New Watch List Entries

HD - The Home Depot, Inc.

PEP - Pepsico, Inc.


Active Watch List Candidates

AAPL - Apple Inc.

K - Kellogg Co.

OA - Orbital ATK Inc.


Dropped Watch List Entries

CRM, DIS, HSY, and LUV graduated to our active play list.

ADBE has been moved to the new play section.



New Watch List Candidates:

The Home Depot, Inc. - HD - close: 122.74

Company Info

Home Depot's stock has outperformed the broader market in spite of the fact shares were stuck in a trading range for the last seven months. HD broke through significant resistance at the $120.00 level several days ago.

The big surge in the U.S. housing market this year has been a bullish tailwind for HD's business. The home remodeling and repair industry and consumer spending in this category is expected to hit levels not seen since before the "Great Recession" in 2008-2009. HD is poised to reap the benefits.

If you're not familiar with the company, HD is in the services sector. According to the company, "The Home Depot is the world's largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. In fiscal 2014, The Home Depot had sales of $83.2 billion and earnings of $6.3 billion. The Company employs more than 370,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index."

HD has been showing steady earnings and revenue growth. The company has beaten Wall Street estimates on both the top and bottom line the last three quarters in a row. Management has also raised their guidance the last three quarters in a row.

Their most recent report was August 18th. HD announced its Q2 earnings were up +14% from a year ago to $1.71 per share. Revenues were up +4.3% to $24.83 billion. Comparable store sales came in better than expected with a +4.2% improvement.

Wall Street analysts seem bullish with firms like Deutsche Bank and UBS recently raising their price targets on HD. The recent breakout past $120 generated a new buy signal on the point & figure chart, which is now forecasting at $143 target.

The all-time high for HD was set in August this year at $123.80. Tonight I am suggesting investors wait for HD to close above $124.00 and then buy calls the next morning.

FYI: HD is scheduled to report earnings on November 17th.

Breakout trigger: Wait for HD to close above $124.00
Then buy calls the next morning (no initial stop loss).

BUY the 2017 Jan $140 call (HD170120C140)

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

Chart of HD:

Originally listed on the Watch List: 10/18/15


Pepisco, Inc. - PEP - close: 99.70

Company Info

PEP is a consumer goods giant with a global presence. According to the company, "PepsiCo products are enjoyed by consumers one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $66 billion in net revenue in 2014, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 22 brands that generate more than $1 billion each in estimated annual retail sales."

The stock has been stuck consolidating sideways in the $90-100 trading range for almost a year. It looks like that consolidation may be nearing its end.

Earnings have been better than expected. I looked at the last three quarters. PEP has managed to beat Wall Street's estimates on both the top and the bottom line. Revenues have declined year over year but that is due to negative foreign currency exchange rates that is shaving off about -10% from earnings and revenues. The company says their gross margins and operating margins continue to improve.

The U.S. market is up the last three weeks in a row but it's relatively flat for the year. Investors are confused with all the different global cross currents, exchange fluctuations, central bank moves, and more. Fund managers are probably tempted to park cash in huge, liquid big cap like PEP and get paid 2.8% a year with dividends. Why not? PEP is still growing with solid single-digit growth.

Technically PEP looks poised to breakout past major resistance in the $100 area. The point & figure chart is already bullish and forecasting at $120.00 target. Tonight I am suggesting we wait for PEP to close above $101.00 and then buy calls the next morning. We will start this trade with a stop loss at $89.90.

Breakout trigger: Wait for PEP to close above $101.00
Then buy calls the next morning (stop @ 89.90).

BUY the 2017 Jan $110 call (PEP170120C110)

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

Chart of PEP:

Originally listed on the Watch List: 10/18/15


Active Watch List Candidates:



Apple Inc - AAPL - close: 112.12

Comments:
10/18/15: AAPL continues to underperform the broader market. Investors are likely sitting on the sidelines waiting for the company's Q3 results. AAPL reports on October 27th. If they disappoint the stock could see a very sharp decline. That's why we are keeping our buy-the-dip entry trigger at $101.00.

Trade Description: September 13, 2015:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $651 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

Earnings growth has been significant as consumer snapped up the iPhone 6 and 6+. The company expects the iPhone to be a major driver as only 20-25% of their user base has upgraded. This past week AAPL held their annual event in September and introduced several upgrades.

AAPL has unveiled new stuff for their smartwatch, they introduced the iPhone 6s and 6s+, they introduced a new, larger iPad that's being called the iPad Pro. The company also introduced a new Apple TV system. They also unveiled a new leasing program for their iPhones.

Normally consumers buy iPhones through their wireless carrier. This past week AAPL announced a deal where consumers could lease their phone from Apple for $32.00 a month and get a free upgrade every year. For the iPhone fanatics it's probably a great deal.

The 2015 holiday shopping season will be here sooner than you expect and AAPL stands to benefit from their parade of new products announced last week. Yet I don't want to buy AAPL at current levels. Odds are good that stocks could sell-off following the FOMC decision this coming Thursday. We want to take advantage of any temporary weakness in shares of AAPL.

Tonight I am listing a buy-the-dip trigger at $101.00. No initial stop loss but investors might want to consider a stop under the August 24th low ($92.00).

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $101.00
No stop, initially

BUY the 2017 Jan $120 call (AAPL170120C120)

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

Originally listed on the Watch List: 09/13/15


Kellogg Co. - K - close: $69.79

Comments:
10/18/15: Investors bought the dip in K last week near short-term support. The stock is on the verge of breaking out past major resistance near $70.00. Odds are good we will see K meet our entry point requirement soon with a close above $70.25.

FYI: K is scheduled to report earnings on November 3rd.

Trade Description: October 11, 2015:
Shares of this giant consumer goods sector company are poised for a massive breakout higher.

If you are not familiar with K, here's a brief description: "At Kellogg Company (NYSE:K), we are driven to enrich and delight the world through foods and brands that matter. With 2014 sales of approximately $14.6 billion, Kellogg is the world's leading cereal company; second largest producer of cookies and crackers; a leading producer of savory snacks; and a leading North American frozen foods company. Every day, our well-loved brands nourish families so they can flourish and thrive. These brands include Kellogg's®, Keebler®, Special K®, Pringles®, Kellogg's Frosted Flakes®, Pop-Tarts®, Kellogg's Corn Flakes®, Rice Krispies®, Kashi®, Cheez-It®, Eggo®, Coco Pops®, Mini-Wheats®, and many more. To learn more about our responsible business leadership, foods that delight and how we strive to make a difference in our communities around the world."

At first glance you would think K's products are on the wrong side of the growing health food trend in the U.S. You would probably be correct. Consumption of breakfast cereals in the United States has been falling for the last five years. However, K is seeing impressive growth overseas, especially in emerging markets.

The downside to all this growth overseas is foreign currency headwinds. Negative FX trends have crimped K's revenue growth all year long. The company expects bearish foreign currency trends to shave off 9 cents a share in 2016 earnings. Fortunately it appears that investors are looking past the currency trouble.

The stock has been consolidating beneath major resistance at the $70.00 level for months. A breakout could spark the next major leg higher. Dividend investors should be drawn to K for its 2.8% yield. The point & figure chart is bullish and forecasting a long-term $92.00 target.

Tonight I am suggesting investors wait for K to close in the $70.25-71.75 range and buy calls the next morning with a stop loss at $64.75.

FYI: K's earnings are coming up on November 3rd. Cautious investors may want to wait and see how the market reacts to K's results before initiating new positions.

Investors should also note that the spreads on the 2017 calls are relatively wide. We may have to hold this trade several months before the spreads contract.

Breakout trigger: Wait for a close in the $70.25-71.75 range.
Then buy calls the next morning with a stop loss at $64.75

BUY the 2017 Jan $75 call (K170120C75)

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

Originally listed on the Watch List: 10/11/15


Orbital ATK, Inc. - OA - close: $78.00

Comments:
10/18/15: OA has underperformed the market the last couple of days. The good news is that the dip has been very mild. We are still waiting for a breakout to new highs.

Tonight I am adjusting our option strike from the 2016 Februarys to the 2016 May calls.

Currently our suggested entry point is a close in the $81.00-83.00 range.

Trade Description: September 8, 2015:
If you read the news it seems like the world is an increasingly dangerous place to live. Defense companies like OA are seeing their business strengthen.

OA is part of the industrial goods sector. According to the company, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 18 states across the United States and in several international locations."

Their most recent earnings report was August 6th. OA reported its Q2 results of $1.28 per share. That is +16% improvement from a year ago and 26 cents above estimates. Revenues were up +7% to $1.13 billion, also better than expected.

David W. Thompson, Orbital ATK's President and Chief Executive Officer, commented on his company's results, "Orbital ATK reported excellent second quarter financial results characterized by better-than-expected revenue and very strong earnings. These results benefited from outstanding new orders, as well as continued solid operational execution on our major programs. As a result, we are increasing the company's outlook for sales and earnings this year and expanding our previously-announced capital deployment program as well.

Management raised their full year 2016 earnings to $4.60-4.80 a share and forecasted revenues in the $4.425-4.50 billion range. This is above Wall Street estimates of $4.51 a share on revenues of $4.41 billion.

Argus upgraded the stock and boosted their OA price target to $95.00. A Goldman Sachs analyst also upgraded the stock. Goldman said OA has "multiple unique exposures to drive faster than average 3-year growth."

The sell-off during the market's crash on August 24th was ridiculous. OA plunged from $75 to $56 in the blink of an eye and has since recovered. Moves like that are more than a little unnerving. Investors may want to use small positions to limit risk. The August peak was about $81.00. I am suggesting we wait for OA to close in the $81.00-83.00 range and then buy calls the next morning. No initial stop on this trade.

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. We are choosing the 2016 May calls.

Breakout trigger: Wait for OA to close in the $81.00-83.00 range
Then buy calls.

BUY the 2016 MAY $85 call (OA160520C85)

10/18/15 Adjust the option strike from 2016 Feb. $85 call to the 2016 May $85 call
Option Format: symbol-year-month-day-call-strike

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