New Watch List Entries

None, no new watch list candidates



Active Watch List Candidates

ESRX - Express Scripts

ITB - U.S. Home Construction ETF

LMT - Lockheed Martin

LOW - Lowes Companies

LVLT - Level 3 Communications

MAR - Marriott Intl.


Dropped Watch List Entries

FDX graduated to our active play list



New Watch List Candidates:

No new watch list candidates tonight.

The S&P 500 just produced back to back monthly losses. That hasn't happened since 2012. Stocks could be setting up for another correction lower.


Active Watch List Candidates:



Express Scripts - ESRX - close: 80.71

Comments:
02/01/15: ESRX has been having a hard time lately. The stock is down five out of the last six trading days. Currently our suggested entry point is a close above $86.75. That's unlikely to happen this week. Instead we may want to consider buying calls on ESRX if the stock drops toward support near $75.00 instead. I'm not making any changes to our entry strategy tonight but if this correction continues we may switch to a buy-the-dip strategy.

Earlier Comments: January 18, 2015:
If ESRX is good enough for Buffett is it good enough for you?

According to the company's marketing material, "Express Scripts (ESRX) manages more than a billion prescriptions each year for tens of millions of patients. On behalf of our clients – employers, health plans, unions and government health programs – we make the use of prescription drugs safer and more affordable. Express Scripts uniquely combines three capabilities – behavioral sciences, clinical specialization and actionable data – to create Health Decision Science(SM), our innovative approach to help individuals make the best drug choices, pharmacy choices and health choices. Better decisions mean healthier outcomes.

Headquartered in St. Louis, Express Scripts provides integrated pharmacy benefit management services, including network-pharmacy claims processing, home delivery, specialty benefit management, benefit-design consultation, drug-utilization review, formulary management, and medical and drug data analysis services. The company also distributes a full range of biopharmaceutical products and provides extensive cost-management and patient-care services."

In November 2014 there were a number of headlines about Warren Buffett's Berkshire Hathaway initiating a 449,000 share stake in ESRX. The Oracle of Omaha has a significant following so this definitely drew additional investor attention to ESRX.

More recently ESRX was making headlines when it announced a deal with AbbVie. One of the big stories last year in the biotech space was the price of Gilead Sciences (GILD) price for its cure to hepatitis C. It was big headlines when a congressman questioned GILD's $84,000 price target for their hep C treatment. AbbVie (ABBV) was given FDA approval for their hepatitis C cure in December. They also priced their 12-week treatment around $84K. Everyone was surprised when ESRX announced they would exclusively use ABBV's treatment in their prescription plans in exchange for a significant price discount from ABBV. Shares of GILD naturally dropped on this news but it makes smart business sense for ESRX who is trying to reduce their expenses.

Technically shares of ESRX are bullish with a trend of higher lows. Right now the stock has been consolidating sideways the last few weeks but it looks poised to breakout higher. Tonight I am suggesting we wait for ESRX to close above $86.75 and then buy calls the next morning with a stop loss at $81.75.

FYI: ESRX is scheduled to report earnings on February 23rd.

Breakout trigger: Wait for ESRX to close above $86.75
Then buy calls the next morning with a stop at $81.75.

BUY the 2016 Jan $95 call (ESRX160115c95)

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

Originally listed on the Watch List: 01/18/15


iShares US Home Construction ETF - ITB - close: 25.34

Comments:
02/01/15: The pace of new home sales hit multi-year highs and that may have helped give the ITB a boost last week. This ETF did manage a bounce while the rest of the market was falling. Currently we are still on the sidelines with a suggested entry to buy calls if the ITB closes above $27.00. Odds of that happening this week are pretty slim.

Earlier Comments: January 11, 2015:
The ITB is an exchange traded fund that mimics the Dow Jones U.S. Select Home Construction Index. The top 12 holdings are DHI, LEN, PHM, TOL, NVR, HD, TPH, LOW, RYL, SHW, KBH and MTH.

This index has been stuck in a trading range for years. That looks like it's about to change. Have you looked at a chart of the 10-year bond yield lately? Bond yields are going lower. That's going to pressure mortgage rates lower and that's bullish for home sales. This past week saw 30-year mortgage rates dip below 3.6%. That's a 19-month low.

If that wasn't enough of a tailwind President Obama wants to help. On January 7th the White House announced plans to reduce the government mortgage insurance premiums in an effort to boost home ownership. Another positive for the homebuilders is the U.S. Federal Reserve. We just had two fed governors come out last week saying they think the Fed should hold off on raising rates. The longer the Fed waits to start raising rates the better it will be for homebuilders.

