NEW BEARISH Plays
Cabot Corp. - CBT - close: 36.67 change: -0.86
Stop Loss: 38.65
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on July -- at $---.--
Listed on July 18, 2015
Time Frame: Exit PRIOR to earnings on August 4th
Average Daily Volume = 457 thousand
New Positions: Yes, see below
The last couple of years have been rough for CBT investors. The stock peaked near $60.00 a share back in 2014. Today CBT is down -38% from its high and down -16% year to date.
CBT is in the basic materials sector. According to the company,
"Cabot Corporation is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, and aerogel."
CBT's business seems to be slowing down. That's the picture I get looking at their last four earnings reports. 2014 Q3 revenues were up +4.3%. That slowed down to just +1.7% in 2014 Q4. Revenues fell -9.6% in Q1 2015. The slowdown accelerated in the second quarter. CBT reported its Q2 earnings on April 29th and revenues fell -22.7% to $694 million, significantly below analysts' estimates for $824 million. Q2 earnings were $0.53 a share, which missed estimates by 10 cents.
Three of CBT's four business segments saw declining sales. Reinforcement materials saw the biggest drop in the second quarter. Performance chemicals and specialty fluids also saw sales declines. Their purification solutions reported a small rise in sales.
Cabot President and CEO Patrick Prevost commented on his company's results,
"We experienced a challenging quarter as the macroeconomic and competitive environment negatively affected our Reinforcement Materials and Specialty Fluids segments. Our volumes held up relatively well on a global basis, but we experienced margin pressure in Reinforcement Materials from lower contract pricing and feedstock-related effects. Purification Solutions results improved as customer orders rose for our mercury removal products in anticipation of the Mercury and Air Toxics Standards (MATS) implementation."
The MATS regulation did not work out well for CBT. That big drop in the stock price on June 29th was a reaction to the U.S. Supreme Court ruling on the EPA's attempt to regulate coal-fired power plant emissions. The market is interpreting the court's decision to mean less demand for CBT's chemicals that help power plants curb mercury emissions.
Technically CBT is in a bear market. The oversold bounce from the late June sell-off just failed. Now CBT is breaking down to new multi-year lows. We want to hop on board since the next support level looks like it could be $32 or lower. Tonight we're suggesting a trigger to launch bearish positions at $36.40. We will plan on exiting prior to CBT's earnings report on August 4th.
Trigger @ $36.40
- Suggested Positions -
Short CBT stock @ $36.40
- (or for more adventurous traders, try this option) -
Buy the AUG $35 PUT (CBT150821P35) current ask $0.70
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike