New Watch List Entries

HD - Home Depot Inc.

PPC - Pilgrim's Price

STZ - Constellation Brands


Active Watch List Candidates

DAL - Delta Air Lines

EQR - Equity Residential

GE - General Electric


Dropped Watch List Entries

TRV and UPS both graduated to our active play list.



New Watch List Candidates:

The Home Depot - HD - close: 123.90

Company Info

We just had Home Depot (HD) as a bullish play but last week's market crash sent HD plunging through support. This is an overreaction. Investors were taking profits on HD because shares had done so well in 2015 (a +25% gain). Friday's drop hit our stop loss on HD. If this weakness continues we want to take advantage of it and launch new positions.

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 four quarters in a row. Management has also raised their guidance the last four quarters in a row.

Currently shares of HD are correcting lower. The stock should find significant support near $120 and its 200-dma (currently $118.50). Tonight I am suggesting a buy-the-dip trigger to buy calls at $120.25.

Buy-the-dip Trigger @ $120.25 (initial stop @ 117.45

BUY the 2017 Jan $135 call (HD170120C135)

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

Chart of HD:

Originally listed on the Watch List: 01/10/16


Pilgrim's Pride Corp - PPC - close: 22.91

Company Info

PPC is an aggressive, technical trade. Shares had a terrible 2015 but it looks like all the bad news is priced in.

PPC is in the consumer goods sector. According to the company, "For over six decades, Pilgrim's has produced healthy, high-quality food products that go into some of the world's finest recipes. Working with approximately over 4,000 family farms throughout the U.S. and Mexico, we are dedicated to providing these wholesome, high-quality products at a great value. As the second-largest chicken producer in the world Pilgrim's has the capacity to process more than 34 million birds per week for a total of more than over 7 billion pounds of live chicken annually. With corporate headquarters located in Greeley, Colorado, we have operations in 12 U.S. states as well as in Mexico and Puerto Rico. We are committed to the 35,000 plus team members who work with us to provide products to foodservice, retail and frozen entree customers. The company's primary distribution is through retailers, foodservice distributors and restaurants as well as through the export of chicken products to customers all over the world. Pilgrim's Pride is a part of the JBS USA family. JBS S.A., the world's largest protein company, owns 75.5% of our outstanding common stock."

PPC's most recent earnings report was October 28th. The company delivered their Q3 results and missed estimates. Wall Street was expecting a profit of $0.69 a share on revenues of $2.17 billion. PPC missed both estimates with earnings of $0.58 a share. Revenues fell -6.9% to $2.11 billion.

The industry as a whole has been suffering from the widespread avian flu last year that forced business owners to destroy millions of birds. PPC is also facing serious competition from a handful of competitors. Management is actively seeking ways to reduce their costs and make their business more competitive and their financial results more stable.

It looks like investors might believe the worst is behind it for PPC. Their Q3 earnings came out on October 28th and the stock plunged to new two-year lows on October 29th. That proved to be the low for the year. Investors have since been buying the dips. It is important to note that there is still a large camp of traders who are bearish on PPC. The most recent data listed short interest at 56% of the 59.0 million share float. That much bearishness can work against them. If PPC continues to rally the stock could see a short squeeze.

The intermediate trend is up and the point & figure chart is bullish with a $33 target. PPC managed to ignore the market's sell-off on Thursday and Friday last week. The stock actually broke through resistance on Friday. Tonight I am suggesting small bullish positions if PPC can trade at $23.55. This is an intraday trigger. We will start with a stop loss at $20.65.

Breakout trigger: $23.55 (intraday trigger) small positions to limit risk.

BUY the 2017 Jan $25 call (PPC170120C25) current ask $3.00

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

Chart of PPC:

Originally listed on the Watch List: 01/10/16


Constellation Brands - STZ - close: 147.00

Company Info

New Year's was just a few days ago and many people were thinking hard about their new year's resolutions. For most folks it's a desire to be healthier. Instead of working hard for six-pack abs you may want to just stop by the store for a six pack of whatever STZ is selling. This company appears to be running at full speed and the stock shows it.

STZ is in the consumer goods sector. According to the company, "Constellation Brands 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 7,700 talented employees."

STZ has been killing it on the earnings front. They have beaten earnings the last three quarters in a row. Management has raised their guidance the last three quarters in a row. Their most recent earnings report was last week on January 7th. Analysts were expecting a profit of $1.30 a share on revenues of $1.62 billion. STZ beat estimates with a profit of $1.42 a shares. Revenues were up +6.4% to $1.64 billion. Strong beer sales has helped fuel double-digit shipment increases. The company announced they were building another brewery and raised their guidance again.

This bullish outlook sparked a couple of new price target upgrades ($174 and $185). The stock soared to new highs and broke through key resistance near the $145.00 level. The market's current decline, should it continue, will likely pull STZ back toward $145.00, which should be new support. Tonight I am suggesting a trigger to buy calls on a dip at $145.00. We'll start with a stop loss at $139.45. More conservative investors may want to wait and see if STZ dips closer to the $140-142 area as an alternative entry point.

Buy-the-dip Trigger @ $145.00 (initial stop @ 139.45

BUY the 2017 Jan $165 call (STZ170120C165) current ask $8.80

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

Chart of STZ:

Weekly Chart of STZ:

Originally listed on the Watch List: 01/10/16



Active Watch List Candidates:


Delta Air Lines - DAL - close: 46.61

Comments:
01/10/16: Airline stocks were hit pretty hard last week. The XAL airline index lost -10% and plunged toward its August 2015 lows. DAL fell -8% but did not breakdown below its late November lows nor did it breakdown below its 200-dma. I am optimistic that when the market turns around DAL will outperform.

At the moment our suggested entry point is waiting for a close above $53.00. However, I am open to adjusting our entry trigger lower if DAL stops declining this week. Let's see how shares perform and then re-evaluate our entry strategy.

Trade Description: December 27, 2015:
The XAL airline index is down -13% for 2015. One air line stock outperforming many of its peers is Delta (DAL), which is up +6% year to date and poised to rally into 2016.

DAL is part of the services sector. According to the company, "Delta Air Lines serves more than 170 million customers each year. Delta was named to FORTUNE magazine's top 50 World's Most Admired Companies in addition to being named the most admired airline for the fourth time in five years. Additionally, Delta has ranked No.1 in the Business Travel News Annual Airline survey for four consecutive years, a first for any airline. With an industry-leading global network, Delta and the Delta Connection carriers offer service to 327 destinations in 57 countries on six continents. Headquartered in Atlanta, Delta employs nearly 80,000 employees worldwide and operates a mainline fleet of more than 800 aircraft."

One of the biggest stories of 2015 was the drop in oil prices. This has been a major tailwind for airline profits as fuel is a huge expense for the industry. Yet instead of soaring on oil's weakness the airline stocks have struggled because investors were worried the industry would overbuild capacity, which would create too much supply and bring down air fares. Overall the industry has managed to keep capacity relatively in check. The last several weeks have seen some lowered guidance for PRASM from several airlines. PRASM is an industry metric for Passenger Revenue per Available Seat Mile. DAL was not immune and lowered its Q4 PRASM several weeks ago. Fortunately the outlook has improved following the company's investor day on December 17th.

A few of the highlights from their investor day include +36% earnings growth forecasted for 2015. They previously guided Q4 PRASM down -2.5% to -4.5%. Now they have adjusted that to -2%. Capacity growth is expected to be relatively flat in 2016. Management said that fuel prices are down about 35% from a year ago. They are forecasting about $3 billion in fuel savings next year. 2016 earnings should grow about +24%.

Following this investor day presentation a couple of analysts raised their price targets. One new target is $62 while another is $68. Currently the point & figure chart is bullish and forecasting at $65 target.

The stock has been showing relative strength, especially against many of its peers. Today DAL is trading near all-time highs and is poised to breakout. Tonight we are suggesting a trigger to buy calls. Wait for DAL to close above $53.00 then buy calls the next morning.

FYI: DAL will likely report earnings in mid to late January

Breakout trigger: Wait for DAL to close above $53.00
Then buy calls the next morning with a stop at $47.75

BUY the 2017 Jan $60 call (DAL170120C60)

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

Originally listed on the Watch List: 12/27/15


Equity Residential - EQR - close: 78.82

Comments:
01/10/16: EQR was holding relatively well until Friday's drop (-2.0%) pushed shares below their 50-dma. Shares are still not that far away from all-time highs. I don't see any changes from last weekend's new watch list candidate description.

Trade Description: January 3, 2016:
The S&P 500 just delivered its worst yearly performance since 2008 with a -0.7% decline for 2015. EQR outperformed the broader market with a +13.5% gain last year. More importantly shares look poised to breakout and hit new highs in 2016.

EQR is part of the financial sector. According to the company, "Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 393 properties consisting of 109,540 apartment units."

Traditional wisdom says that you don't want to own big dividend paying REITs in a rising rate environment. REIT.com published an article challenging this very idea. In the article, titled "Misconceptions about REITs and Interest Rates", the author says, "Asset prices [REITs] often decline as the immediate response to a rise in interest rates because higher interest rates reduce the present value of future cash flows, including bond coupons and stock dividends. If future cash flows are not expected to rise, then increasing interest rates would have a clear negative impact on asset values, including the share prices of stock exchange-listed Equity REITs." They go on to discuss how rising interest rates due to stronger economic growth is good. A growing economy usually means more business spending, hiring new employees, more consumer spending. This leads to better occupancy rates for REITs and rental growth and overall better business fundamentals. You can read more about it here .

