New Watch List Entries

ADBE - Adobe Systems

AMBA - Ambarella Inc.

GILD - Gilead Sciences

MA - MasterCard Inc.


Active Watch List Candidates

A - Agilent Technologies

ASH - Ashland Inc.

IR - Ingersoll-Rand

JCI - Johnson Controls Inc.

NKE - Nike Inc.


Dropped Watch List Entries

DATA and SBUX have graduated to our active play list.



New Watch List Candidates:

Adobe Systems - ADBE - close: 76.43

Company Info

ADBE is in the technology sector. According to the company's website, "Adobe is changing the world through digital experiences. Content built and optimized with Adobe products is everywhere you look — from websites, video games, and smartphones to televisions, tablets, and beyond. Adobe® Creative Cloud® software offers the most innovative tools for creating digital media, while Adobe Marketing Cloud delivers groundbreaking solutions for data-driven marketing. Our leadership in these two emerging categories, Digital Media and Digital Marketing, provides our customers with a real competitive advantage, positioning Adobe for continued growth well into the future. As one of the largest software companies in the world, Adobe achieved revenue of more than US$4 billion in 2013."

The company's most recent earnings report was March 17th. Results were $0.44 a share, which was five cents better than expected. Revenues were up +10.9% to $1.11 billion, also above expectations. The company continues to see success with their subscription model and added 517,000 new creative cloud subscriptions, a +28% improvement from a year ago.

Technically the stock is in a long-term up trend. Shares just spent the last few weeks consolidating sideways and looks ready for the next move higher. A rise past $78.00 would generate a new buy signal on the point & figure chart.

I am suggesting we wait for ADBE to close above $77.75 and then buy calls the next morning with a stop loss at $71.85. More conservative investors may want to wait for ADBE to close over short-term resistance at $80.00 as an alternative entry point for bullish positions.

Breakout trigger: Wait for a close above $77.75,
Then buy calls the next morning with a stop at $71.85.

BUY the 2016 Jan $85 call (ADBE160115C85)

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

Chart of ADBE:

Originally listed on the Watch List: 05/03/15


Ambarella, Inc. - AMBA - close: 76.05

Company Info

If you're looking for relative strength then AMBA has it in spades. Year to date the stock is already up +50%. AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June 2014 and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's action camera products. GPRO's IPO drew a lot of attention to AMBA. Now GPRO's rally has collapsed while AMBA has continued to climb.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

AMBA has been killing it on the earnings front. They have beaten Wall Street's earnings and revenue estimates for the last five quarters in a row. Their most recent report was their Q4 results on March 3rd. Analysts were expecting a profit of $0.49 a share on revenues of $59.3 million. AMBA delivered $0.68 a share with revenues soaring +61% to $64.7 million.

AMBA's next earnings report is not until June 2nd. However, GPRO's recent earnings could be an early look at AMBA's business. GPRO just reported its Q1 results on April 28th. Earnings were better than expected and revenues soared +54% to $363 million. GPRO beat Wall Street estimates on both the top and bottom line. GPRO's management raised their 2015 Q2 guidance significantly above analysts' estimates. That's bullish news for AMBA. Shares of AMBA rallied on GPRO's results.

Currently AMBA is sitting just below resistance in the $76-77 area. I am suggesting we wait for AMBA to close above $77.50 and then buy calls the next morning with an initial stop loss at $69.00. More aggressive traders may want to use an intraday trigger instead since AMBA could breakout and surge higher. I am putting a limit on this trade. We do not want to open positions if AMBA spikes above $81.00. Essentially our entry window to launch bullish positions is the $77.50-81.00 zone.

Breakout trigger: Wait for a close above $77.50,
Then buy calls the next morning with a stop at $69.00.

BUY the 2016 Jan $90 call (AMBA160115C90)

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

Chart of AMBA:

Originally listed on the Watch List: 05/03/15


Gilead Sciences - GILD - close: 105.01

Company Info

GILD seems to be everyone's favorite biotech stock. I only hear bullish opinions about the future of the company, and for good reason. They have some pretty amazing treatments with products for HIV/AIDS, liver diseases, oncology, cardiovascular, respiratory, and more. GILD has essentially revolutionized how we treat major diseases like HIV and Hepatitis C.

