New Watch List Entries

IP - International Paper

RH - Restoration Hardware

UA - Under Armour, Inc.


Active Watch List Candidates

AAPL - Apple Inc.

BAC - Bank of America

CELG - Celgene Corp.

DIS - The Walt Disney Company

GD - General Dynamics

GS - Goldman Sachs


Dropped Watch List Entries

CHL graduated to our active play list.



New Watch List Candidates:

International Paper - IP - close: $54.43

Company Info

IP is part of the consumer goods sector. According to a company press release "International Paper (IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 65,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2013 were $29 billion (which included our now divested xpedx business)."

The company has been facing a lot of headwinds this year but they still managed to beat Wall Street's earnings estimates three quarters in a row. Their most recent earnings report was November 4th. Analysts were expecting a profit of $0.89 per share on revenues of $6.0 billion. IP reported a profit of $0.95 with revenues beating estimates at $6.05 billion.

The company saw significant improvements in its operating profits in all three categories: industrial packaging, printing papers, and consumer packaging. Management expects a surge in packaging orders in the fourth quarter.

Wall Street loves the company's focus on delivering value to shareholders. IP is almost done with their $1.5 billion stock buyback program they announced in September 2013. They also raised their dividend 14% from $1.40 to $1.60. This is IP's third consecutive fourth quarter double-digit dividend increase. The stock now sports a 3.0% yield.

IP's CEO said they were looking seriously at converting part of their business into a master-limited partnership (MLP). This would be another shareholder friendly step as MLPs do not pay federal tax if the return most of their cash to shareholders.

The stock's current rally has produced a buy signal on the point & figure chart with a long-term target at $73.00. This month has seen shares of IP break out to new multi-year highs.

IP is currently up five weeks in a row. We do not want to chase it here. Instead we'd like to buy long-term calls on a dip. The prior highs in the $51 area should offer some support. Tonight I'm suggesting a buy-the-dip trigger at $51.00 with a stop loss at $47.90.

Buy-a-dip @ $51.00, start with a stop at $47.90

BUY the 2016 Jan $55 call (IP160115c55) current ask $5.25

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

Chart of IP:

Originally listed on the Watch List: 11/16/14


Restoration Hardware - RH - close: 82.73

Company Info

RH is in the services sector. They operate in the home furnishing industry. The company describes itself as "Restoration Hardware is a luxury brand in the home furnishings marketplace offering furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby & child products. RH operates an integrated business with multiple channels of distribution including Galleries, Source Books and websites."

"We believe RH is one of the most innovative and fastest growing luxury brands in the home furnishings marketplace. We believe our brand stands alone and is redefining this highly fragmented and growing market, contributing to our superior sales growth and market share gains over the past several years as compared to industry growth rates. Our ability to innovate, curate and integrate products, categories, services and businesses with a completely authentic and distinctive point of view, then rapidly scale them across our fully integrated multi-channel infrastructure is a powerful platform for continued long-term growth. We evolved our brand to become RH, positioning our Company to curate a lifestyle beyond the four walls of the home. Our unique product development, go-to-market and supply chain capabilities, together with our significant scale, enable us to offer a compelling combination of design, quality and value that we believe is unparalleled in the marketplace."

If you look at a daily chart of RH you'll likely see the big gap higher in June. That was a reaction to the company's earnings report . They beat Wall Street's estimates on both the top and bottom line. Management also guided higher. The post-earnings rally peaked in June and RH has been slowly consolidating lower for the last four months.

Their most recent earnings report was September 10th. Analysts were expecting a profit of $0.64 a share on revenues of $454 million. RH beat estimates with earnings up +37% from a year ago to $0.67 a share. Yet revenues were a miss at $433.8 million. RH blamed the revenue miss on a later than usual catalog mailing. While it was a disappointment RH's Q2 sales still grew +13.5% while margins increased 240 basis points to 11.3%, a record for the company. Investors should also note that the +13% surge in sales followed a +30% jump in sales a year ago. Gary Friedman, RH's Chairman and Chief Executive Officer, commented,

"Our ability to innovate, curate and integrate new products, categories and businesses, then test and rapidly scale them across our multi-channel platform, is at the core of RH becoming a disruptive brand in the home furnishings marketplace. In the second quarter, we achieved a record operating margin of 11.3%, a 240 basis point improvement versus last year, and the driver of our earnings over-performance. Comparable brand revenue for the quarter increased 13% on top of a 30% increase a year ago – representing an industry-best 43% gain over the two-year period."

RH raised their Q3 guidance above Wall Street's estimates on both the top and bottom line. Their 2015 guidance was only in-line with consensus estimates. A couple of weeks later the stock was rising on news that its CEO had purchased almost 26,000 shares around $77.

Technically shares of RH have bounced at a long-term trend of higher lows. It's also breaking out past resistance near $80, past resistance at its 50-dma, and now it's 100-dma. The recent rally has created a buy signal and a $93 price target on the point & figure chart.

Bears will argue that RH is too expensive. They have a point. The stock has a P/E around 49. Yet growth names can sport pretty high valuations. If you have been reading the newsletter commentary then you already know that holiday spending should be stronger than normal this year. Online shopping is expected to be very strong, which should benefit RH, who has a big catalog business.

If this rally continues the stock could see some serious short covering. The most recent data listed short interest at 32.4% of the small 32.4 million share float.

More aggressive investors may want to buy calls now. I am suggesting we wait for RH to close above $84.25 and then buy calls the next morning with a stop at $76.40. I will warn you that RH will likely report earnings in mid December and shares will probably be volatile following this report.

Breakout trigger: Wait for a close above $84.25
Then buy calls the next morning with a stop loss at $76.40

BUY the 2016 Jan $90 call (RH160115c90) current ask $12.30

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

Chart of RH:

Originally listed on the Watch List: 11/16/14


Under Armour, Inc. - UA - close: 69.15

Company Info

UA is in the consumer goods sector. "Under Armour, the originator of performance footwear, apparel and equipment, revolutionized how athletes across the world dress. Designed to make all athletes better, the brand's innovative products are sold worldwide to athletes at all levels. Under Armour's wholly owned subsidiary, MapMyFitness, powers one of the world's largest Connected Fitness communities. The Under Armour global headquarters is in Baltimore, Maryland." (source: company press release)

Apparel sales can be tricky as fashion fads come and go. Yet right now athletic wear has been gaining traction. As a whole sales of athletic wear are up +9% in the past year. Two giants in this industry, Nike (NKE) and Under Armour (UA), are outperforming the group.

NKE is the giant with annual sales of $28.8 billion. UA is a tenth the size of NKE at $2.87 billion a year in sales. It's not surprising to see UA outgrowing its rival. NKE managed +15% sales growth in the third quarter. UA delivered 30%. NKE reported gross margins of 46.6%. UA has gross margins of 49.6%. Both companies delivered earnings growth of more than 20% year over year.

UA is impressive because its apparel sales have been rising +30% for the last three quarters in a row. Apparel is important because it's 75% of UA's business. Investors were a little concerned when apparel sales only grew +25.6% in the third quarter. However, UA has been consistently beating Wall Street's earnings estimates on both the top and bottom line four quarters in a row. They have also raised guidance four quarters in a row.

Their most recent report was October 23rd. UA reported earnings of $0.41 a share with revenues up +29.7% to $937.9 million. Analysts were only expecting $0.40 on revenues of $925 million.

Management raised their Q4 guidance but they warned that growth would slowdown to only +22% in 2015. It's worth noting that UA has a history of under promising and over delivering. The stock initially sold off on this guidance but investors quickly bought the dip. Shares of UA have broken through the two-month trend line of lower highs and technical resistance at the 50-dma. The point and figure chart is bullish and forecasting an $87 target.

The plunge in gasoline prices is a tailwind for retailers and it should be a strong holiday shopping season. Another bonus for UA could be the weather. Last year winter was colder than normal and UA had strong sales of their coldgear line. This year we could see the coldest winter in decades, which could also bode well for UA.

Currently UA is sitting just below potential round-number resistance at $70.00. I am suggesting we wait for UA to close above $70.25 and then buy calls the next day with a stop loss at $64.85. More conservative investors may want to consider an alternative and wait for UA to close above its September highs near $73.40 before initiating positions.

Breakout trigger: Wait for a close above $70.25
Then buy calls the next morning with a stop loss at $64.85

BUY the 2016 Jan $80 call (UA160115c80) current ask $6.60

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

Chart of UA:

Originally listed on the Watch List: 11/16/14


Active Watch List Candidates:



Apple Inc. - AAPL - close: 114.18

Comments:
11/16/14: AAPL has been showing exceptional relative strength. The stock is racing higher and leading the NASDAQ behind it. The breakout past resistance near $110 is bullish but now AAPL is once again short-term overbought.

Waiting to buy a dip near $103.50 is probably wishful thinking at this point. Tonight we will raise our buy-the-dip entry point from $103.50 to $108.00. Nimble traders may want to consider buying a dip near $110 instead. We will also raise our strike price to the 2016 Jan $120 call.

Earlier Comments: November 2, 2014:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90.

Buy-the-dip trigger @ $108.00, stop loss @ 98.90

BUY the 2016 Jan. $120 call (AAPL160115c120)

11/16/14 raise the buy-the-dip entry trigger to $108.00
Adjust the strike price to the 2016 Jan $120 call.
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/02/14


Bank of America - BAC - close: $17.14

Comments:
11/16/14: Financial stocks underperformed last week. The group saw some profit taking and snapped a three-week winning streak. I don't see any changes from last week's comments.

Earlier Comments: November 09, 2014:
BAC is one of the biggest banks on the planet. They provide banking services to individuals, small business, big business, institutions, and governments. They have over 5,000 locations and over 16,000 ATMs.

The company's most recent earnings report was October 15th. They managed to beat Wall Street's estimates on both the top and bottom line with a loss of only $0.01 per share on revenues of $21.43 billion. The loss was due to a $5.3 billion settlement with the U.S. Department of Justice, part of the larger, record-breaking $16.7 billion settlement over the mortgage scandal dating back to Countrywide and the financial crisis of the last decade. BAC actually made $168 million for the quarter and that's including the huge $5 billion settlement payment but when you account for the $238 million it paid in dividends the final profit number was negative (-$0.01).

Legal issues have been a black cloud for the banking industry for years and a shadow over BAC but following the $16.7 billion settlement with the DoJ the worst is probably behind it for the big bank. While the industry may still see volatile headlines about future fiascos BAC management has been building up their litigation reserves to handle it.

Banking stocks as a group should help lead the market higher as the U.S. economy continues to improve. When the Federal Reserve finally starts raising interest rates next year it should also be another tailwind for the banks.

Tonight I am suggesting we wait for BAC to close above $17.55 and buy calls the next morning with a stop loss at $15.35. More conservative investors may want to wait for BAC to close above previous resistance at $18.00 as an alternative entry point.

trigger: Wait for BAC to close above $17.55 and then buy calls the next morning with a stop at $15.35.

BUY the 2016 Jan $20 call (BAC160115c20)

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

Originally listed on the Watch List: 11/09/14


Celgene Corp. - CELG - close: 104.05

Comments:
11/16/14: Biotech stocks were some of the market's worst performers last week. Shares of CELG followed the group lower with a two-day drop. This group can be a very volatile industry to trade. If CELG and the biotech stocks are underperforming now they might overshoot to the downside.

Tonight we are adjusting our entry point trigger from $100.00 to $97.50. The prior all-time highs and temporary resistance was $96.50. This area should be new support. We'll move the stop loss to $89.00.

