The market refuses to decline but it is also moving up very slowly. We need to be cautious in our play selection and choose stocks with clearly evident trends even in the face of market weakness. The UIS play did not even blink on the two days last week then the market was slightly lower. In a positive market it should shine but even a mildly negative market has had no impact.
I reloaded the VSI short from last week. We were stopped out on a fluke event when all the retailers gapped up on Thursday on the Macy's earnings. One day does not make a trend.
NEW BULLISH Plays
UIS - Unisys Corp - Company Profile
Unisys Corporation provides information technology services worldwide. It operates through two segments, Services and Technology. The Services segment provides cloud and infrastructure services, application services, and business process outsourcing services. The Technology segment designs and develops software, servers, and related products. It offers a range of data center, infrastructure management, and cloud computing offerings for clients to virtualize and automate data-center environments. This segment's product offerings include enterprise-class servers, such as the ClearPath Forward family of fabric servers; the Unisys Stealth family of security software; and operating system software and middleware. The company serves commercial, financial services, public sector, and the U.S. federal government through direct sales force, distributors, resellers, and alliance partners. Unisys Corporation was founded in 1886.
Unisys reported Q2 adjusted earnings of 81 cents compared to estimates for 25 cents. Those earnings more than doubled from the 36 cents in Q2-2015. Revenue of $748.9 million easily beat estimates for $688.1 million. Profit margins rose from -6.5% in Q2-2015 to +6.6%. They reaffirmed full year guidance for earnings, revenue, margins and free cash flow. They ended the quarter with an order backlog of $3.8 billion.
Technology revenue rose 30.7% and accounted for 18% of overall revenue. This is going to be a major profit center in future quarters. Profit margins in this unit rose 48%, up from 15.6% in the year ago quarter. Sales of the ClearPath software are soaring.
The Unisys Stealth security product was approved by the NSA for use in classified programs and making the product eligible for use by more than 20 countries to protect super sensitive systems and information.
On Thursday, Unisys won a government contract to move the Treasury Departments Comptroller of the Currency office to the cloud. This will affect more than 4,000 Treasury employees. Earlier in the year Unisys moved the U.S. Dept of the Interior and its SAP-based financial management system to the cloud.
This company is at the right place at the right time with the right security products and the NSA approval opens a tremendous business opportunity in those 20 countries.
Earnings Oct 25th.
Shares spiked to $10.40 on the earnings news and then traded sideways for two weeks. Over the last several days the trend has turned positive and it closed at $10.55 on Friday and a 5-month high.
With a UIS trade at $10.65
Buy UIS shares, initial stop loss $9.65.
No options recommended.
NEW BEARISH Plays
VSI - Vitamin Shoppe - Company Profile
We were stopped out on Thursday at $27.50 when all the retailers spiked up at the open on the Macy's earnings. The spike was quickly sold and the trend should continue lower. I am reinstating this short just under the Friday low of $26.66.
Original Trade Description: August 8th.
Vitamin Shoppe, Inc. operates as a multi-channel specialty retailer and contract manufacturer of nutritional products in the United States. It operates through three segments: Retail, Direct, and Manufacturing. The company provides custom manufacturing and private labeling services for VMS products, as well as develops and markets own branded products. It offers vitamins, minerals, herbs, specialty supplements, sports nutrition, and other health and wellness products of approximately 800 brands. The company sells its products through Vitamin Shoppe, Super Supplements, and Vitapath retail stores; and catalogs, as well as through its vitaminshoppe.com Website. As of March 1, 2016, it had approximately 700 company-operated retail stores.
The company reported Q2 earnings of 55 cents that missed estimates for 59 cents. Revenue of $332.7 million narrowly beat estimates for $331.6 million. The CEO warned, "The external environment was more promotional and volatile than we had anticipated and we responded by increasing our promotional activity. As a result, our performance for the quarter was mixed, with improved comps offset by lower margins. The positive comps in the quarter reflect the benefits of some of our new initiatives as well as stepped up promotional activity. In addition, our manufacturing business is performing below expectations with lower sales and margins, which also contributed to our overall weaker performance in the quarter." I was not a glowing report. He also said, "Given the current operating environment with variability from day to day, we have put in place a dedicated effort behind more aggressive cost controls and margin realization. Our goal will be to achieve the appropriate balance between revenue growth and profitability." That is a good example of a CEO trying to put a positive spin on a negative environment. Shares declined after his comments.
Earnings Nov 2nd.
I am a vitamin junkie. I cringe every time I have to buy a bottle of something that costs $50 to $75 and I am sure the normal consumer is also suffering from sticker shock when they see those prices. Obviously, you can buy the generic chemical equivalents for a lot less but if you are trying to buy the best quality formulations, it is expensive. Add in all the competition from the multilevels like Thrive and the vitamin boosted meal replacements from brands like Vega and the consumer has so many choices they can't make up their minds. All the chain stores like Kroger, Whole Foods, etc, are now carrying complete inventories from multiple competitive brands at discounted prices. This gets back to the "promotional environment" the CEO was talking about.
Since the earnings drop on July 28th shares have declined $5 and are currently struggling to hold support at $27.50 that dates back to May. A breakdown there targets $26.25 and the 52-week lows. If VSI does make a new low, I think we could see a significant drop. Vitamin Cottage (NGVC) is already at $12 and dropping after hitting highs over $40 at the same time VSI was hitting $65.
With a VSI trade at $26.50
Short VSI shares @ $26.50, initial stop loss $27.40.