New Watch List Entries

AKAM - Akamai Technologies

AMBA - Ambarella Inc.


Active Watch List Candidates

EWG iShares Germany ETF

SWKS - Skyworks Solutions

WBA - Walgreens Boots Alliance


Dropped Watch List Entries

LVLT graduated to our active play list.

UNP has been removed.



New Watch List Candidates:

Akamai Technology - AKAM - close: 69.96

Company Info

If you surf the Internet then you're probably seeing content delivered by AKAM's technology. They help customers speed up online content and have a fast-growing security business.

The company is part of the technology sector. They provide cloud services for delivering content across the Internet. Customers include 47% of the Global 500 companies.

AKAM describes itself as "the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere."

Last year was a strong one for earnings and revenue growth. AKAM beat Wall Street estimates on both the top and bottom line the past four quarters in a row. They raised guidance twice. AKAM's average revenue growth last year was +24.5%. Their most recent report was on February 10th where AKAM delivered a profit and revenue number above expectations. Several analyst firms raised their price target on AKAM following its Q4 results.

Management hosted an investor day in late February. They expect sales growth to be in the high teens for 2015. They forecasting sales to hit $5 billion by 2020 compared to about $2 billion in 2014. AKAM reported that their cyber security business is surging with +191% growth last year.

This week AKAM disclosed in their 10-K filing that they were conducting an internal probe into their sales practices in a foreign country. They didn't say which country. This is a potential risk if the U.S. government decides to do their own investigation but the stock didn't really react that much to the news.

It is worth noting that there has been some speculation that AKAM is a buyout target. One analyst suggested that Amazon.com (AMZN) could be a suitor.

After a big rally in February the upward momentum in AKAM has stalled. Shares look like they could see a correction lower. If that occurs then prior resistance near $65.00 should be significant support. We want to be ready to take advantage of the weakness.

Tonight I'm suggesting a buy-the-dip trigger to buy calls if AKAM dips to $65.25. We'll start this trade with a stop at $59.75.

Buy-the-dip trigger @ $65.25
Start with a stop at $59.75

BUY the 2016 Jan $75 call (AKAM160115C75) current ask $5.50

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

Chart of AKAM:

Originally listed on the Watch List: 03/08/15


Ambarella, Inc. AMBA - close: 64.22

Company Info

2014 was a great year for AMBA with significant sales growth. The company is part of the technology sector. They're probably best known for making the low-power, HD video and image processing semiconductors that go inside GoPro's (GPRO) action cameras.

According to the company, "Ambarella, Inc. (AMBA), is a leading developer of low-power, high-definition (HD) and Ultra HD video compression and image processing solutions. The company's products are used in a variety of professional and consumer applications including security IP-cameras, sports cameras, wearable cameras, flying cameras and automotive video processing solutions. Ambarella compression chips are also used in broadcasting TV programs worldwide."

Looking at the last four quarters for AMBA the company beat Wall Street's earnings estimates on both the top and bottom line. They guided higher the last three quarters in a row. 2014 Q2 revenues were up +24.7%. Q3 revenues grew +42.8%. Their most recent earnings report was March 3rd. AMBA announced their Q4 2014 revenues soared +61.8% to $64.7 million, above estimates for $59.3 million. Their Q4 earnings surged +161% to $0.68 a share. That's 19 cents above expectations. Q4 gross margins were 64.3% versus 64.1% a year ago.

AMBA's CEO Fermi Wang commented on their results saying, "Our strong fourth quarter and fiscal year results reflect the steady expansion of our product offerings and customer growth across our core markets, as well as early growth in new markets. During the fourth quarter we had strong year-over-year growth in our wearable, IP Security and automotive aftermarket revenues."

AMBA expects a lot more growth and opportunity in the body-worn security cameras (think police officers), consumer home security cameras, intelligent cameras for the automobile market, as well as cameras for drone. The company guided Q1 revenues in the $64-68 million range versus analysts' estimates of $59 million. They're growth to remain above 50%. Multiple analysts raised their price target on AMBA's stock after these strong Q4 results.