According to the company website, "Gilead Sciences, Inc. is a research-based biopharmaceutical company that discovers, develops and commercializes innovative medicines in areas of unmet medical need. We strive to transform and simplify care for people with life-threatening illnesses around the world. Gilead's portfolio of products and pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer and inflammation, and serious respiratory and cardiovascular conditions."

Last year (2014) everyone has been raving over GILD's hepatitis C treatment called Sovaldi. Hepatitis C is a form of viral hepatitis that causes chronic inflammation of the liver. About 185 million people currently suffer with hepatitis C. Previously the most common treatment for hepatitis C had serious side effects and was less than 50% successful. GILD changed that with their Sovaldi drug that not only treats the symptoms but actually cures the patient. The company has drawn some negative publicity over the cost since GILD charges $84,000 for a 12-week course of Sovaldi in the United States. The fact that 80% to 90% of patients who take Sovaldi are cured is a major milestone.

The Financial Times noted that before Sovaldi the impact of hepatitis C in the U.S. took a heavy toll on the healthcare system. The disease can lead to liver failure and cancer, both of which cost significantly more than Sovaldi's $84,000 price target. Hepatitis C is the leading cause for liver transplants in the U.S., which can cost a minimum of $145,000. One consulting firm estimated that the annual cost of hepatitis C to the U.S. healthcare system was going to surge from $30 billion to $85 billion in the next twenty years. Sovaldi has the potential to change. that.

The company is a cash machine. Their Q2 2014 revenues soared +136%. Q3 revenues were up +117%. Q4 2014 sales were +134%. They also announced a $15 billion stock buyback program.

GILD's most recent earnings report was their 2015 Q1 announcement on April 30th. Wall Street was expecting a profit of $2.32 per share on revenues of $6.89 billion. GILD delivered $2.94 per share with revenues rising +51.9% to $7.59 billion. Management then raised their 2015 sales forecast from $26-27 billion to $28-29 billion.

Technically shares of GILD have been consolidating sideways under a trend of lower highs for months. The last half of April appears to have produced a bullish breakout but GILD still has resistance in the $106 area. Tonight I am suggesting we wait for GILD to close above $106.50 and then buy calls the next morning.

Breakout trigger: Wait for a close above $106.50
Then buy calls the next morning with a stop at $99.00.

BUY the 2016 Jan $115 call (GILD160115C115)

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

Chart of GILD:

Originally listed on the Watch List: 05/03/15


MasterCard Inc. - MA - close: 91.25

Company Info

We are adding MA back to the watch list. Here's our recent watch list play description from April:

Do you have a credit card? How about a debit card? Odds are you do. About 70% of Americans have a credit card and many have more than one. Inside the United States there are over 500 million credit cards between American Express, MA, and Visa. There's more than 1.12 billion globally (not counting the U.S.). There's also another 572 million MA or Visa debit cards in the U.S. (MasterCard has more than 144 million). Not counting America there are more than 1.2 billion debit cards around the world.

Now what if you could charge a small percentage for consumers using their plastic every time they make a purchase? That's MA's business model. As of 2013 their market share of global transactions (credit or debit) was about 27%. They are the second biggest credit and debit card company behind Visa (V). According to the company, "MasterCard (MA), www.mastercard.com, is a technology company in the global payments industry. We operate the world's fastest payments processing network, connecting consumers, financial institutions, merchants, governments and businesses in more than 210 countries and territories. MasterCard's products and solutions make everyday commerce activities – such as shopping, traveling, running a business and managing finances – easier, more secure and more efficient for everyone."

MA has been delivering steady growth. They reported their Q3 results on October 30th with earnings up +19% from a year ago to $0.87 a share. That beat estimates. Revenues were up +12.8% to $2.5 billion, also above expectations. The bullish trend continued when MA reported its 2014 Q4 results on January 30th. Earnings per share soared +32% from a year ago to $0.69 and revenues grew +13.6% to $2.42 billion. Both metrics were above Wall Street expectations.

