New Watch List Entries

COF - Capital One Financial

STZ - Constellation Brands


Active Watch List Candidates

ADI - Analog Devices Inc.

ATVI - Activision Blizzard Inc.

DNKN - Dunkin Brands Group


Dropped Watch List Entries

FEYE has graduated to our active play list.



New Watch List Candidates:

Capital One Financial - COF - close: 84.94

Company Info

Interest rates will rise. The Federal Reserve has kept its main interest near zero (0.0%) since December 2008. There has been mountains of speculation on when the fed will finally raise rates. It looks like they could start in September this year. If not this year then definitely next year. Rising rates are going to be bullish for big banks.

COF describes itself as, "Capital One Financial Corporation (www.capitalone.com) is a financial holding company whose subsidiaries, which include Capital One, N.A., and Capital One Bank (USA), N. A., had $205.5 billion in deposits and $308.9 billion in total assets as of December 31, 2014. Headquartered in McLean, Virginia, Capital One offers a broad spectrum of financial products and services to consumers, small businesses and commercial clients through a variety of channels. Capital One, N.A. has branches located primarily in New York, New Jersey, Texas, Louisiana, Maryland, Virginia and the District of Columbia."

COF's most recent earnings report was April 23rd. Earnings were $2.00 per share, which was 13 cents above estimates. Management said they saw strong loan growth. The company has recently raised their dividend and they have a big stock buy back program.

The stock has been stuck under resistance near $85.00 for almost a year. The stock's posture changed when it recovered from its January 2015 lows near $73. Since then COF has been rising in a bullish trend of higher lows and higher highs. Now it's poised to breakout past key resistance at $85.00. The point & figure chart is already bullish and forecasting at $97.00 target.

I am suggesting we look for COF to close in the $86.00-87.00 zone as our entry point. Then buy calls the next morning with a stop loss at $81.75. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for COF to close inside the $86.00-87.00 zone, then buy calls the next morning with a stop loss at $81.75.

BUY the 2017 Jan $100 call (COF170120C100) current ask $2.82

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

Chart of COF:

Originally listed on the Watch List: 06/07/15


Constellation Brands - STZ - close: 118.87

Company Info

Major beer brands have suffered from the boom in craft beers. Yet STZ's Corona and Modelo have seen significant growth, especially in the U.S. The company's earnings and revenue growth has fueled a rally in the stock that has outpaced the major marker indices.

STZ is in the consumer goods sector. According to the company, "Constellation Brands (NYSE:STZ and STZ.B) is a leading international producer and marketer of beer, wine and spirits with operations in the U.S., Canada, Mexico, New Zealand and Italy. In 2014, Constellation was one of the top performing stocks in the S&P 500 Consumer Staples Index. Constellation is the number three beer company in the U.S. with high-end, iconic imported brands including Corona Extra, Corona Light, Modelo Especial, Negra Modelo and Pacifico. Constellation is also the world`s leader in premium wine, selling great brands that people love including Robert Mondavi, Clos du Bois, Kim Crawford, Rex Goliath, Mark West, Franciscan Estate, Ruffino and Jackson-Triggs. The company`s premium spirits brands include SVEDKA Vodka and Black Velvet Canadian Whisky.

Based in Victor, N.Y., the company believes that industry leadership involves a commitment to brand-building, our trade partners, the environment, our investors and to consumers around the world who choose our products when celebrating big moments or enjoying quiet ones. Founded in 1945, Constellation has grown to become a significant player in the beverage alcohol industry with more than 100 brands in its portfolio, sales in approximately 100 countries, about 40 facilities and approximately 7,200 talented employees."

This past January STZ reported their fiscal year 2015 Q3 results that beat analysts' estimates on both the top and bottom line. Management raised their 2015 guidance. Their Q4 results were announced on April 9th. Earnings were up +37% from a year ago to $1.03 per share. That was 9 cents above estimates. Revenues were up +5% to $1.35 billion. Gross margins improved to 44%.

STZ said they're seeing strong demand for their Mexican beer brands Corona and Modelo. They're gaining market share in both the spirits and wine categories as well.

The company said 2015 sales were up +24% from the prior year to $6.03 billion. STZ's management guided in-line for fiscal 2016 and forecast earnings of $4.70 to $4.90 per share. That compares to 2015's profit of $4.17 per share (essentially +12% to +17.5% earnings growth).

Since their most recent earnings report a couple of analysts have upgraded their price targets for STZ into the $140-142 region.

Technically the stock's pullback this past week actually looks like the second half to a bearish double top pattern. Yet shares have not broken the bullish trend of higher lows just yet. If STZ bounces we could see it hitting new all-time highs soon. The resistance to watch is in the $121.85 region. I am suggesting we wait for STZ to close in the $122.00-123.00 range and then buy calls the next morning with a stop loss at $116.85.

Investors should note that STZ is scheduled to report earnings on July 1st, before the opening bell. More conservative traders may want to hesitate on launching any trades until after we see how the market reacts to this earnings report.

