NEW BULLISH Plays

Steris Corp. - STE - close: 54.38 change: +0.87

Stop Loss: 52.65
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 246 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
The company website describes STERIS as a global leader in infection prevention, contamination control, surgical and critical care technologies, and more. STERIS is the world's pre-eminent infection prevention, decontamination, and surgical and critical care company, with a long list of first-to-market products and industry-leading service innovations and thousands of customers in more than 60 countries.

While the corporation was founded as Innovative Medical Technologies in 1985 and renamed STERIS in 1987, our history dates back to 1894 with the founding of American Sterilizer Company, a long-time, global leading innovator of sterilization products. Today, through a series of strategic acquisitions and continual innovation of new products, STERIS holds one of the broadest portfolios of products in the industry. It stands at the forefront of efforts to prevent infection and contamination in healthcare and pharmaceutical environments, and is broadening its reach with products to meet the needs of defense and industrial markets (source: www.Steris.com).

The infection prevention industry is expected to hit global sales of $109 billion in 2017. This area of healthcare is growing at more than 5% a year. STE is growing three times faster than the industry due to acquisitions and strong organic growth.

STE recently purchased Integrated Medical Systems International, Inc. (IMS) for $165 million. IMS has sales of $150 million a year in the sterile processing, surgical instrument management, and endoscope repair. This particular industry is fragmented and STE believes they can grab market share as well as capitalize on synergies with IMS.

STE's recent earnings report in May was very encouraging. Analysts were looking for a profit of $0.86 a share on revenues of $455.9 million. STE beat estimates with a profit of 91 cents on revenues of $465.3 million.

Revenues were up 9% for the quarter with 7% of that as organic growth. STE saw strong revenue growth in consumables (+17%) and its service business (+23%). Even with the Obama administration's new medical device excise tax STE managed to grow its gross margins 30 basis points to 41.5%. Its healthcare sterilization business saw margins jump 410 basis points. STE also reported growth in its backlog of business.

They expect double-digit top and bottom line growth in 2015 and boosted their revenue estimates into the +15% to 17% range.

Technically shares have been consolidating sideways the last few weeks. That's not surprising after the big spike higher following its earnings report in May. Now STE appears to be almost done with this consolidation phase. Shares look poised to breakout past resistance near $55.00 and hit new record highs.

The May 12th high was $55.36. Tonight I am suggesting a trigger to open bullish positions at $55.50 with a stop loss at $52.65, just under last Thursday's low. We are not setting an exit target tonight but I will point out that the Point & Figure chart is bullish and suggesting at $74.00 long-term target.

Trigger @ $55.50

Suggested Position: buy STE stock @ (trigger)

Annotated chart:

Weekly chart:



NEW BEARISH Plays

DSW Inc. - DSW - close: 27.61 change: +0.05

Stop Loss: 29.15
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 12, 2014
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.5 million
New Positions: Yes, see below

Company Description

Why We Like It:
DSW Designer Shoe Warehouse runs over 400 company-owned stores. They also participate in hundreds of other shoe departments in regional department stores through their Affiliated Business Group.

There appears to be a bear market in designer shoes. At least that is the picture if you're looking at shares of DSW Inc. The stock has actually been a big winner for investors if you have owned it the past few years. On a post 2-for-1 split adjusted basis DSW traded down to $3.33 in 2009. It peaked in 2013 with a close at $47.22 in November last year. That's a huge run (more than 1,400%). Unfortunately last November was indeed the peak. DSW has been stuck in a bearish trend of lower highs and lower lows since then.

DSW lowered its earnings guidance back in February 2014. Of course back then just about all of the retail companies were warning about lack of sales and blaming it on the extremely cold winter weather. That was after weeks of worry over the 2013 holiday shopping season.

The U.S. economy is slowly recovering but consumer spending has not. There are still large chunks of the consumer who continue to struggle. The sharp rise in food prices this year combined with elevated gasoline prices has not helped. There seems to be a bifurcation in the consumer spending. There has been strong demand for big ticket items like housing and cars. Yet smaller discretionary spending is just not there.

The overall retail industry saw some improvement in May. There was hope that June same-store sales would come in better than expected. Analysts and investors were a bit disappointed when the retail industry delivered June numbers that were only in-line with estimates.

Meanwhile DSW continues to struggle. The company reported earnings on May 28th. Wall Street was expecting a profit of $0.48 per share on revenues of $622.9 million. DSW announced earnings of 42 cents on revenues of $599 million. A miss on both counts. Management then lowered their 2015 guidance. The company blamed the weather (again) and said they were facing an intense promotional retail environment. The Container Store (TCS) has a completely different product mix but recently mirrored DSW's troubles and said they were experiencing a retail "funk" (i.e. lack of sales).

Shares of DSW dropped from $32.50 to $23.60 on its earnings miss and earnings warning late May. Since then the stock has bounced but it has found new resistance in the $28.50 area. Now DSW looks like it is rolling over again.

Friday's low was $27.20. I am suggesting a trigger to open bearish positions at $26.90. If triggered I'm expecting DSW to at least test its May lows if not breakdown to new lows.

We will plan on exiting prior to DSW's late August earnings report.

Trigger @ $26.90

Suggested Position: short DSW stock @ (trigger)

- (or for more adventurous traders, try this option) -

Buy the OCT $25 PUT (DSW141018P25) current ask $0.90

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

Annotated chart:

Weekly chart: