New Watch List Entries

CLX - The Clorox Company

MSFT - Microsoft Corp


Active Watch List Candidates

CVS - CVS Health Corp

DIS - The Walt Disney Co.



New Watch List Candidates:

The Clorox Company - CLX - close: 111.94

Company Info

Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more. Shares have been marching to the beat of their own drum and ignored much of the market's recent volatility. CLX is currently up +7.4% year to date, which beats the S&P 500's +2.2% gain.

CLX is in the consumer goods sector. According to the company, "The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2014 sales of $5.5 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol cleaners; Liquid Plumr clog removers; Poett home care products; Fresh Step cat litter; Glad bags, wraps and containers; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration products and Burt's Bees natural personal care products. The company also markets brands for professional services, including Clorox Healthcare, HealthLink, Aplicare and Dispatch infection control products for the healthcare industry. More than 80 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories."

Earnings have been pretty strong when you consider the negative impact of currency fluctuations on a big multi-national like CLX. On February 4th CLX announced its Q2 report and beat Wall Street estimates on both the top and bottom line. Management raised their 2015 guidance and their revenue guidance.

Their Q3 report, on May 1st, was a little bit softer. Earnings of $1.08 per share missed estimates by 2 cents. Revenues were up +2.6% to $1.4 billion but that was above expectations. Management raised their outlook again for their full year 2015 guidance.

I suspect CLX will report healthy earnings again on August 3rd. Results come out before the opening bell. Analysts are expecting a profit of $1.37 per share.

The global economy seems to be slowing down but consumers will continue to buy consumer goods products from the likes of CLX. On top of that CLX has a decent dividend yield (currently 2.8%), which should keep it attractive to investors. Tonight I am suggesting we wait for shares of CLX to in the $112.75-114.00 range and buy calls the next morning with an initial stop loss at $105.75. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for CLX to close in the $112.75-114.00 range
Then buy calls the next morning.

BUY the 2017 Jan $120 call (CLX170120C120) current ask $5.30

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

Chart of CLX:

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


Microsoft Corp. - MSFT - close: 46.70

Company Info

Microsoft is a technology titan. They were founded in 1975. Today they have grown into a behemoth in multiple industries.

A few of MSFT's businesses include: computer operating system software, Microsoft Office, Windows Phone operating system, Xbox gaming business, Xbox live subscriptions, Commercial software business includes Windows Server, Microsoft SQL server, Visual Studio, and more. They also own Skype. The company has jumped headfirst into cloud computing

This focus on cloud has changed the way MSFT now describes itself. According to the company, "Microsoft is the leading platform and productivity company for the mobile-first, cloud-first world, and its mission is to empower every person and every organization on the planet to achieve more."

The company has been getting a lot of press lately for its Windows 10 launch. The software went live on July 29th. MSFT is offering it for free to consumers who have Windows 7 or 8. In the first 24 hours over 14 million copies were downloaded. Reviews of the new operating system have been positive, many claiming it is a major upgrade from Windows 8.

Barron's recently published a bullish article on MSFT. The author suggested that MSFT is moving toward a subscription model. Adobe Systems (ADBE) has seen huge success moving from an upfront license fee for their software to a monthly subscription model. MSFT appears to be moving more and more toward this model. Although as I mentioned earlier you can download an upgrade to Windows 10 for free (currently available in 190 countries). The Barron's article also suggested that MSFT is cheap with a 2.7% dividend yield and trading at 16x trailing free cash flow vs. the S&P 500 average of 20x free cash flow.

MSFT's most recent earnings report was July 21st. It was the company's fiscal Q4 report. Earnings of $0.62 per share beat estimates of $0.57. Revenues were down -5% to $22.18 billion, but that was still above estimates. Currency headwinds were a big negative last quarter. Highlight was its commercial cloud computing revenues, which surged +88% (almost 100% if you account for currency headwinds).

MSFT management guided lower, which would normally be the kiss of death for the stock price. However, the reaction to their lowered guidance was minor. Shares of MSFT a couple of points and found support. That's in spite of a rough week for the market two weeks ago. Now investors are buying the dip and shares appear to have produced a tradable bottom. The point & figure chart is still bullish and forecasting at $67.00 target.