The stock soared to new record highs thanks in part to short covering. The most recent data listed short interest at 37% of the small 29 million share float. The point & figure chart is bullish and forecasting a long-term target of $107.00. AMBA's growth should continue. They don't just provide video chips to GoPro but they're also selling them to GoPro rivals like Xiaomi.

We don't want to launch positions yet. The stock looks short-term overbought and the market's weakness could be used to our advantage. Tonight I am suggesting a buy-the-dip entry point at $60.00. We'll start this trade with a stop loss at $54.00. More conservative traders could cross their fingers and hope for a dip close to $58-59 as an entry point instead of $60.

Buy-the-dip trigger @ $60.00
Start with a stop at $54.00

BUY the 2016 Jan $75 call (AMBA160115C75) current ask $6.80

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

Chart of AMBA:

Originally listed on the Watch List: 03/08/15


Active Watch List Candidates:



iShares MSCI Germany - EWG - close: 29.04

Comments:
03/08/15: The pullback in stocks was not limited to the U.S. German stocks retreated as well. The EWG broke a seven-week winning streak with last week's decline.

The upward momentum should return. The ECB launches its 60 billion euro a month QE program on Monday, March 9th. The basis premise is that QE helps lift asset prices.

We want to see a breakout past $30.00.

Earlier Comments: February 22, 2015:
The EWG is an exchange traded fund (ETF) that mimics the MSCI Germany index. This includes small, mid, and large-cap companies.

The U.S. market has enjoyed several years worth of QE programs that helped fuel market gains. Now that the U.S. QE program is over Europe is about to start on their own QE program. The European Central Bank (ECB) will start its quantitative program in March this year. The central bank will purchase about €60 billion a month through September 2016 but they've already announced that they will extend this deadline if they need to.

This is significant. After years of promising to do something about the Eurozone economy and fight the threat of deflation the ECB is finally acting. They might be too late to fend off deflation but investors seem to have hope that Europe can turn things around.

Germany should be a prime beneficiary of this program. The ECB's QE will continue to pressure the euro lower and that makes Germany's exports more competitive. Investors are have already starting betting on an improvement in the Germany market with a significant bounce in the EWG.

Today the EWG has broken through technical resistance at its simple 200-dma. Now it's about to challenge resistance near the $30.00 mark. Tonight I am suggesting investors wait for the EWG to close above $30.00 and then buy calls the next morning with a stop loss at $26.85.

FYI: If you want a broader European ETF I did consider the VGK but about half of its holdings are British and Swiss companies and may not see the same benefit from a weaker euro.

Breakout trigger: Wait for EWG to close above $30.00
Then buy calls the next morning with a stop at $26.85 .

BUY the 2016 Jan $30 call (EWG160115c30)

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

Originally listed on the Watch List: 02/22/15


Skyworks Solutions - SWKS - close: 90.75

Comments:
03/08/15: SWKS bucked the market's down trend and continued to rally last week. This can't last forever and eventually SWKS will correct. Tonight we will adjust our buy-the-dip trigger from $83.00 to $85.00. We will also adjust the option strike from the January 2016 $90 calls to the $100 calls.

Earlier Comments: March 1, 2015:
SWKS is in the semiconductor industry. They're probably best known for being a supplier to Apple Inc. (AAPL).

According to the company, "Skyworks Solutions, Inc. is empowering the wireless networking revolution, connecting virtually everyone and everything, all the time. Our highly innovative analog semiconductors are linking people, places, and things spanning a number of new and previously unimagined applications within automotive, broadband, cellular infrastructure, the connected home, industrial, medical, military, smartphone, tablet and wearable markets."

The stock has been soaring from its 2013 lows. That's because business is booming. SWKS has beaten Wall Street's earnings estimates and raised guidance for the last four earnings reports in a row. Their sales growth is accelerating with sales up +13.1%, 34.6%, 50%, and 59.4% over the last four quarters (results are year over year).

SWKS' most recent report was January 22nd. Earnings were $1.26 a share on revenues of $805.5 million. Management guided higher and expects Q2 results of $1.12 a share on revenues of $750 million. That's versus Wall Street estimates of $1.04 and revenues of $707 million.

Today shares of SWKS are at all-time highs. We don't want to chase it. I suspect the market could see a pullback soon. We want to be ready to take advantage of any pullback. Tonight I am suggesting a buy-the-dip trigger to buy calls at $83.00. We'll try and limit our risk with a stop loss at $79.00.

NOTE: I would start with small positions. SWKS could be volatile after such strong gains.

Buy-the-dip trigger @ $85.00, use a stop at $79.00

BUY the 2016 Jan $100 call (SWKS160115c100)

03/08/15 adjust the trigger from $83.00 to $85.00
03/08/15 adjust the option strike from the 2016 $90 to the January $100 calls
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/01/15


Union Pacific Corp. - UNP - close: 116.45

Comments:
03/08/15: The transportation stocks have been showing relative weakness. UNP has seen its pullback accelerate. The stock is hitting new five-week lows. Shares still have a long-term up trend but UNP could be headed for support near $110 and its 200-dma.

Tonight we are removing UNP as a watch list candidate but you may want to keep it on your radar screen for a bounce from $110.00.

Trade did not open.

03/08/15 removed from the watch list, suggested entry was a close above $125.00

Originally listed on the Watch List: 02/22/15


Walgreens Boots Alliance - WBA - close: $82.35

Comments:
03/08/15: It was a relatively quiet week for shares of WBA. I don't see any changes from last week's watch list entry. We want to buy calls on a dip at $80.00. More conservative investors could wait for a dip closer to the 50-dma instead (currently near $77.00).

Earlier Comments: March 1, 2015:
Drug store stocks have been healthy this year. Both CVS and WBA are trading near all-time highs. WBA is now an international competitor after completing its merger with Boots.

According to a company press release, "Walgreens Boots Alliance (WBA) is the first global pharmacy-led, health and wellbeing enterprise in the world.

The company was created through the combination of Walgreens and Alliance Boots in December 2014, bringing together two leading companies with iconic brands, complementary geographic footprints, shared values and a heritage of trusted health care services through pharmaceutical wholesaling and community pharmacy care, dating back more than 100 years.

The company employs over 370,000 people and has a presence in more than 25 countries; it is the largest retail pharmacy, health and daily living destination in the USA and Europe. Including its equity method investments, Walgreens Boots Alliance is the global leader in pharmacy-led, health and wellbeing retail with over 12,800 stores in 11 countries. The company includes the largest global pharmaceutical wholesale and distribution network with over 340 distribution centers delivering to more than 180,000† pharmacies, doctors, health centers and hospitals each year in 19 countries. In addition, Walgreens Boots Alliance is the world's largest purchaser of prescription drugs and many other health and wellbeing products.

Its portfolio of retail and business brands includes Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as increasingly global health and beauty product brands, such as No7 and Botanics. More company information is available at www.walgreensbootsalliance.com."

This stock has been showing significant relative strength. Their last earnings report was back in December and they beat analysts' estimates on both the top and bottom line. That was before Walgreens had finished its merger. Expectations are building for margins to improve thanks to synergies between the two companies. In the prior quarter synergies were about $140 million. The company is estimating synergies could reach $650 million in fiscal 2015.

The trend is obviously bullish. The point & figure chart is forecasting at $95.00 target. You could argue that WBA is a buy right now with last week's breakout past resistance near $80.00. However, instead of chasing new highs I am suggesting a buy-the-dip trigger to buy calls at $80.00. More conservative traders could aim lower and hope for a dip near $78 or $79 instead.

Buy-the-dip trigger @ $80.00, use a stop at $74.75

BUY the 2016 Jan $90 call (WBA160115c90)

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

Originally listed on the Watch List: 02/22/15