Breakout trigger: Wait for a close in the $122-123 zone
Then buy calls the next day with a stop at $116.85

BUY the 2016 Jan $125 call (STZ160115C125) current ask $6.00

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

Chart of STZ:

Originally listed on the Watch List: 06/07/15


Active Watch List Candidates:



Analog Devices - ADI - close: 67.37

Comments:
06/07/15: After a strong, three-week rally shares of ADI encountered some profit taking. The pullback wasn't enough. We are still waiting for a dip near $65.00.

Trade Description: May 24, 2015:
Shares of ADI are hitting 15-year highs as investors react positively to its most recent earnings report.

ADI is in the technology sector. They are part of the semiconductor industry. According to the company, "Analog Devices (NASDAQ: ADI) is a world leader in the design, manufacture, and marketing of a broad portfolio of high performance analog, mixed-signal, and digital signal processing (DSP) integrated circuits (ICs) used in virtually all types of electronic equipment. Since our inception in 1965, we have focused on solving the engineering challenges associated with signal processing in electronic equipment.

Used by over 100,000 customers worldwide, our signal processing products play a fundamental role in converting, conditioning, and processing real-world phenomena such as temperature, pressure, sound, light, speed, and motion into electrical signals to be used in a wide array of electronic devices. We focus on key strategic markets where our signal processing technology is often a critical differentiator in our customers' products, namely the industrial, automotive, communications, and consumer markets.

We currently produce a wide range of innovative products—including data converters, amplifiers and linear products, radio frequency (RF) ICs, power management products, sensors based on microelectromechanical systems (MEMS) technology and other sensors, and processing products, including DSP and other processors—that are designed to meet the needs of our broad base of customers."

The company's earnings performance has definitely improved in the last few quarters. Last August they reported earnings that were in-line with estimates as revenues rose +7.9%. The next three quarters in a row have seen ADI beat Wall Street estimates on both the top and the bottom line. Revenues were up +20%, +22.9% and +18.2%, respectively.

Their most recent report was May 19th when ADI reported its Q2 results. Earnings were up +23.7% from a year ago to $0.73 a share, which was a penny above estimates. Management's guidance was in-line with Wall Street estimates and the stock rallied.

ADI's President and CEO Vincent Roche commented on his company's quarterly performance, "We had a very successful second quarter driven by the quality of our innovation, the diversity of our business, and our strong execution. Revenue increased to a record $821 million, and our operating model generated strong cash flows and diluted earnings per share growth that was well ahead of revenue growth. Looking ahead, our book to bill ratio was positive in the second quarter and we are seeing stable order rates across all our end markets. As a result, we are planning for sequential growth in the third quarter and for revenue to be in the range of $825 million to $865 million."

Multiple analyst firms raised their price target on ADI following this report. Shares rallied to multi-year highs. We do not want to chase it here. Broken resistance in the $64-65 zone should be new support. Tonight I am suggesting a buy-the-dip trigger to buy calls at $65.10. We will try and limit our risk with a stop loss at $59.85.

Buy-a-dip trigger: $65.10 (intraday trigger, stop 59.85)

BUY the 2016 Jan $70 call (ADI160115C70)

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

Originally listed on the Watch List: 05/24/15


Activision Blizzard, Inc. - ATVI - close: 25.77

Comments:
06/07/15: ATVI displayed some relative strength last week. Shares managed to hit new all-time highs before the big market decline on Thursday. We do not want to chase it here. Our plan is to wait for a pullback with a buy-the-dip trigger at $24.15.

Trade Description: May 24, 2015:
Consumer spend more money on video games than they do at the movie theater. ATVI is the biggest with annual sales of $4.58 billion. Electronic Arts (EA) is hot on its heels with revenues of $4.52 billion a year.

ATVI is home to some of the biggest franchises in video game history. According to the company, "Activision Blizzard, Inc. is the largest and most profitable western interactive entertainment publishing company. It develops and publishes some of the most successful and beloved entertainment franchises in any medium, including Call of Duty , Call of Duty Online, Destiny , Skylanders, World of Warcraft , StarCraft , Diablo, and Hearthstone: Heroes of Warcraft. Headquartered in Santa Monica, California, it maintains operations throughout the United States, Europe, and Asia. Activision Blizzard develops and publishes games on all leading interactive platforms and its games are available in most countries around the world."

Investors have been pretty forgiving when it comes to ATVI's recent earnings reports. On February 5th they beat the bottom line estimate but missed the revenue number. Revenues were down -2.6% from a year ago. ATVI blamed currency headwinds for the revenue miss since half of their sales are outside the U.S. and represent a significant chunk of their profits. Plus, the video game business is prone to lumpy quarters as sales rise and fall on new releases and expansions. Management lowered their Q1 and 2015 guidance.

