Editors Note:

We have been patient in not buying the top for the last couple months. With the Fed meeting on the 15th and the return of the debt ceiling crisis, we may get lucky and see stocks pull back slightly.

When markets are in rally mode, call premiums inflate and that is especially true with LEAPS calls. It takes a minimum of a 3% market drop to materially shrink those LEAPS premiums. We have not had a 3% decline in more than three months. We normally get about three per year.

I am still expecting that buying opportunity eventually. Once it appears, we could see a multi-month rally emerge from the other side.

I am adding some stocks that have already suffered some declines and that has further reduced the LEAP premiums.


New Watch List Entry:


COST - Costco - Company Description

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Company description from FinViz.com.

Costco (COST) was a big loser on Friday after they reported earnings of $1.24 compared to estimates for $1.36. Revenue of $29.13 billion rose 6% but missed estimates for $28.85 billion. Same store sales rose 3% but missed estimates for 3.6%.

The company announced it was raising membership fees by $5 to $60 effective June 1st with executive memberships rising by $10 to $120. Costco has about 35 million members with roughly half of them executive members. The 2% maximum reward associated with executive memberships will rise from $750 to $1000 a year. The minor increase in fees is not likely to cause material subscriber flight. Costco members are very loyal. The membership increase will produce another $260 million in annual revenue for Costco with no additional costs.

Earnings June 1st.

Unfortunately, the earnings miss caused an $8 drop in the stock price but it was up $36 since the election so this was minor profit taking. The stock closed at $170 and $167 should be decent support. There is much stronger support at $162 as insurance against a continued decline.

With a COST trade at $167

Buy JAN $175 call, estimated premium $7.50, initial stop loss $160.



ADSK - Autodesk - Company Profile

Autodesk, Inc. operates as a design software and services company worldwide. The company's Architecture, Engineering and Construction segment offers Autodesk Building Design Suites to manage various phases of design and construction; Autodesk Revit products that offer model-based design and documentation systems; Autodesk Infrastructure Design Suites; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution; and AutoCAD Map 3D software for infrastructure planning, design, and management. Its Platform Solutions and Emerging Business segment offers AutoCAD software, a professional design, drafting, detailing, and visualization software; and AutoCAD LT, a professional drafting and detailing software. The company's Manufacturing segment provides Autodesk Product Design Suites for digital prototyping; Autodesk Inventor to go beyond 3D design to digital prototyping; AutoCAD Mechanical software to accelerate the mechanical design process; Autodesk Moldflow, an injection molding simulation software; Autodesk Delcam, a CAD and computer-aided manufacturing software; Autodesk PLM 360, a product lifecycle management application; and Autodesk Fusion 360, a product development environment. Its Media and Entertainment segment offers Autodesk Maya and Autodesk 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and Autodesk Flame and Autodesk Lustre software applications that offer editing, finishing, and visual effects design and color grading solutions. Autodesk, Inc. sells consumer products for digital art, personal design and creativity, and home design in digital storefronts and over the Internet. It licenses or sells its products to customers in the architecture, engineering, and construction; manufacturing; and digital media, consumer, and entertainment industries directly, as well as through resellers and distributors. Company description from FinViz.com.

Autodesk (ADSK) reported a loss of 28 cents that beat estimates for a loss of 33 cents. Revenue of $478.8 million beat estimates for $474.1 million. The company is losing money because they are converting from a software sales model to a subscription model and that always causes a short fall in the first 12-24 months of the process but results in larger profits in the future. New subscriptions rose 26% to 1.09 million, up 227,000 from the same period in 2015.

The company guided for the current quarter for a loss of 21-27 cents on revenue of $460-$480 million. Analysts were expecting $503 million and a 13-cent loss. Shares declined $2 on the news.

Earnings June 1st.

The stock pulled back slightly on the earnings but given the strong chart the decline was minimal. I would still like to buy it cheaper. There is a convergence of support at $82 and that is going to be my entry trigger.

With a ADSK trade at $82

Buy Jan $90 call, estimated at $7.50, initial stop loss $77.50



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