Earlier Comments: November 2, 2014:
We previously had CELG on our LEAPStrader newsletter but got stopped out during the market's extreme volatility and correction in the first half of October. The bullish story on CELG has not changed. We'd like to reopen bullish positions again. However, CELG is extremely short-term overbought. The biotechs have been showing major relative strength and soaring to new highs. I'm suggesting a buy-the-dip trigger at $100.00 with a stop loss at $94.90.

I am listing our previous play description below with an update on its most recent earnings report.

(Earlier play description)
If you're looking for opportunity it's hard to beat some of the biotech names. CELG is one of the strongest. According to their press release, "Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation."

What makes CELG so attractive is the company's pipeline. Developing drugs is an expensive business. A lot of older firms are buying other companies for their pipeline. Meanwhile CELG is developing a very strong pipeline. You can view the company's current progress on this webpage.

CELG is also growing earnings. The company's Q2 report was July 24th. Wall Street was looking for a profit of 89 cents a share on revenues of $1.84 billion. CELG beat estimates with a profit of 90 cents and revenues rising +17.1% to $1.87 billion. Earnings per share are up +18% from a year ago. Management raised their guidance for 2014. Wall Street was a little disappointed with the guidance because analysts are more optimistic.

The latest earnings report was October 23rd. Analysts were looking for a profit of $0.94 on revenues of $1.95 billion. CELG beat estimates with $0.97 as revenues grew +18.4% to $1.98 billion. Management then raised their EPS and revenue guidance above Wall Street's estimates.

Multiple firms raised their price target on CELG following the Q3 results and the P&F chart is now forecasting at $157 target. We do not want to buy calls here. Wait for a pullback.

Buy-the-dip trigger @ $97.50, stop loss @ 89.00

BUY the 2016 Jan. $120 call (CELG160115c120)

11/16/14 Adjust the buy-the-dip trigger from $100.00 to $97.50. Move the stop loss from $94.75 to $89.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 11/02/14


The Walt Disney Company - DIS - close: $90.80

Comments:
11/16/14: It was a quiet week for shares of DIS which spent most of their time hovering near the $90.00 level. I don't see any changes from last week's comments.

Earlier Comments: November 9, 2014:
DIS is considered a diversified entertainment company. The company with its subsidiaries is an international family entertainment giant. Their media networks division includes the Disney/ABC Television Group and ESPN Inc. Their Parks and Resorts business runs 11 theme parks and 44 resorts. Their studio business has been making movies for over 90 years. Their acquisition of Marvel Studios was a genius move and they recently purchased Lucasfilm which brought the Star Wars franchise into Disney's stable of intellectual property. DIS' consumer products division makes everything from toys to books to fine art based on their massive library of content and characters.

The company has been a consistent winner in the earnings camp. DIS beat Wall Street's earnings estimates the last four quarters in a row. They've beaten on both the top and bottom line the last three quarters in a row. Their most recent earnings report was November 6th, which was DIS' fourth quarter result for 2014. According to DIS' CEO their fiscal 2014 was another record setting year for profits and marked their fourth year in a row of record performances.

DIS's results last year were driven by the studio division, which saw operating profits more than double. The company has seriously been knocking it out of the park with their movies. 2013 had some pretty big hits but Frozen, which came out n November 2013, is one of the biggest animated movies of all time and helped drive results well into 2014. Other big winners for the studio division were Capitan America: Winter Soldier, Maleficent, and the hit of the summer Guardians of the Galaxy. This weekend DIS' new animated movie Big Hero Six is already beating the competition and outpaced Interstellar in their opening weekend.

Next year should be another banner year for DIS' studio division with blockbusters like the next Avenger's movie, another Pixar film, and the next chapter in the Star Wars saga, episode seven (comes out in December 2015). All of these films help fuel business for Disney's theme parks, consumer products, and video games.

Wall Street was looking for DIS to report their Q4 earnings of $0.88 on revenues of $12.37 billion. The company beat estimates with a profit of $0.89 (+12%) and revenues rising +7.1% to $12.39 billion. Looking back over 2014 DIS said their earnings results were up 26% above 2013.

The stock is only a couple of points from all-time highs and the point & figure chart is bullish with a $119 long-term target. We recently concluded a successful trade on DIS back in October. We would like to hop on board again if shares can breakout past resistance at the $92 level.

Tonight I am suggesting a trigger to buy calls if DIS can close above $92.25. We'll start with a stop loss at $87.25.

Breakout trigger: Wait for DIS to close above $92.25
Then buy calls the next morning with a stop at $87.25

BUY the 2016 Jan $100 call (DIS160115c100)

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

Originally listed on the Watch List: 11/09/14


General Dynamics - GD - close: 142.66

Comments:
11/16/14: Shares of GD continue to levitate and ended the week at another record high. We do not want to chase it here. I'm suggesting we wait for a significant pullback.

Earlier Comments: November 2, 2014:
GD is another really strong stock that we got stopped out of during the sharp market pullback in the first half of October. Since then shares of GD have not only recovered but have sprinted to new highs.

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates five quarters in a row. The company is also seeing margin improvement. Their Q2 report was on July 23rd and it not only beat analysts' estimates but management raised their EPS and revenue guidance for 2014. Multiple analysts raised their price target on GD following this announcement.

We see a similar trend with the latest earnings report on October 22nd. GD reported their Q3 results with a profit of $2.05 per share. That beat analysts' estimates by 14 cents. Margins continued to improve, up 50 basis points from the same quarter a year ago. GD's backlog of orders soared +56% to $74.4 billion in the quarter. Management then raised their 2014 earnings guidance above Wall Street's estimate (again).

The stock has been in rocket-mode with shares in a non-stop rally from $115 to $140. We do not want to buy calls here. GD is very short-term overbought. Tonight I am suggesting patience and a buy-the-dip trigger at $132.00 with a stop loss at $124.75.

Buy-the-dip trigger @ $132.00, stop loss @ 124.75

BUY the 2016 Jan. $140 call (GD160115c140)

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

Originally listed on the Watch List: 11/02/14


The Goldman Sachs Group, Inc. - GS - close: $189.98

Comments:
11/16/14: The financial stocks struggled to keep the rally alive last week. Shares of GS ended a three-week trend of gains but losses were mild. Momentum has stalled. We'd like to see a pullback. Currently the plan is to buy calls on a dip at $185.00.

Earlier Comments: October 26, 2014:
Goldman is in the financial sector. They are considered part of the national investment brokerage industry. Goldman was founded in the year 1869 and is headquartered in New York. The company provides investment banking and management services to corporations, other financial institutions, governments and high-net-worth individuals. The lion share of their business is institutional client services where GS makes markets in fixed income, equities, currencies, and commodities.

The company's recent earnings report was strong. GS announced its Q3 results on October 16th. As of the first nine months of 2014 their revenues were up $1.4 billion above the same period a year ago. Management has managed to boost profits by reducing costs. A strong mergers and acquisitions market in 2014 has helped drive GS' results as the company is gaining market share.

Looking at their recent results Wall Street expected a profit of $3.21 per share on revenues of $7.8 billion for the quarter. GS delivered $4.57 per shares, a +59% increase from a year ago. Revenues soared +25% to $8.4 billion. GS saw $20 billion in net inflows bumping client assets to $1.15 trillion.

The company does have a habit of crushing analysts' earnings estimates so the market wasn't that surprised. The stock actually sank on these results but the initial weakness is over and GS is rebounding.

The stock experienced a -10% correction from its early October high to the mid October low. The recent breakout past resistance near $180 and all of its key moving averages is encouraging. I would be tempted to buy calls right now. However, I suspect the market might see some mild profit taking after last week's big rally.

Tonight I am suggesting a buy-the-dip entry point at $180.50 with a stop loss at $174.50. Our long-term target is the $220-230 zone.

Buy-a-dip at $185.00 with a stop at $174.50

BUY the 2016 Jan $200 call (GS160115c200)

11/09/14 adjust buy-the-dip trigger from $183.50 to $185.00
11/02/14 adjust buy-the-dip trigger from $180.50 to $183.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 10/26/14