Tonight I am suggesting we buy calls on MSFT if the stock can close in the $47.50-48.50 range. Wait for the stock to close in this window and then buy calls the next morning. This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for MSFT to close in the $47.50-48.50 range
Then buy calls the next morning with a stop loss at $43.75.

BUY the 2017 Jan $50 call (MSFT170120C50) current ask $3.10

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

Chart of MSFT:

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


Active Watch List Candidates:


CVS Health - CVS - close: 112.47

Comments:
08/02/15: The rally continues for shares of CVS. The stock is up four weeks in a row and up seven out of the last eight weeks. I'm expecting shares to see some profit taking after the company reports earnings on August 4th.

Currently our buy-the-dip trigger is $107.00. If not triggered by next weekend we'll re-evaluate our entry point strategy.

Trade Description: July 19, 2015:
Healthcare stocks have been strong performers this year. CVS is no exception with the stock up +14% year to date.

According to the company, "CVS Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, nearly 1,000 walk-in medical clinics, a leading pharmacy benefits manager with more than 70 million plan members, and expanding specialty pharmacy services, the company enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, delivers better health outcomes and lowers overall health care costs."

Their most recent earnings report was May 1st. CVS announced its Q1 results were $1.14 per share. That beat estimates by six cents. Revenues were up +11% to $36.33 billion, also above estimates. CVS did lower their Q2 guidance but left their 2015 forecast unchanged.

Wall Street loves a deal and CVS has been busy making deals. On May 21st the company announced they were buying Omnicare (OCR) for $12.7 billion. OCR is a pharmacy benefits provider to seniors citizens. This deal is expected to close by the end of 2015. CVS believes OCR will add 20 cents in earnings to their fiscal 2016. CVS CEO Larry Merlo commented on the deal, "The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel. It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients."

CVS didn't stop there. On June 15th they announced a deal to buy all of the pharmacies inside Target stores (TGT). Here's an excerpt from the company's press release explaining the Target pharmacy deal:

CVS Health to acquire Target's pharmacy and clinic businesses for approximately $1.9 billion. Through this agreement, CVS Health will acquire Target's more than 1,660 pharmacies across 47 states and operate them through a store-within-a-store format, branded as CVS/pharmacy. In addition, a CVS/pharmacy will be included in all new Target stores that offer pharmacy services. Target's nearly 80 clinic locations will be rebranded as MinuteClinic, and CVS Health will open up to 20 new clinics in Target stores within three years of the close of the transaction. The new clinics will be part of CVS/minuteclinic's plan to operate 1,500 clinics by 2017. In addition, CVS Health and Target plan to develop five to 10 small, flexible format stores over a two-year period following the deal close, which will each be branded as TargetExpress and include a CVS/pharmacy.
Wall Street also reacted positively to the Target pharmacy news.

Rival pharmacy operator WBA reported earnings on July 9th that beat estimates by 15 cents and WBA raised their guidance. That should bode well for CVS who reports earnings on August 4th.

Shares of CVS are trading at all-time highs near $110. We don't want to chase it here. Tonight I am listing a buy-the-dip entry trigger to jump in on a pullback. Prior to the July rally the June high was $106.88. I'm suggesting a buy-the-dip trigger at $107.00.

Buy-a-dip trigger: $107.00, start with a stop loss at $103.40.

BUY the 2016 Jan $115 call (CVS160115C115)

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

Originally listed on the Watch List: 07/19/15


The Walt Disney Co. - DIS - close: 120.00

Comments:
08/02/15: DIS also kept its rally alive with another weekly gain. The stock has been challenging resistance at the $120.00 level and managed to close at this level on Friday. The stock looks very overbought and I expect shares to see some profit taking after they report earnings on August 4th. Currently our buy-the-dip is $113.55.

Trade Description: June 28, 2015:
Scrooge McDuck isn't the only one with a wealth of riches these days. Long-term investors in DIS have been rewarded with big gains in recent years. From Mickey Mouse to the thousands of characters owned by Marvel to Pixar, everything DIS touches has turned to gold lately.

