New Watch List Entries

SWI - SolarWinds

TXT - Textron Inc.


Active Watch List Candidates

ASH - Ashland, Inc.

LMT - Lockheed Martin

LVLT - Level 3 Communications


Dropped Watch List Entries

NOW and ITB graduated to our active play list.



New Watch List Candidates:

SolarWinds, Inc. - SWI - close: 50.55

Company Info

SWI is part of the technology sector. With a name like SolarWinds you'd think the company might be part of the solar energy business but instead SWI makes IT management software.

According to the company, "SolarWinds (NYSE: SWI) provides powerful and affordable IT management software to customers worldwide from Fortune 500® enterprises to small businesses. In all of our market areas, our approach is consistent. We focus exclusively on IT Pros and strive to eliminate the complexity that they have been forced to accept from traditional enterprise software vendors. SolarWinds delivers on this commitment with unexpected simplicity through products that are easy to find, buy, use and maintain while providing the power to address any IT management problem on any scale. Our solutions are rooted in our deep connection to our user base, which interacts in our thwack® online community to solve problems, share technology and best practices, and directly participate in our product development process."

Last year the company had a pretty good track record on earnings. The last four quarterly reports in a row they have beaten Wall Street's estimates on both the top and bottom line. In their Q2 and Q3 reports SWI raised guidance on both the top and bottom line as well. Their most recent report was January 29th where SWI delivered earnings of $0.51 a share as revenues increased +22% to $118.4 million.

The stock has been correcting from its early December highs but it looks like that correction is over. Shares saw a bullish reversal in early February and now SWI is starting to break through resistance.

Tonight I am suggesting we wait for SWI to close above $51.25 and then buy calls the next morning with a stop loss at $46.85.

Breakout trigger: Wait for SWI to close above $51.25
Then buy calls the next morning with a stop at $46.85.

BUY the 2016 Jan $55 call (SWI160115C55) current ask $4.50

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

Chart of SWI:

Originally listed on the Watch List: 02/15/15


Textron Inc. - TXT - close: 44.68

Company Info

TXT is in the industrial goods sector. They deal mostly in the aerospace industry. According to the company, "Textron Inc. is a multi-industry company that leverages its global network of aircraft, defense, industrial and finance businesses to provide customers with innovative solutions and services. Textron is known around the world for its powerful brands such as Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, and Textron Systems."

The earnings picture last year was mixed. Better than expected results and bullish guidance helped power a big rally last October. Their most recent earnings report was January 28th. TXT's earnings of $0.76 a share were up +26% from a year ago but 1 cent worse than Wall Street estimates. Revenues were up +16.8% to $4.1 billion, also below estimates.

It's interesting how TXT missed Wall Street's earnings estimates on both the top and bottom line and management lowered their guidance for all of 2015. Yet the stock did not sell off. Normally an earnings miss or weak guidance would spark significant selling. Instead investors just calmly bought the dip and now TXT is breaking out to new multi-year highs.

If bad news like that can't shake the stock lower then the path of least resistance is definitely higher. The last couple of months look like a significant consolidation pattern and now TXT has produced a bullish breakout past resistance in the $44.00-44.50 zone. The point & figure chart is bullish and forecasting a long-term target at $67.00.

Tonight I am suggesting small bullish positions if TXT can close above $45.10. Wait for shares to close above this level and then buy calls the next morning.

Breakout trigger: Wait for TXT to close above $45.10
Then buy calls the next morning with a stop at $39.90.

BUY the 2016 Jan $50 call (TXT160115C50) current ask $3.05

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

Chart of SLAB:

Originally listed on the Watch List: 02/15/15


Active Watch List Candidates:



Ashland, Inc. - ASH - close: 127.58

Comments:
02/15/15: Hmm... our buy-the-dip strategy may not work. ASH slipped to $122.68 on Tuesday before bouncing. Shares continued to bounce the rest of the week and now ASH is trading at all-time highs.

I didn't want to chase it a week ago so I don't want to chase it now. Let's see where ASH is trading a week from now and then we will re-evaluate our entry point strategy. For now our suggested trigger is still $122.25.

Earlier Comments: February 8, 2015:
ASH is in the basic materials sector. They are a chemical company. According to their marketing material, "Ashland Inc. (ASH) is a global leader in providing specialty chemical solutions to customers in a wide range of consumer and industrial markets, including architectural coatings, automotive, construction, energy, food and beverage, personal care and pharmaceutical. Through our three commercial units - Ashland Specialty Ingredients, Ashland Performance Materials and Valvoline - we use good chemistry to make great things happen for customers in more than 100 countries."

ASH is currently restructuring its business into just three operating segments and hopes to achieve annual savings of up to $200 million. The company has also reported strong sales growth for its specialty ingredients business. This may be why investors were so forgiving with the company's latest earnings report.

ASH reported on January 26th. Earnings were $1.46 a share, which was better than the $1.42 estimate. Yet revenues were down -2.9% to $1.39 billion, below expectations. The stock didn't move much on this report. Yet shares were definitely moving this past week. ASH has broken out past resistance in the $122 area and rallied to new all-time highs.

The relative strength is encouraging and the point & figure chart is very bullish with a long-term target of $189.00. I am not suggesting new positions today. We want to wait for a pullback. I'm suggesting a buy-the-dip trigger at $122.25 with a stop loss at $115.45.

Buy-the-dip trigger: $122.25
With a stop loss at $115.45

BUY the 2016 Jan $135 call (ASH160115c135)

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

Originally listed on the Watch List: 02/08/15


Lockheed Martin - LMT - close: 196.95

Comments:
02/15/15: LMT has bounced back toward resistance in the $198-199 area. If this rally continues we should see LMT crack $200 soon. Our suggested entry point is to wait for LMT to close above $201.00 and then buy calls the next morning.

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

BUY the 2016 Jan $220 call (LMT160115c220)

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

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


Level 3 Communications - LVLT - close: 53.49

Comments:
02/15/15: LVLT posted another weekly gain. The stock is now up four out of the last five weeks. Last week's performance was interesting in that shares struggled to make it past the early February high. Plus LVLT was underperforming the market on Friday. Considering Friday's relative weakness and LVLT's inability to breakout to new highs I am keeping our entry point at $50.75 for now.

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.

Buy calls on a dip at $50.75 with a stop at $46.25

BUY the 2016 Jan $55 call (LVLT160115c55)

02/08/15 Adjust entry point strategy: Buy calls on a dip at $50.75 with a stop loss at $46.25. Option Format: symbol-year-month-day-call-strike

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