The company did warn that the surge in the U.S. dollar was impacting results but they still see strong single-digit revenue growth for 2015. They reaffirmed +20% earnings growth.

Meanwhile one of MA's biggest rivals, American Express (AXP), is not having a good year. AXP lost its exclusive deal with Costco (COST) last month. This deal generated 20% of AXP's loans and about 10% of their annual card growth. AXP is also losing its partnership with JetBlue (JBLU). AXP's losses will likely be MA's and Visa's gain.

Recently MA announced it had signed a 10-year deal with Citigroup. Not only is Citigroup one of the biggest banks on the planet they are the largest credit card issuer in the world. The press release states "Citi will begin aligning the company's consumer proprietary credit and debit portfolios to the MasterCard network in 2015." One analyst has already opined that the deal should provide a "decent tailwind for EPS growth" (for MA). Speaking of opinions, a couple of analysts at Nomura believe that MA is cheap at current valuations and could be seen as safe haven investment given their steady earnings growth.

"Despite a mixed global economy, we delivered solid results for the quarter and for the full year in 2014," said Ajay Banga, president and CEO, MasterCard. "This year is off to a good start with several new wins, as well as renewals of some important customer agreements, with more in the pipeline. Looking ahead, we will continue to be at the forefront of our industry by driving payment innovation with solutions such as MasterPass, and by increasing electronic payments usage globally as demonstrated by our significant expanded acceptance footprint across Africa."

Shares of MA look like a potential trade again. The company recently reported earnings on April 29th. The beat estimates on the bottom line with a profit of $0.89 per share. Revenues were only up +2.7% to $2.23 billion, which was below expectations. Part of the challenge were currency headwinds.

Wall Street seems to think that MA will do well in spite of the tough business environment. The spike higher on April 22nd was news that the country of China was going to open up their market to foreign companies. Previously companies like MA and Visa could only do business in China by partnering with a domestic firm (China UnionPay). Now the Chinese government is opening up the bank card-clearing market to foreigners. This is huge. The Chinese market for this business was $6.8 trillion in transactions last year. Now MA gets a chance to compete for its share of this business.

Shares of MA still have resistance near $93.00. We want to see MA close above $93.25 and then buy calls the next morning with a stop loss at $88.00.

Breakout trigger: Wait for a close above $93.25
Then buy calls the next morning with a stop at $88.00.

BUY the 2016 Jan $95 call (MA160115C95)

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

Chart of MA:

Originally listed on the Watch List: 05/03/15


Active Watch List Candidates:



Agilent Technologies - A - close: 41.83

Comments:
05/03/15: Shares of A have continued to retreat from its April highs. The stock is now down three weeks in a row. We are removing A as a watch list candidate. We might revisit it again if shares can rally back toward its highs. The $43.50-44.00 area looks like significant resistance.

Trade did not open.

05/03/15 removed from the watch list, suggested entry was a close above $44.00

Originally listed on the Watch List: 04/19/15


Ashland, Inc. - ASH - close: 128.60

Comments:
05/03/15: ASH reported earnings on April 29th. Revenues beat estimates by 30 cents with a profit of $2.03 per share. Revenues were down -12.6% to $1.35 billion, which was below estimates. Management announced at $1 billion stock buyback program.

The stock spiked to a new high on this news but the rally didn't last as Thursday was a rough day for the broader market. I am suggesting we give ASH another week. If we don't see improvement then we'll remove it as a candidate.

Currently our suggested entry point is a close above $130.75.

Trade Description: April 12, 2015:
ASH is in the basic materials sector. The XLB materials ETF is up +2.3% this year. Shares of ASH are outperforming their peers with a +8% gain in 2015.

According to the company, "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."

Looking at the last couple of earnings reports ASH has been beating estimates on the bottom line. Their most recent report was January 26th where ASH reported a profit of $1.46 per share on revenues of $1.39 billion. Earnings beat estimates by four cents while revenues were down -2.9% from a year ago thanks to foreign currency headwinds (i.e. impact of the strong dollar). Management said that last quarter their strongest growth was in many of the company's higher-margin products.