Currently the ITB appears to be breaking out past major resistance and closed at multi-year highs. I'd like to see a little bit more follow through. Tonight I'm suggesting we wait for the ITB to close above $27.00 and then buy calls the next morning with a stop loss at $23.95.

Breakout trigger: Wait for the ITB to close above $27.00 and then buy calls the next morning with a stop at $23.95.

BUY the 2016 Jan $30 call (ITB160115c30)

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

Originally listed on the Watch List: 01/11/15


Lockheed Martin - LMT - close: 188.37

Comments:
02/01/15: LMT reported earnings on Jan. 27th. Results were $3.01 per share on revenues of $12.53 billion. That's significantly better than the $2.85 a share on revenues of $11.9 billion the street was expecting. The good news stops there. LMT management lowered guidance for 2015. That helped spark some profit taking in the stock.

Currently our entry strategy is a close above $204.00. That's not going to happen this week. We may want to consider buying LMT on a dip if shares see a big enough correction. A drop toward $170 might be attractive. We'll see how LMT performs this week and then evaluate our entry point options.

Earlier Comments: January 18, 2015:
Defense stocks have delivered exceptional gains for investors in spite of the dreaded sequestration budget cuts from Budget Control Act of 2011. Granted the cuts have been delayed and adjusted many times but it still put a crimp in U.S. government defense spending. In response many of America's biggest defense contractors have focused on building up their international business instead of relying on the U.S.

LMT is one such defense contractor. According to a company press release, " Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion."

Right now one of their biggest projects is the massive F-35 Joint Strike Fighter system. It's the most expensive weapons system the U.S. has ever built with an estimated cost of over $1 trillion over its 50-year lifespan.

If you haven't noticed the world seems to be getting more dangerous. The U.S. is facing a growing military rivalry with China, a belligerent and dangerous Russia, and war in the Middle East with ISIS. This sort of environment will likely keep investors focused on defense stocks.

Looking at LMT's earnings results they have beaten Wall Street's estimates for the last four reports in a row. They raised their guidance in two of the last four earnings reports. The rally in the stock has created a buy signal on the point & figure chart with a $240 target. Currently shares are consolidating sideways and appear to be building up steam for a breakout past round-number resistance at $200. I suspect that LMT's earnings on January 27th might be the catalyst needed to push shares higher.

Tonight I am suggesting we wait for LMT to close above $201.00 and then buy calls the next morning with a stop loss at $189.00.

Breakout trigger: Wait for a close above $201.00
Then buy calls the next morning with a stop at $189.00

PLEASE note the new "no-entry" rule above, If LMT spikes and closes above $204.00, then no entry.

BUY the 2016 Jan $220 call (LMT160115c220)

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

Originally listed on the Watch List: 01/18/15


Lowe's Companies - LOW - close: 67.76

Comments:
02/01/15: LOW flirted with a bullish breakout past $70.00 most of the week. Then Friday's market-wide sell-off occurred. LOW was caught up in the wash out. I am suggesting we stay patient. No changes from last week's comments.

Earlier Comments: January 25, 2015:
LOW is the second biggest player in the home improvement retail business. Their main rival is Home Depot. LOW currently has more than 1,800 stores across the United States, Canada, and Mexico.

The stock has been a great performer the last couple of years, significantly outperforming the broader market. Their most recent earnings report was November 19th and results were one cent above expectations with a profit of $0.59 a share. Revenues also beat expectations with +5.6% growth to $13.68 billion. Same-store sales were up +5.1%.

Management issued bullish guidance for 2015 and raised their earnings estimate above Wall Street's forecast. LOW also raised their revenue guidance above analysts' estimates. The company expects revenues to grow +4.5% to 5% in 2015 with same-store sales growth in the +3.5% to 4% range.

The stock is often influenced by trading and news out of the homebuilders. This year there have been a couple of bombs in the homebuilding industry with both KBH and LEN warning on potential margin pressures in 2015. Shares of LOW, a retailer, shrugged off this headlines.

The U.S. economy grew +4.9% in the third quarter last year and is expected to grow about +3% in 2015. The slow and steady improvement in the U.S. economy is a tailwind for LOW. Another bonus is low gas prices. While we have not seen a lot of evidence that consumers are spending their savings at the pump eventually that money, amounting to hundreds of dollars a year for the average driver, will be spent. Americans love to spend money on their homes, which is bullish for LOW.