Barron's also published an article suggesting REITs are not an automatic sell if rates are rising. You can read it here .

The Federal Reserve did raise rates in December for the first time in almost a decade. It's widely anticipated that they will raise rates three or four more times in 2016. Yet shares of EQR ended 2015 near all-time highs. The threat of rising rates does not seem to scare away REIT investors.

The company's most recent earnings report was October 26th. They beat estimates on both the top and bottom line and raised guidance. Research firm CoreLogic is also bullish on rental demand. They recently published their outlook for 2016 and believe that this year should see about 1.25 million new households formed. Most of them will want to rent even though rents are high with vacancies near 30-year lows.

Technically EQR has been showing strength. Last week the point & figure chart produced a new triple-top breakout buy signal that is forecasting at $107 price target. EQR does have major resistance near $83.00. That's why a breakout past this level would be very bullish. Tonight I am suggesting investors wait for EQR to close above $83.00 and then buy calls the next day with a stop loss at $76.45.

Please note that readers may want to limit their position size to reduce risk. Last August (2015) the stock market experienced a sharp correction lower. The stock market plunged on August 24th. Shares of EQR experienced their own private little flash crash with the stock trading in a $20 range. There is no way to predict if and when something like that might occur again.

*Small positions to limit risk*

Breakout trigger: Wait for EQR to close above $83.00
Then buy calls the next morning with a stop loss at $76.45

BUY the 2017 Jan. $90 call (EQR170120C90)

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

Originally listed on the Watch List: 01/03/16


General Electric - GE - close: 28.45

Comments:
01/10/16: GE looked like it might avoid the worst of the market's sell-off last week with traders buying the dips near $30 on Monday and Wednesday. Then suddenly shares collapsed. As the market accelerated lower on Thursday and Friday so did GE. I am suggesting investor view this short-term dive as an opportunity. The $28.00 level was resistance for a long-term and today it should be strong support. Tonight I am adding a second entry trigger (see below) to buy calls on a dip at $28.00 with a stop loss at $25.85. We will use the 2017 January $30 calls for this entry point.

FYI: GE has earnings coming up on January 22nd.

Trade Description: December 20, 2015:
Tonight we are going old school with our new watch list candidate. GE has been slowly drifting higher since the 2009 market lows. Most of 2014 and 2015 the stock was stuck churning sideways. The situation changed in early October this year after a big activist investor got more involved. It's making a difference. The S&P 500 is down -2.6% year to date. Yet GE is up +20% in 2015 and should continue to outperform in 2016.

GE is in the industrial goods sector. According to the company, "GE is the world's Digital Industrial Company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. GE is organized around a global exchange of knowledge, the 'GE Store,' through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry. www.ge.com"

One of the biggest changes at GE has been the company's long-term transformation to get rid of its financial assets that have been an albatross around its neck for so long. Management is focusing on the company's roots, which is industrial products and innovation.

The company recently held their annual meeting with analysts. The year ahead brings a lot of challenges. The global market is still struggling. The U.S. economy is limping along at +2% growth. Plus the strong dollar hurts sales outside the U.S. In spite of these headwinds GE's CEO Jeffery Immelt is bullish on 2016.

Management is forecasting 2016 earnings to rise +15% on revenue growth of +2% to +4%. That is impressive for such a massive company like GE who does so much business overseas. They also foresee paying investors $8 billion in dividends and spending $18 billion on stock buybacks in 2016. GE provided a long-term 2018 earnings forecast of more than $2.00 per share compared to $1.30-1.20 a share in 2015. They expect to return $55 billion to shareholders in dividends and buybacks between now and 2018. That sort of investor-friendly action could help GE weather any market volatility in 2016.

The stock has been showing relative strength the last few months. The stock held up pretty last week too during the market's volatile moves. GE tagged multi-year highs on Wednesday. The point & figure chart is bearish and forecasting a long-term target at $53.00.

The action in GE's stock over the last few weeks is either a new top or it's a new base. We are betting it is the latter. Tonight I am suggesting investors wait for GE to close above $31.35 and then buy calls the next morning.

Trigger #1: Wait for a close above $31.55
Then buy calls the next morning with a stop at $29.40

BUY the 2017 Jan $35 call (GE170120C35)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trigger #2 Buy-the-dip @ $28.00 (intraday trigger) start with a stop at $25.85

BUY the 2017 Jan $30 call (GE170120C30)

01/10/16 Add a secondary entry trigger -- buy the 2017 Jan. $30 call if GE trades down to $28.00 (start with a stop loss at $25.85)
01/03/16: Adjust entry trigger from a close above $31.35 to $31.55
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 12/20/15