Technically shares have been building on a bullish trend of higher lows. The point & figure chart is very bullish and forecasting a long-term target of $200 a share.

The all-time high was set on March 2nd, 2015 at $130.66. Tonight I am suggesting we wait for ASH to close above $130.75 and then buy calls the next morning with a stop loss at $124.75.

Breakout trigger: Wait for a close above $130.75
Then buy calls the next morning with a stop at $124.75.

BUY the 2016 Jan $140 call (ASH160115C140)

04/26/15 Do not open positions if ASH gaps open above $132.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 04/12/15


Ingersoll-Rand - IR - close: 66.85

Comments:
05/03/15: The stock market's widespread decline last week pushed IR toward the bottom of its $66-69 trading range. Let's see how IR performs this week. If shares do not show improvement then we'll drop it as a watch list candidate.

Currently our suggested entry point is a close above $70.25.

Trade Description: April 12, 2015:
Shares of IR are on the verge of new all-time highs. The company is in the industrial goods sector. According to the company website, "Ingersoll Rand is a global diversified firm providing products, services and solutions to enhance the quality and comfort of air in homes and buildings, transport and protect food and perishables, secure homes and commercial properties, and increase industrial productivity and efficiency. Driven by a 100-year-old tradition of technological innovation, we enable our customers to create progress and a positive impact in their world."

Looking at their recent earnings reports IR has actually lowered guidance the last two quarters in a row. Yet investors are buying the stock anyway. IR's most recent report was January 30th. Earnings grew +34% from a year ago to $0.82 a share. That was 11 cents above estimates. Revenues would have been up +7% but foreign currency issues reduced that to +4.6%, which was still above estimates.

IR management lowered their 2015 guidance into the $3.66-3.81 per share range but that still equates to +10% to +14% annual growth. They expect 2015 revenues to rise +4.5%.

The market did not react to news that activist investor Nelson Peltz was selling some of his stake in IR recently. Last month he sold about 2.3 million shares of IR. This reduces his stake to about 12.27 million or 4.6% of IR's outstanding shares.

Technically shares of IR have been consolidating sideways in the $66-69 range for about six weeks. They look poised for a bullish breakout higher. The point & figure chart is already bullish and forecasting an $86.00 target.

Tonight I am suggesting we wait for IR to close above $69.25 and then buy calls the next morning with a stop loss at $64.75.

Breakout trigger: Wait for a close above $70.25
Then buy calls the next morning with a stop at $64.75.

BUY the 2016 Jan $75 call (IR160115C75)

04/26/15 Adjust the entry point trigger to a close above $70.25 (from $69.25)
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 04/12/15


Johnson Controls Inc. - JCI - close: 51.10

Comments:
05/03/15: The post-earnings profit taking in JCI produced a five-day sell-off. Shares finally bounced on Friday after the stock tested its three-month trend line of higher lows.

Aggressive traders could buy calls on this bounce and limit their risk with a tight stop loss just below $50.00. I am suggesting the rest of us (non-aggressive investors) wait for JCI to close above $53.50 before considering new positions.

Trade Description: April 26, 2015:
Shares of JCI hit all-time highs last week. The company is in the consumer goods sector. They are the largest auto parts supplier in the U.S. According to the company, "Johnson Controls is a global diversified technology and industrial leader serving customers in more than 150 countries. Our 170,000 employees create quality products, services and solutions to optimize energy and operational efficiencies of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric vehicles; and interior systems for automobiles."

JCI just reported earnings on April 23rd. The company delivered $0.73 a share, which was a +20% improvement from a year ago. Depending on who you polled that was either one cent above or below Wall Street estimates. Revenues dropped -2.8% to $9.2 billion, which was significantly below estimates. Currency headwinds were a major issue.

Management offered cautious guidance for the current quarter with an earnings forecasting of 90-92 cents a share. Analysts are expecting 92 cents. JCI's full-year guidance expects earnings growth in the +10% to +15% range.

Alex Molinaroli, JCI's Chairman and CEO, commented on his company's quarter, "I am very pleased with our second quarter results. Our businesses showed increased underlying growth and delivered higher margins that we believe are sustainable. We saw broad-based order growth in Building Efficiency, continuing a trend that we began to see at the end of the first quarter. Despite foreign currency headwinds, profitability increased across the business segments. This is, in part, a result of the early benefits from the Johnson Controls Operating System which is improving our manufacturing and procurement efficiencies. We expect those benefits to increase in value and broaden in scope over the next several years as we continue to invest in these areas."

Technically shares have been consolidating under major resistance in the $52.00 area for months. The current rally is a major breakout to new highs. The point & figure chart is optimistic with a $69.00 target.

The high on Thursday was $53.40. I am suggesting we wait for JCI to close above $53.50 and then buy calls the next morning with a stop loss at $49.65.

Breakout trigger: Wait for a close above $53.50
Then buy calls the next morning with a stop at $49.65

BUY the 2016 Jan $55 call (JCI160115C55)

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

Originally listed on the Watch List: 04/26/15


Nike, Inc. - NKE - close: 100.78

Comments:
05/03/15: NKE spent the entire month of April consolidating sideways in the $98-102 range. I'm not ready to give up on the stock just yet. The long-term trend is still bullish.

We want to wait for NKE to close above $102.00 and then buy calls the next morning. Tonight I am adjusting our stop loss to $97.45.

Earlier Comments: March 29, 2015:
In Greek mythology Nike is the winged goddess of victory. It's an appropriate brand name for the American athletic wear giant. Nike is the 800-pound gorilla in the industry with annual sales of more than $30 billion.

If you're not familiar with the company, "NIKE, Inc., based near Beaverton, Oregon, is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories, and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories."

The company's most recent earnings report was March 19th, after the closing bell. NKE reported its Q3 2015 results. Analysts were expecting a profit of $0.84 a share on revenues of $7.62 billion. NKE delivered a profit of +0.89 a share or +16% from a year ago. Revenues were up +7% to $7.46 billion. However, if you back out the currency headwinds, their revenues were up +13%.

The company reported sales growth across every geographical region. Their gross margins improved 140 basis points to 45.9 percent. Management said their online sales are soaring. Nike.com saw its revenues jump +42% last quarter.

The current quarter is NKE's 2015 Q4 (March-July) and the company said orders for Q4 in North America are up +15%, which is above analysts' estimates of +11.6%. Orders from China are up +11%, also above estimates. In the company's earnings release NKE said, "As of the end of the quarter, worldwide futures orders for NIKE Brand athletic footwear and apparel scheduled for delivery from March 2015 through July 2015 were 2 percent higher than orders reported for the same period last year. Excluding currency changes, reported orders would have increased 11 percent."

One big concern is the U.S. dollar. Sales in Europe were up +21% but when you factor in euro weakness and dollar strength that sales growth drops to +10%. The strength in the U.S. dollar is a major headwind but after NKE's Q3 results Wall Street feels that the company is managing the currency impact very well. The company is forecasting low double digit sales growth in the current quarter.

Wall Street applauded the results and shares of NKE gapped open higher on March 20th to hit all-time highs. There was a parade of bullish analyst comments. Several firms raised their price target on NKE. Here's a brief list of new price target: $106, $110, $115, $116.00. The point & figure chart is more optimistic as it is forecasting at $125.00 target.

Shares of NKE have seen some profit taking, which isn't a surprise considering the market's recent decline. However, now that NKE has filled the gap, traders jumped in to buy the dip. The stock looks poised to breakout past round-number resistance at $100.00 (again). Tonight I am suggesting investors wait for NIKE to close above $101.00 and then buy calls the next morning with a stop loss at $94.45.

Breakout trigger: Wait for a close above $102.00
Then buy calls the next morning with a stop loss at 97.45

BUY the 2016 Jan $110 call (NKE160115C110)

05/03/15 move the stop loss from 95.75 to 97.45
04/12/15 Strategy update: adjust the trigger to a close above $102.00 and the stop loss to $95.75 (from a close above $101.00 and a stop at $94.45)
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 03/29/15