We are quickly approaching the spring residential real estate selling season. That means consumers will be spending money on fixing up their homes to go on the market. Those people who buy a home will spend money on their new purchase.

Technically LOW's stock has been consolidating sideways between support near $65 and resistance near $70 the last few weeks. The point & figure chart has already produced a new triple-top breakout buy signal with a $75 target (that could grow). Tonight I am suggesting we wait for LOW to close above $70.75 and then buy calls the next morning with a stop loss at $64.90.

Breakout trigger: Wait for LOW to close above $70.75,
Then buy calls the next morning with a stop at $64.90

BUY the 2016 Jan $80 call (LOW160115c80)

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

Originally listed on the Watch List: 01/25/15


Level 3 Communications - LVLT - close: 49.74

Comments:
02/01/15: LVLT managed to resist the market's sell-off last week. Shares are consolidating sideways near major resistance at the $50.00 level. I expect LVLT will continue to churn sideways until the company reports earnings on February 4th. Wall Street expects a profit of $0.26 a share.

Please note I am changing our entry point strategy tonight. I do not want to open positions before LVLT reports earnings. LVLT will report on Wednesday morning. I am adjusting our entry point conditions. Wait until after LVLT reports and wait for LVLT to close in the $50.50-51.50 zone. If this doesn't happen we'll re-evaluate next weekend.

Earlier Comments: December 28, 2014:
LVLT is a communication services company. Their marketing material describes LVLT as "Level 3 Communications, Inc. is a Fortune 500 company that provides local, national and global communications services to enterprise, government and carrier customers. Level 3's comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities."

They just recently completed a merger with TW Telecom. Earnings have been improving. LVLT has beaten Wall Street's earnings estimates the last three quarters in a row. Technically shares have been outperforming the broader market. The NASDAQ composite is up +15% in 2014 while LVLT is up +50%. The point & figure chart is bullish and forecasting a long-term target at $75.00.

Currently shares of LVLT are hovering just below key resistance at the $50.00 mark. I am suggesting we wait for LVLT to close above $50.50 and then buy calls the next morning with a stop loss at $45.45.

Breakout trigger: see the new entry conditions above
Then buy calls the next day with a stop at $45.45

BUY the 2016 Jan $55 call (LVLT160115c55)

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

Originally listed on the Watch List: 12/28/14


Marriott Intl. - MAR - close: 74.50

Comments:
02/01/15: MAR has been churning sideways in the $74-80 zone for weeks. Last week's market decline just sent the stock plunging toward the bottom of this range. If we see MAR close below $74.00 I will remove it as a watch list candidate.

FYI: Earnings are coming up on February 18th.

Earlier Comments: January 4, 2015:
MAR is in the services sector. The company describes itself as "Marriott International, Inc. (MAR) is a global leading lodging company based in Bethesda, Maryland, USA, with more than 4,100 properties in 79 countries and territories. Marriott International reported revenues of nearly $13 billion in fiscal year 2013. The company operates and franchises hotels and licenses vacation ownership resorts under 18 brands."

Earnings in 2014 have been improving and MAR beat Wall Street's estimates the last three quarters in a row. Their most recent report was late October with MAR delivering earnings of $0.65 per share. Revenues were up +9.5% to $3.46 billion, also above estimates. Guidance has only been in-line but that could be management playing it safe. Back in September the company outlined their growth plans through 2017. MAR said they will add more than 200,000 rooms around the world. Revenue per room available (RevPAR) is a key metric for the lodging industry. MAR expects 4 percent to 6 percent RevPAR growth in 2015 through 2017.

MAR is an international company and the CEO was recently asked about the economic slowdown in China, Japan and Europe and if it was hurting business. He said no. MAR's CEO said global travel in 2014 was better than the prior three years and he expects it to be healthy in 2015.

MAR focuses on three types of travel. They have the individual business traveler. There is group travel. Then leisure travel. MAR said they are seeing growth in all three areas. The improving U.S. economy could drive business travel and group travel. Lower gas prices mean more money for consumers so that can boost leisure travel. Plus, America has a ton of baby boomers retiring everyday. They travel more once they retire.

Technically shares of MAR have been consolidating sideways below resistance in the $78-80 zone the last several weeks. I am suggesting we wait for MAR to close above $80.25 and then buy calls the next day with a stop at $74.90.

Breakout trigger: Wait for a close above $80.25
Then buy calls the next day with a stop at $74.90

BUY the 2016 Jan. $90 call (MAR160115c90)

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

Originally listed on the Watch List: 01/04/15