New Watch List Entries

CSCO - Cisco Systems

FB - Facebook Inc.

FOXA - Twenty First Century Fox


Active Watch List Candidates

AET - Aetna Inc

ASML - ASML Corp.

IP - International Paper

WMT - Wal-Mart Stores


Dropped Watch List Entries

SBUX has graduated to our active play list.



New Watch List Candidates:

Cisco Systems - CSCO - close: 27.77

Company Info

It seems that 2014 delivered a resurgence for old guard, big cap, technology names. CSCO is one of them and the stock has shined this year with a +23.8% gain versus the +14% gain in the NASDAQ Composite.

The company continues to struggle with strong earnings growth and management has been cautious with their guidance. It seems that investors don't care. The stock is sporting a 2.8% dividend yield. That's not bad when the 10-year U.S. bond has a yield near 2.1%.

Analysts are starting to speculate that 2015 could be a good year for earnings since 2014 was so tough (that makes for easier comparisons). The recent strength in shares of CSCO have produced a buy signal on the point & figure chart that's forecasting at $43 price target. The stock has garnered a number of bullish analyst calls since their earnings report in mid November.

The $26.00 level was key resistance for CSCO. Normally broken resistance turns into new support and the stock found support there during the market's recent pullback. Right now CSCO is poised to breakout past $28.00. Tonight I am suggesting we wait for CSCO to close above $28.15 and then buy calls the next morning with a stop loss at $25.75.

Breakout trigger: Wait for a close above $28.15
Then buy calls the next day with a stop at $25.75

BUY the 2016 Jan $30 call (CSCO160115c30) current ask $1.25

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

Chart of CSCO:

Originally listed on the Watch List: 12/21/14


Facebook, Inc. - FB - close: 79.88

Company Info

FB is the largest social media company on the planet. If the company's audience was a country their 864 million daily active users would mark them as the third most populous country on the planet behind India and China. FB has done an impressive job in monetizing all of these eyeballs. Earnings continue to growth. The company has beaten Wall Street's earnings estimates on both the top and bottom line the last four quarters in a row.

FB's most recent earnings report was October 28th. Analysts expected a profit of $0.40 a share on revenues of $3.11 billion. FB delivered a profit of $0.43 with revenues up +58.9% from a year ago to $3.2 billion. Their daily active users grew +19% to 864 million and mobile DAUs were up +39% to 703 million. Monthly active users hit 1.35 billion people.

This past week Citigroup issued a pretty bullish note on Instagram. Back in April 2012 the market was pretty skeptical when FB CEO Mark Zuckerberg decided to pay $1 billion to buy Instagram. Yet two years later Instragram has surpassed 300 million users. Citigroup now estimates the business is worth $35 billion (FB actually paid about $715 million).

Shares had hit all-time highs near $81 just before their earnings report and FB dropped on profit taking following the announcement. Since then shares have been consolidating sideways. Now it looks like that consolidation is over. The point & figure chart for FB is bullish and forecasting at $102 price target. I wouldn't be surprised to see FB challenge the $100 area by the end of next year.

Tonight I'm suggesting we wait for FB to close above $81.25 and then buy calls the next morning with a stop loss at $74.40.

Breakout trigger: Wait for a close above $81.25
Then buy calls the next day with a stop at $74.40

BUY the 2016 Jan $90 call (FB160115c90) current ask $7.00

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

Chart of FB:

Originally listed on the Watch List: 12/21/14


Twenty-First Century Fox, Inc. - FOXA - close: 38.51

Company Info

FOXA is a media giant. They're part of the services sector. According to the company's marketing material, "21st Century Fox is the world's premier portfolio of cable, broadcast, film, pay TV and satellite assets spanning six continents across the globe. Reaching more than 1.5 billion subscribers in approximately 50 local languages every day, 21st Century Fox is home to a global portfolio of cable and broadcasting networks and properties, including FOX, FX, FXX, FXM, FS1, Fox News Channel, Fox Business Network, FOX Sports, Fox Sports Network, National Geographic Channels, STAR India, 28 local television stations in the U.S. and more than 300 channels that comprise Fox International Channels; film studio Twentieth Century Fox Film; and television production studios Twentieth Century Fox Television and Shine Group. The Company also holds a 39.1% ownership interest in Sky, Europe's leading entertainment company, which serves 20 million customers across five countries."

