New Watch List Entries

AMBA - Ambarella Inc.

CELG - Celgene Corp.

STZ - Constellation Brands Inc.

V - Visa Inc.


Active Watch List Candidates

Currently there are no active watch list candidates.

Look for our new candidates this week.


Dropped Watch List Entries

CVS, DIS, and MSFT all graduated to our play list.

CLX rallied too fast for us and did not qualify as an active play. Tonight we are removing CLX (and putting it back on our radar screen).



New Watch List Candidates:

Ambarella, Inc. - AMBA - close: 114.98

Company Info

One of the strongest stock performances this year belongs to Ambarella (AMBA). After a -10% correction from its recent highs the stock is still up +126% year to date. Investors believe the future is bright for this video-chip maker.

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. When GPRO held its IPO last year (2014) it drew attention to AMBA who makes the chips for the video processing in GPRO's cameras. Shares of GPRO saw a huge decline 2014 highs but shares of AMBA have continued to rally.

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 six quarters in a row. Their Q4 results came out 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.

The company beat estimates again when they reported their Q1 (2016) results on June 2nd. AMBA's earnings were $0.71 per share, 13 cents above estimates. Revenues soared +73.6% to $71 million, also better than expected. Gross margins improved 210 basis points to 64.8%.

The stock seemed bullet proof until a negative analyst report surfaced in mid June claiming that AMBA's valuations are ridiculous. The analyst suggested their 120-month (10-year) price target for AMBA was $60. At the time this report came out AMBA was trading near $127. The stock collapsed to $93.00 in two days but since then traders have been buying the dips.

Valuations on high-growth names almost always look ridiculous, especially when there is so much money looking for a winner in the stock market. We think AMBA continues higher but I am labeling this an aggressive, higher-risk trade.

Shares of AMBA have been hovering in the $110-115 zone the last few days. It looks like $110 is new support. Tonight I am suggesting we wait for AMBA to close above $118.00 and then buy calls the next morning with a stop loss at $109.00. The $129-130 area is resistance but we're expecting a breakout higher.

Please note AMBA will likely report earnings in the first half of September. If they miss or guide lower the stock could get crushed. More conservative traders may want to wait until after we see the reaction to earnings before considering new positions here.

Wait for AMBA to close above $118.00
Then buy calls the next morning with a stop at $109.00

BUY the 2016 Jan $130 call (AMBA160115C130) current ask $11.60

-This is an aggressive, higher-risk trade-
Option Format: symbol-year-month-day-call-strike

Chart of AMBA:

Originally listed on the Watch List: 08/09/15


Celgene Corp. - CELG - close: 128.60

Company Info

Love them or hate them the biotech stocks get a lot of attention. Investors are always looking for the next big thing. When the right biotech story comes along these stocks can sprint higher. Unfortunately a lot of the smaller biotech stocks are binary trades. You either win big or lose big. There is no middle ground. Instead of rolling the dice on a smaller biotech you could choose an established company with real revenues like CELG.

According to their press release, "Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation."

What makes CELG so attractive is the company's pipeline. Developing drugs is an expensive business. A lot of older firms are buying other companies for their pipeline. Meanwhile CELG is developing a very strong pipeline. You can view the company's current progress on this webpage.

Earnings results have generally been strong although there was a hiccup earlier this year. Looking at CELG's recent earnings history they beat estimates on both the top and bottom line last October and management guided higher. Then in January 2015 CELG issued a positive earnings warning and guided higher two weeks before their next report. When they did report in late January CELG still beat estimates on the bottom line.

On April 30th CELG beat estimates again but their revenue number came in below estimates. That's because analysts were expecting revenues to be better than the +20% growth CELG reported with sales of $2.08 billion. Management also guided lower and the stock plunged toward technical support at its 200-dma. That proved to be a buying opportunity as CELG rallied off its moving average a few days later.

In mid July CELG issued another positive earnings surprise two weeks before its scheduled announcement. The stock soared (gapped higher) on this news. When they reported their Q2 results on July 23rd CELG still beat estimates by two cents. Revenues were up +21.6% to $2.28 billion.

