New Watch List Entries

DHR - Danaher Corp.

GT - Goodyear Tire & Rubber Co.


Active Watch List Candidates

CELG - Celgene Corp.

STZ - Constellation Brands Inc.

V - Visa Inc.


Dropped Watch List Entries

AMBA graduated to our play list.



New Watch List Candidates:

Danaher Corp. - DHR - close: 90.92

Company Info

DHR is outperforming most of its peers in the industrial sector with a +6% gain in 2015. The stock is only a couple of points away from a new all-time high. The company is undergoing significant changes that should propel the stock higher over the next 12 months.

Officially DHR is in the industrial goods sector but that will eventually change. According to the company, "Danaher is a global science and technology innovator committed to helping its customers solve complex challenges and improving quality of life around the world. Its family of world class brands have leadership positions in some of the most demanding and attractive industries, including health care, environmental and industrial. The Company's globally diverse team of 71,000 associates is united by a common culture and operating system, the Danaher Business System. In 2014, Danaher generated $19.9 billion in revenue and its market capitalization exceeded $60 billion."

That's the company today. By the end of 2016 the company is splitting itself in two. First we have to discuss DHR's acquisition of Pall Corp. (PLL). On May 13th DHR announced they were acquiring PLL for $13.6 billion in cash. The company claims this will save $300 million in synergies over the next five years. DHR is also buying a company with very strong margins (above 50%). Critics claim that DHR is paying too much for PLL but Wall Street seems mostly pleased with the news and some analysts are calling it a "transformational" deal.

Speaking of transformations, at the same time DHR announced they were splitting in two. The new Danaher will be a "A science and technology growth company united by common business model characteristics, including significant recurring revenue and an attractive margin profile. The company will retain the Danaher name. Collectively, its businesses generated approximately $16.5 billion in revenues (including Pall Corporation, which Danaher has signed an agreement to acquire), in their most recently completed fiscal years."

The spin-off company will be called "NewCo". This will be a "diversified industrial growth company with market leading positions, strong brand names and tremendous free cash flow generation. NewCo's businesses generated approximately $6.0 billion in revenues in the most recently completed fiscal year."

You can read more details about the spin-off here on the DHR website.

Wall Street loves M&A and they love spin-offs. Any plan that might unlock shareholder value is normally applauded. Shares of DHR could see a run up into the event, which should happen by the end of 2016.

Technically the stock has been showing relative strength and holding up well considering the market's recent volatility. Tonight I am suggesting a buy-the-dip trigger to buy the 2017 calls if DHR trades down to $88.50. We'll start this play with a stop loss at $84.50. This is a long-term trade but we'll plan on exiting the calls before DHR actually splits into two companies. I am not setting a target tonight but I noticed the point & figure chart is forecasting a $121.00 target.

FYI: If DHR does not correct any deeper than investors might want to consider buying calls on a breakout past $93.00 as an alternative entry.

Buy-the-dip trigger at $88.50, start with a stop at $84.50

BUY the 2017 Jan $100 call (DHR170120C100) current ask $6.20

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

Chart of DHR:

Originally listed on the Watch List: 08/16/15


The Goodyear Tire & Rubber Company - GT - close: 32.31

Company Info

GT has been rolling higher this year. The stock is up +13% year to date versus an S&P 500 that's only up about +1.6%. Shares are on the verge of breaking out to new multi-year highs.

If you're not familiar with GT they are in the consumer goods sector. According to the company, "Goodyear is one of the world's largest tire companies. It employs about 67,000 people and manufactures its products in 50 facilities in 22 countries around the world. Its two Innovation Centers in Akron, Ohio and Colmar-Berg, Luxembourg strive to develop state-of-the-art products and services that set the technology and performance standard for the industry."

The company has been delivering on the earnings front and has beaten Wall Street's bottom line earnings estimates five quarters in a row. Their most recent report was July 29th when GT announced their Q2 results. Earnings were $0.84 per share, which beat estimates by seven cents. Revenues were down -10% from a year ago to $4.17 billion but that actually came in better than expected. The drop in revenue is virtually all due to unfavorable currency headwinds.

With the exception of currency issues, GT seems to have a lot of tailwinds. Management said they had an exceptional quarter with their North American business, which saw a +54% surge in income. During the conference call GT management said they are seeing multiple factors that are bullish for their business. First is the healthy automobile sector. U.S. auto makers are on track to sell more than 17 million vehicles this year. At the same time American consumers seem to be driving more with more miles driven in the last several reporting periods. That's thanks to generally low unemployment. More miles driven means more wear and tear on tires, which will need to be replaced sooner. Plus, GT is benefitting from lower commodity costs, which boosts their margins.

Investors seem to have caught on. GT may not be in the fast lane but they're definitely cruising. Traders took advantage of the June-July correction. Shares of GT just produced a bullish double bottom near support in the last two months. Now the stock is on the verge of breaking out past its May-June highs. The point & figure chart is bullish and forecasting a long-term target at $48.00.

Tonight we are suggesting investors wait for GT to close above $33.00 and then buy calls the next day with a stop loss at $29.45.

Breakout trigger: Wait for a close above $33.00, then buy calls the next morning with a stop loss at $29.45

BUY the 2017 Jan $35 call (GT170120C35) current ask $4.00

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

Chart of GT:

Originally listed on the Watch List: 08/16/15


Active Watch List Candidates:



Celgene Corp. - CELG - close: 129.24

Comments:
08/16/15: Biotech stocks underperformed last week. The group is down three of the last four weeks. CELG performed better than its peers by managing a minor gain for the week. I am not giving up on buy-the-dip strategy for CELG so we will wait. Our suggested entry point is a dip at $121.00.

Trade Description: August 9, 2015:
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)

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

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


Constellation Brands Inc. - STZ - close: 128.01

Comments:
08/16/15: STZ displayed significant relative strength last week with a surge to new highs. Tonight I am adjusting our buy-the-dip trigger on STZ from $122.00 to $123.50.

Trade Description: August 9, 2015:
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 $123.50, start with a stop loss at $117.75

BUY the 2017 Jan $130 call (STZ170120C130)

08/16/15 adjust the buy-the-dip trigger from $122.00 to $123.50
Option Format: symbol-year-month-day-call-strike

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


Visa Inc. - V - close: 74.22

Comments:
08/16/15: Shares of Visa closed virtually flat for the week after bouncing off its Wednesday lows. It's worth noting that the bounce has stalled at its 10-dma and two-week trend of lower highs. The correction may not be over yet. I was surprised Visa didn't see a bigger boost when JPMorgan upgraded their price target on V to $85.00.

Tonight we are leaving our entry strategy unchanged. Wait for a dip and buy calls at $70.50.

Trade Description: August 9, 2015:
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)

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

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