Earnings growth has been pretty steady. FOXA has beaten Wall Street's earnings estimates on both the top and bottom line the last three quarters in a row. The most recent report was in November. Earnings per share beat estimates by three cents at $0.39. Revenues were up +11.7% from a year ago to $7.89 billion.

Technically shares of FOXA have broken out from a massive trading range over the last several months. The rally has produced a buy signal on the P&F chart pointing to a $47 target. Friday's breakout past resistance at $38.00 is a new all-time high and honestly looks like a bullish entry point right now. However, I'm crossing my fingers that FOXA will see some profit taking before yearend. Tonight I'm suggesting a buy-the-dip trigger at $37.50 with a stop loss at $35.65.

Buy-the-dip trigger at $37.65
Start with a stop loss at $35.65

BUY the 2016 Jan $40 call (FOXA160115c40) current ask $3.30

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

Chart of FOXA:

Originally listed on the Watch List: 12/21/14


Active Watch List Candidates:



Aetna Inc. - AET - close: 90.84

Comments:
12/21/14: Healthcare stocks rallied big last week. I don't want to chase AET at these levels. Tonight I'm going to leave our buy-the-dip trigger at $84.25. We will wait to see if AET can build on this rally or if it fades again.

Earlier Comments: December 7, 2014:
AET is in the healthcare sector. According to a recent press release, "Aetna is one of the nation's leading diversified health care benefits companies, serving an estimated 46 million people with information and resources to help them make better informed decisions about their health care. Aetna's customers include employer groups, individuals, college students, part-time and hourly workers, health plans, health care providers, governmental units, government-sponsored plans, labor groups and expatriates."

If you study a one-year chart of AET the stock has definitely seen its ups and downs. That's because the healthcare industry has faced a number of issues. AET's CEO commented on this past year in their latest post-earnings conference call.

Mark T. Bertolini, Aetna chairman, CEO and president, said, "some of the challenges we face this year, including pricing solving for nearly $1 billion in ACA related industry fees and taxes, solving for the largest rate cuts to the Medicare Advantage program in our recent history, navigating a host of new regulatory requirements in our small group and individual businesses, managing through a turbulent launch in public exchanges and controlling pharmacy costs in a year where heavy priced Hepatitis C treatments first became available and treatment guidelines changed in unforeseen ways." (ACA stands for Affordable Care Act, a.k.a. Obamacare).

In spite of all these challenges shares of AET are outperforming the major indices with a +32% gain in 2014 compared to a +12% gain in the S&P 500. AET's strength is due to the company's earnings performance. They have beaten Wall Street's earnings estimates and raised guidance three quarters in a row.

AET's most recent quarterly report was October 28th. Analysts were expecting a profit of $1.58 a share on revenues of $14.7 billion. AET delivered a profit of $1.79 a share. Revenues were up +13% to match estimates. The company said they added 470,000 new medical insurance customers in the third quarter, putting the total at 23.6 million.

Bertolini commented on their results, "Aetna reported solid third-quarter results, including our 10th consecutive quarter of membership growth, record quarterly operating revenues, and continued high single-digit pretax operating margin."

The major healthcare companies are reaping the benefits of Obamacare as more people sign up. Management raised their full year 2014 earnings guidance into the $6.60-6.70 zone versus Wall Street's estimate of $6.57.

Just last month AET raised their quarterly dividend 11% to 25 cents a share and added $1 billion to its stock buyback program, up from $464 million. In the last two months the stock has received multiple price target upgrades into the $95-100 zone. The point & figure chart is bullish with a $112.00 target.

The breakout past resistance near $85.00 looks like a significant buy signal. Yet after four weeks of gains I don't want to chase AET here. Tonight I am suggesting a buy-the-dip entry point at $86.00. Eventually AET will see a pullback and we want to be ready. It may not happen soon so we just need to be patient.

Buy-the-dip trigger @ 84.25, stop loss @ 79.00

BUY the 2016 Jan. $90 call (AET160115c90)

12/14/14 adjust the buy-the-dip trigger from $86.00 to $84.25. Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 12/07/14


ASML Holding - ASML - close: 106.84

Comments:
12/21/14: ASML managed a three-day bounce before dipping on Friday. I'm not convinced the pullback is over yet since ASML has failed to break the short-term trend of lower highs.

We will leave our buy-the-dip trigger at $101.50 for now.

Earlier Comments: December 14, 2014:
ASML is part of the technology sector. They make equipment the makes semiconductors. The company describes itself as, "ASML makes possible affordable microelectronics that improve the quality of life. ASML invents and develops complex technology for high-tech lithography machines for the semiconductor industry. ASML's guiding principle is continuing Moore's Law towards ever smaller, cheaper, more powerful and energy-efficient semiconductors. Our success is based on three pillars: technology leadership combined with customer and supplier intimacy, highly efficient processes and entrepreneurial people. We are a multinational company with over 70 locations in 16 countries, headquartered in Veldhoven, the Netherlands."

Moore's has been driving the semiconductor industry for decades and continues to fuel smaller and more complex systems. After a sideways year for the big semi equipment makers like ASML analysts are expecting 2015 to see improvement. They believe the new lithography systems will be in demand.

The company's most recent earnings report was October 15th. ASML missed the bottom line estimate by a penny but they guided higher. Q3 sales were €1.32 billion with a gross margin of 43.7%. ASML is forecasting Q4 sales of €1.3 billion with a gross margin of 43%.

ASML management held an investor day on November 24th. They outlined their plans to bump sales from €5.6 billion in 2014 to €10 billion and triple earnings by 2020.

Technically the stock has broken out to all-time highs in early December. The point & figure chart is bullish and forecasting a long-term target of $147.00.

If this market pullback continues we want to be ready to buy ASML on weakness. The $100-101 area should be support. Tonight I'm suggesting a buy-the-dip trigger at $101.50.

Buy-the-dip Trigger @ $101.50, use a stop loss at $94.75.

BUY the 2016 Jan $110 call (ASML160115c110)

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

Originally listed on the Watch List: 12/14/14


International Paper - IP - close: $53.98

Comments:
12/21/14: I am suggesting patience with our IP candidate. The stock slipped to a new relative low before bouncing this past week. The $50-51 zone was major resistance and I'd much rather wait for a dip in that area before launching bullish positions.

Earlier Comments: November 16, 2014:
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)

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

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


Wal-Mart Stores Inc. - WMT - close: 85.16

Comments:
12/21/14: Thursday's big rally in WMT looks like a bullish breakout from the $82.50-85.00 trading range. However, shares did underperform the market on Friday so I'm unwilling to launch positions here.

Currently our suggested entry point is a dip to $81.50. If we see WMT continue to show strength this week then we'll reconsider our entry strategy.

Earlier Comments: December 14, 2014:
WMT is the titan of retail. They are the biggest on the planet with 11,000 stores in 27 countries. Their three main segments are Walmart U.S., Walmart International, and Sam's Club (a Costco rival warehouse club).

The stock has been stuck in a $72-80 trading range for most of the last 18 months. That changed with the November breakout past resistance at $80.00. The company reported earnings on November 13th. Earnings were $1.15 a share, which was three cents above expectations. Revenues were up +2.8% and beat Wall Street estimates at $118.08 billion for the quarter. WMT said their same-store sales were up +0.5% in the third quarter, which is the first positive reading in seven quarters. Guidance was mostly inline with estimates although WMT said they expect comparable store sales to be flat to positive in the fourth quarter.

Retail-related stocks initially struggled following Black Friday as initial reports showed consumer traffic and spending came in below estimates. That was due to the changing nature of the retail experience. Instead of standing in line in the cold for door buster deals as in years past this year consumer shopped online and on their mobile phone. Wal-Mart said their online sales during the Black Friday weekend hit a record. Plus, retailers have extended their Black Friday deals form one-day to several days.

The National Retail Federation (NRF) recently issued a press release following the U.S. government's November retail sales number, which was up +0.6% over October and up +3.2% from November 2013. NRF reiterated their forecast for a strong +4.1% growth in consumer spending during the holidays this year.

We like Wal-Mart because it stands to benefit from the crash in crude oil prices. A large chunk of WMT's shoppers are low to middle income citizens. They are more affected by gasoline prices. The sharp drop in gas at the pump leaves a lot more money in their pocket which they will spend on other things. WMT will be a direct beneficiary from this extra cash that consumers have to spend.

Technically shares have started to correct from all-time highs near $88 set in late November. The point & figure chart is bullish and forecasting a long-term target of $98.00. Broken resistance in the $80-81 should be new support. Tonight I am suggesting a buy-the-dip trigger to buy calls when WMT hits $81.50.

Buy-the-dip Trigger @ $81.50, use a stop loss at $77.40.

BUY the 2016 Jan $85 call (WMT160115c85)

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

Originally listed on the Watch List: 12/14/14