According to Investors.com, CELG's long-term forecasts suggest sales and profits will grow at strong double-digit percentages through 2019. According to analyst firm Piper Jaffray, CELG is "positioned to be the next major mover among the large-cap biotech stocks." Out of seventeen analysts, the median price target on CELG is $155.00. Currently the highest estimate is $190. The point & figure chart is forecasting a long-term target of $201.00.

This past week traders were selling biotech stocks. CELG followed them lower and is now more than $10.00 off its closing high. I suspect this correction continues and we want to be ready to take advantage of the pullback.

Broken support near $120-121 should be support. Tonight we are suggesting an intraday, buy-the-dip trigger at $121.00. If triggered we will start with a stop loss at $114.75.

Buy-the-dip trigger at $121.00, start with a stop at $114.75

BUY the 2016 Jan $130 call (CELG160115C130) current ask $10.45

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

Chart of CELG:

Originally listed on the Watch List: 08/09/15


Constellation Brands Inc. - STZ - close: 123.53

Company Info

We recently had STZ on our watch list but the trade never opened. Shares were stuck in a trading range from $115 to $122. STZ has finally broken out and we are adding it back to the watch list.

Here's my previous play description:
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).

STZ's most recent report was July 1st. Wall Street was looking for a profit of $1.24 per share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.26 per share. Sales were up +6.9% to $1.63 billion. If you account for currency headwinds their revenues were up +8%. Management raised their fiscal year 2016 earnings guidance from $4.70-4.90 to $4.80-5.00.

After languishing near the bottom half of its trading range for the majority of July shares of STZ finally resumed its long-term up trend. The stock has recently broken out past major resistance near $122.00. Tonight I am suggesting a buy-the-dip trigger at $122.00 since broken resistance should be new support.

Buy-the-dip trigger at $122.00, start with a stop loss at $117.75

BUY the 2017 Jan $130 call (STZ170120C130) current ask $10.30

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

Chart of STZ:

Originally listed on the Watch List: 08/09/15


Visa Inc. - V - close: 74.21

Company Info

The world is moving closer and closer to a cash-less society. Big payment processing companies like Visa and MasterCard will benefit from this transition.

According to the company, "Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products."

It's important to note that V does not extend credit to consumers. There's no credit risk for bad loans here. V makes money on transactions. That business is booming.

On July 23rd V report its Q3 results, which were $0.74 per share. That beat estimates by 16 cents. Revenues were also higher than expected at $3.52 billion, up +11.5%. Management offered strong guidance and upped their EPS estimates into the mid teen percentage range. Long-term V is expected to grow earnings at almost 15%.

One of the big stories to come out of V's recent earnings report was news of a merger brewing. Visa is talking to former subsidiary Visa Europe. Estimates suggest the price target could be in the $15-20 billion range. Wall Street is positive on the deal and Visa expects it would add to earnings in fiscal 2017.

Another reason to be bullish on Visa is the fact that China recently opened its market to foreign companies to participate in clearing domestic bank card transactions. Previously only Chinese companies could do this. Now giants like V and MasterCard can compete in a market valued at more than $6.8 trillion. Considering V's expertise in this field we should expect them to grab a healthy chunk of the market.

Shares of V recently surged to new all-time highs and traded above $76 per share. After four up weeks in a row V posted a loss last week. Technically it produced a bearish engulfing candlestick reversal pattern on its weekly chart. If shares do correct lower we want to take advantage of the pullback. Broken support near $70.00 should be support. Tonight we are suggesting a buy-the-dip trigger at $70.50.

Buy-the-dip Trigger at $70.50, start with a stop at $66.25

BUY the 2017 Jan $80 call (V170120C80) current ask $5.80

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

Chart of V:

Originally listed on the Watch List: 08/09/15


Active Watch List Candidates:



The Clorox Company - CLX - close: 118.21

Comments:
08/09/15: I was expecting CLX to breakout higher but I was not expecting a four-day run from $112 to almost $120.

The speed in which CLX rallied last week was too fast and our trade did not open. The plan was to wait for CLX to close in the $112.75-114.00 range. That never happened. On Monday CLX surged to $115.00 and only started to pullback on Friday.

So our play was not triggered and tonight I'm removing CLX as a candidate. It's probably worth adding CLX back to your radar screen. The $112-113 area should be support so a bounce in this area might be a new bullish entry point.

Trade did not open.

08/09/15 removed from the newsletter, suggested entry was a close in the $112.75-114.00 range.

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