Disney is an American icon. The company is over 90 years old. They have grown into a massive content generating giant. Today DIS runs five business segments. Their media networks include broadcast, cable, radio, publishing, and digital businesses headlined by their Disney/ABC television group and ESPN Inc. DIS' parks and resort business includes Disneyland, Disneyworld, plus theme parks in Tokyo, Paris, Hong Kong, Shanghai, and a cruise line.

The company's products division licenses the company's horde of names, characters, and intellectual property to a wide range of products. They've also jumped into the online world with their Disney Interactive division. Last but not least is the Walt Disney Studios segment. Disney started making movies 90 years ago. Today their studio business includes Disney animation, Pixar Animation, Disneynature, Disney Studios Motion Pictures, Disney music group, Touchstone Pictures, and Marvel Studios.

Their movie business has been a money maker over the years with huge hits like the Pirates of the Caribbean franchise, Tangled, Wreck-it Ralph. In 2013 they released the animated film "Frozen", which has turned into the largest grossing animated movie of all time. Pixar has a stable of successful movies that have grossed almost $9 billion. DIS is also mining gold in Marvel Entertainment's library of over 8,000 characters of comic book history. Marvel had two big hits in 2014 Captain America: Winter Soldier and Guardians of the Galaxy. Their 2015 Avengers: Age of Ultron was also a big winner at the box office grossing more than $1.3 billion worldwide. Of course not every Disney movie crushes it. Their recent Tomorrowland was a big disappointment and they could lose more than $100 million on the film.

Back in 2012 Disney purchased Lucasfilm and all the Star Wars properties from George Lucas for $4 billion. The company is busy filming the next three episodes of the Star Wars franchise. The next Star Wars film it titled "The Force Awakens." It will be episode seven in the franchise. The movie doesn't hit theaters until December 2015 but analysts are already predicting that "The Force Awakens" will generate $1.2 billion at the global box office.

DIS management loves movie franchises because they can fuel years of sequels, park rides, and merchandise. The approach seems to be working. Revenues and net income have hit all-time highs for five consecutive quarters. Their 2015 Q1 results saw earnings per share up +23% to $1.27. Their Q2 results saw earnings grow +14% to $1.23 per share. Their domestic theme parks showed a strong surge in both attendance and in customer spending. Analysts are forecasting DIS earnings to grow +17% this year.

The recent success of movie "Jurassic World", which was produced by Universal (not a Disney company), has generated even more excitement for DIS' upcoming Star Wars films. Jurassic World has broken all sorts of records and was the fastest movie to reach $1 billion in global box office sales. This has analysts expecting even bigger numbers from Star Wars. The next Star Wars film: "The Force Awakens" (episode seven), doesn't hit theaters until December 2015.

Morgan Stanley analyst Benjamin Swinburne is forecasting "Force Awakens" to do almost $2 billion in box office sales. This could boost DIS' bottom line by more than $1 billion. Plus the merchandising associated with Star Wars will bring a bountiful harvest for DIS too. Consumers spend close to $3 billion a year on licensed toys, clothing, and similar merchandise. The Star Wars movies will rake in the money in this category. DIS plans to release a Star Wars movie every year between now and 2020 (six more movies).

The stock surged to new all-time highs back in early May after its Q2 earnings report. Shares followed that rally with a six-week consolidation allowing DIS to digest its gains. A couple of weeks ago DIS started to rally again and broke through major resistance in the $112.00 area. Today the stock is at all-time highs.

Credit Suisse recently upped their price target to $130. Meanwhile the point & figure chart is bullish and forecasting at long-term target of $160.00.

We want to be ready to take advantage of weakness in DIS due to any broader market sell-off. Just because stocks might plunge on the Greece debt story doesn't mean DIS' business is going to change. Any dip near support should be a buying opportunity. Tonight I am suggesting a buy-the-dip trigger at $111.00. We'll start with a stop loss at $107.00.

You could definitely play the 2016 calls but tonight I'm listing the 2017s.

Buy-the-Dip trigger @ $113.55 (use a stop at $107.00)

BUY the 2017 Jan $125 call (DIS170120C125)

07/12/15 adjust the trigger to $113.55
07/05/15 move the trigger to $112.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 06/21/15