close: 64.64

Comments:
06/01/14: Energy stocks continue to lead the market higher. HAL is poised for a bullish breakout past resistance near $64.00.

Earlier Comments:
HAL is in the basic materials sector. The company is part of the oil equipment and services industry. They are considered one of "the big three" in the oilfield services industry, competing with Schlumberger (SLB) and Baker Hughes (BHI). Believe it or not but HAL was the first company to "frack" a well in the U.S. over sixty years ago.

The stock is in a long-term up trend. HAL did see a little correction in November-December 2013 but has since been stair-stepping higher. The company has been consistently buying back stock. They repurchased nine million shares in the first quarter and still have $1.2 billion left on their current buy back program.

Earnings have been strong. Their Q4 results beat Wall Street's top and bottom estimates. HAL managed to do it again with their Q1 results and beat analysts' earnings and revenue estimates in spite of a slow down in Brazil and Mexico drilling activity.

Some would consider HAL cheap with a forward-looking P/E of 12.4 based on its 2015 earnings estimates of $5.07 a share. Many Wall Street firms have price targets in the $80 range. Speaking of Wall Street, the current golden boy of Wall Street David Tepper and his Appaloosa Management fund raised their stake in HAL in the first quarter of 2014. This stock was their sixth largest holding.

Currently HAL is consolidating below resistance at the $65.00 level. I am suggesting we wait for HAL to close above $65.50 and then buy calls the next day with a stop loss at $59.75. If triggered our long-term target is the $80-85 zone.

Breakout trigger: Wait for a close above $65.50
then buy calls the next day with a stop loss at $59.75

BUY the 2015 Jan $70 call (HAL150117C70) current ask $2.54

- or -

BUY the 2016 Jan $70 call (HAL160115C70) current ask $5.90

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

Originally listed on the Watch List: 05/26/14


Packaging Corp of America - PKG - $69.16

Comments:
06/01/14: PKG is showing signs of life as the rebound picks up speed. The stock is now up three weeks in a row and last week shares broke through technical resistance at the 50-dma. I do not see any changes from my earlier comments.

Earlier Comments:
PKG is in the consumer goods sector. The company makes containerboard and corrugated packaging materials in the U.S., Canada, Europe, and Mexico. The stock was a big winner last year thanks in large part to PKG's accelerated growth. The company saw 2013 earnings surge to $436 million, up from $164 million in 2012.

PKG just recently acquired Boise and the new merged company is now the fourth-largest containerboard and corrugated packaging maker in the U.S. Management said they expected significant synergies with the acquisition but the results have actually been better than expected.

The last couple of earnings reports from PKG were both bullish with the company beating Wall Street's estimates on the top and bottom line. The latest announcement for the first quarter reaffirmed their full-year 2014 guidance.

Technically the stock has seen a $10 correction (about -13%) with the pullback from $75 to $65. Now shares are starting to rebound from support near $65 and its long-term trend line of higher lows (see weekly chart below). There is potential resistance at the 50-dma and the $70.00 level.

I am suggesting we wait for PKG to close above $70.50 and buy calls the next day. We'll start with a stop loss at $64.75. Our long-term target is the $90 area.

Breakout trigger: Wait for a close above $70.50
buy calls the next day with a stop loss at $64.75.

BUY the 2015 Jan $75 call (PKG150117C75) current ask $2.25

- or -

BUY the 2016 Jan $75 call (PKG160115C75) current ask $5.80

(note: I have listed the more standardized option symbol format.
symbol-year-month-day-call-strike )

Originally listed on the Watch List: 05/18/14


V.F. Corp. - VFC - $63.02

Comments:
06/01/14: VFC is slowly drifting higher. I do not see any changes from my earlier comments.

Earlier Comments:
VFC is in the consumer goods sector. The company makes apparel and footwear for sale in the U.S. and Europe. Products include handbags, luggage, backpacks, accessories. Major brands include The North Face, Vans, Timberland, Kipling, Jansport, Reef, Smartwool, Eastpak, Wrangler, Lee, just to name a few.

After big gains in 2013 shares of VFC have been consolidating sideways. The company split their stock 4-for-1 back in December 2013. VFC guided lower back in February but the market reaction was a one-day event. Shares have since recovered. Their most recent report was bullish with VFC beating estimates. That's significant since so many apparel makers blamed the weather on a terrible Q1.

There has been growing speculation that VFC might be Lululemon (LULU) or another athletics apparel brand. Normally the acquiring company's stock goes down on a merger announcement but lately Wall Street has been sending the acquirer's stock higher on positive M&A news.

Technically shares look poised to breakout from their five-month consolidation. The Point & Figure chart is already bullish and forecasting an $80 target.

I am suggesting we wait for VFC to close above $64.25 and then buy calls the next day with a stop loss at $59.75. Our long-term target is the $75.00 region.

Breakout trigger: Wait for a close above $64.25
buy calls the next day with a stop loss at $59.75

BUY the 2015 Jan $70 call (VFC150117C70)

- or -

BUY the 2016 Jan $70 call (VFC160115C70)

(note: I have listed the more standardized option symbol format.
symbol-year-month-day-call-strike )

Originally listed on the Watch List: 05/18/14