ATVI just reported its Q1 results on May 6th. Earnings per share fell -15.7% from a year ago to $0.16 but that was actually 9 cents better than expected. Revenues fell again, this time down -8.9%. Management lowered their Q2 guidance but they raised their fiscal 2015 earnings guidance above Wall Street estimates. That was enough to send shares of ATVI higher. A few analysts have commented that ATVI's 2015 guidance is too conservative.

Bobby Kotick, Chief Executive Officer of Activision Blizzard, commented on his company's quarterly results, "...This deepening level of engagement with a widening base of players across our franchises is what drove another successful quarter. We delivered better-than-expected Q1 results, increased our 2015 non-GAAP revenue outlook to $4.425 billion and earnings per share outlook to $1.20. Last quarter, on a non-GAAP basis, we delivered record higher-margin digital revenues of over half a billion dollars a Q1 record on an absolute basis and an all-time high on a percentage basis."

There were a number of headlines about how ATVI's Warcraft MMORPG saw its subscriber numbers fall from 10 million to 7.1 million in the last quarter. Investors don't seem to care. The Warcraft game is a cash cow but it's 11 years old. Investors could be looking forward.

ATVI said their new Destiny sci-fi shooter game and the Blizzard's fantasy card game have more than 50 million registered players (between them) with over $1 billion in sales.

ATVI also has several new titles coming out. They're on the verge of releasing "Heroes of the Storm", which will take on the current category champion "League of Legends" for the MOBA-style video game. More than ten million people have already signed up for the Heroes beta. ATVI has announced the next iteration of their Call of Duty franchise (CoD), which will be "Call of Duty: Black Ops III", which is another major cash-generating franchise. ATVI is also launching a new game called "Overwatch" and they'll release a new version of "Guitar Hero", which had 40 million players at its peak.

Currently shares of ATVI are up three weeks in a row and look a little bit overbought. Broken resistance near $24.00 should be significant support. Tonight I am suggesting a buy-the-dip trigger at $24.25 with a stop loss at $21.85.

Buy-a-dip trigger: $24.15 (intraday trigger, stop 21.85)

BUY the 2016 Jan $25 call (ATVI160115C25)

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

Originally listed on the Watch List: 05/24/15


Dunkin' Brands Group - DNKN - close: 52.47

Comments:
06/07/15: Friday was National Doughnut Day. Every doughnut shop I went to was swamped with customers or closed because they had already sold out of all their doughnuts for the day. Yet this national celebration of the doughnut didn't do much for shares of DNKN. The stock actually created a bearish engulfing candlestick reversal pattern on its weekly chart. If DNKN confirms this pattern we'll drop it. Currently we are waiting for a close above $54.25.

Trade Description: May 31, 2015:
Investors appear to be in the mood for donuts this year. Shares of DNKN are significantly outperforming the broader market with its stock up about +26% year to date versus the S&P 500's +2.3% gain.

The company is in the services sector. According to the company, "Founded in 1950, Dunkin' Donuts is America's favorite all-day, everyday stop for coffee and baked goods. Dunkin' Donuts is a market leader in the hot regular/decaf/flavored coffee, iced coffee, donut, bagel and muffin categories. Dunkin' Donuts has earned the No. 1 ranking for customer loyalty in the coffee category by Brand Keys for nine years running. The company has more than 11,300 restaurants in 37 countries worldwide. Based in Canton, Mass., Dunkin' Donuts is part of the Dunkin' Brands Group, Inc. (DNKN) family of companies."

DNKN also owns the Baskin Robbins franchise, which has more than 7,500 retail locations in almost 50 countries.

The company seems to be undergoing a turnaround in its earnings results. Back in December shares plunged on an earnings warning when management lowered their 2015 guidance. When they reported their Q4 results in February they missed by a penny with revenues in-line (+5.5%). Their donut store comps were +1.4% but their ice cream store comps were +9.3%. Management raised their dividend +15% and announced a $700 million stock buy back program.

Results improved significantly in the first quarter of 2015. Analysts were expecting a profit of $0.35 a share on revenues of $180.7 million. DNKN reported earnings of $0.40 a share, which is a +21% improvement from a year ago. Margins improved 310 basis points to 47.1%. Their revenues rose +8.1% to $185.9 million, above estimates. Their donut store comps improved to +2.7% while their ice cream store comps hit +8.0%. Management raised their 2015 earnings estimates above Wall Street's consensus.

The stock soared to new all-time highs following this earnings report in late April. Since then shares have seen a correction but investors have bought the dip. Analysts have begun to raise their price targets. The point & figure chart is very bullish with a long-term target of $78.00. Currently shares of DNKN are hovering below resistance in the $54.00 area. Tonight I am suggesting we wait for DNKN to close above $54.25 and buy calls the next morning.

Breakout trigger: Wait for a close above $54.25
Then buy calls the next morning with a stop at $49.65

BUY the 2016 Jan $60 call (DNKN160115C60)

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

Originally listed on the Watch List: 05/31/15