Buyers pushed the Dow over 18,000 twice intraday and then again right at the close. Cracks are forming in the resistance ceiling on the Dow and the S&P is in breakout mode.
The war is still raging around the 18,000 level on the Dow but the buyers are starting to gain some ground. On the S&P there is a breakout in progress with the close at 2,119 and only 12 points from a new closing high. Volume was very low at 5.62 billion shares and the trading was very lackluster. However, most meltups occur on low volume when conviction is weak on both sides.
I am dropping Endo as a short position today and adding it back in as a potential long position. The stock refuses to decline after the ASCO conference ended and analysts are talking about a $40-$50 price target. After all the bad news the lack of a decline suggests the worst is over.
Current Position Changes
NLNK - Newlink Genetics
The short recommendation has been cancelled.
ENDP - Endo Pharma
The short position has been dopped.
SWIR - Sierra Wireless
The long position remains unopened until a trade at $20.30.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
HPE - Hewlett Packard Enterprise - Company Profile
Shares spiked to a new historic high but faded at the close on analyst comments they could be bidding on F5 Networks.
Original Trade Description: June 2nd.
Hewlett Packard Enterprise was spun off from Hewlett Packard (HPQ) to be the high growth segment of the company. The remaining HPQ was the slower growing PC and printer company.
HPE reported adjusted Q1 earnings of 42 cents and in line with estimates. Revenue of $12.711 billion would have been up +4% on a constant currency basis. Analysts were expecting $12.419 billion.
For the current quarter, HPE guided to earnings of $1.10 to $1.14. For the full year, they expect $1.85-$1.95 and that was more than analysts expected at $1.89. They increased free cash flow +101% to $1.1 billion for the quarter.
The good news came from their plans for the cash flow. HPE expects to generate $2.0-$2.2 billion in free cash flow in 2016. They are receiving $2 billion from the Tsinghua transaction which closed in early May and the money will be used for share repurchases. In 2016, HPE is increasing its commitment to return 100% of the free cash flow to investors in dividends and buybacks.
This means over the next couple of months we should see significant share activity as funds position themselves to be the beneficiaries of all this buyback/dividend activity that could exceed $4 billion in 2016. $2.5 billion of that is in an "accelerated" buyback program. The board authorized another $3 billion in buybacks to bring the current authorization to $4.8 billion.
They also announced a tax-free spinoff of their services division to Computer Sciences Corporation (CSC), which is expected to close in March 2017. This will produce another $8.5 billion in value to HPE shareholders in the form of $4.5 billion in equity in the combined company and $1.5 billion in a cash dividend and the removal of $2.5 billion in debt from HPE.
Earnings Aug 23rd.
HPE shares have shaken off their May weakness and closed today at a historic high. I am recommending we buy this stock in anticipation of additional fund investors moving in ahead of future dividends, buybacks and the spinoff.
Long HPE shares @ $18.40, see portfolio graphic for stop loss.
Long August $20 call @ 40 cents. No stop loss.
P - Pandora Media - Company Profile
No specific news. Yesterday the company announced a new streaming ad service that will show ads to its 80 million subscribers. This is going to produce millions in revenue and could be a big plus for the company.
Original Trade Description: June 1st.
Pandora provides internet music streaming services in North America. Listeners can create personalized stations to access free music and comedy catalogs as well as personalized play lists. They offer Pandora One, a paid subscription based service for listeners. They sell audio, video and display advertising for delivery on connected platforms. They also offer a ticketing platform for promoters and advertising to promote their events.
In Q1 active listeners rose to 79.4 million and hours streamed rose 4% to 5.52 billion. They reported a loss of 20 cents but that was 19 cents better than the 39 cent estimate.
Pandora's chairman Jim Hill bought 250,000 shares at $10.97 per share and then another 250,000 shares at $11.33 each. That is close to $6 million in purchases. CFO Mike Herring bought 225,000 shares a couple weeks earlier. Last week somebody bought 12,000 contracts of the September $12 call options. Today somebody bought 1,000 contracts of the July $13 calls and there was another trade for 2,500 of the September $10 calls.
So what is powering this sudden interest in Pandora? In May the hedge fund Corvex Management announced it had acquired a 9.9% stake and demanded the company be sold to the highest bidder. Keith Meister runs the fund and he believes there should be an auction and Facebook should buy the company. Since Pandora has only a $3 billion market cap that should be attractive to Facebook because it would get those 79 million listeners to further spread its advertising reach across the internet.
Apple, Google and Amazon already have some type of streaming app and that leaves Facebook as the likely candidate. Barron's suggested Verizon or Liberty Media could buy them. Sirius XM was also mentioned as a possible buyer.
With plenty of potential acquirers and insiders buying huge amounts of stock there may be some discussions in progress.
Update 6/3/16: Board member, Timothy Lelweke, bought 10,000 shares on Wednesday at about $11.63 each. He now owns 43,768 shares so that was almost a 30% increase in his holdings. Something is definitely going on behind the scenes to generate all this insider buying.
Long Pandora shares @ $12.08. See portfolio graphic for stop loss.
No option recommended but the July $13 is only 62 cents.
SWIR - Sierra Wireless - Company Profile
No specific news. Shares closed over resistance at $20 but still not in breakout mode. The longer it holds here the more likely we will see a breakout.
The position remains unopened until a trade at $20.30. High today was $20.26.
Original Trade Description: May 26th.
Sierra Wireless engages in building the Internet of Things with intelligent wireless solutions. They operate in three segments, Original Equipment Manafacturer, Enterprise Solutions, and Cloud Connectivity Services. They offer cellular embedded modules, software and tools to integrate wireless connectivity into various products and solutions.
In their recent earnings they reported an adjusted profit of 8 cents. Revenue declined -5.1% because of previously reported softness in orders from several existing automotive customers. For Q2 they expect earnings in the range of 9-17 cents on revenue of $150-$160 million. For the full year they guided to earnings of 60-90 cents on revenue of $630-$670 million. They bought back 549,583 shares in the quarter.
The revenue in the OEM solutions segment declined -9.1% due to softness in auto production in Q1. Enterprise solutions revenue rose 9% and cloud and connectivity systems revenue rose 92%. They began upgrading their global LTE core network to provide additional connectivity for wholesale operators.
In their guidance, they said business should improve significantly because of more than 40 new customer programs moving into production on new IoT products. They manufacture to customer specifications when the customer adds a new product.
Earnings Aug 4th.
To go from an 8 cent profit in Q1 to 60-90 cents for the full year is a major gain in profitability. Shares have been rising since the earnings report and showing no weakness when the market was down.
With a SWIR trade at $20.30
Buy SWIR shares, currently $19.90, initial stop loss $18.45.
No options recommended due to wide spreads.
UIS - Unisys Corp - Company Profile
Only good news about new products but shares declined slightly.
Original Trade Description: June 6th.
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 segments 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 has morphed in its 143 years of operation into a global cloud, IT and infrastructure services company. That is a long way from the original company that produced the first commercially viable typewriters and adding machines under the name Burroughs, Sperry and Remington Rand.
Today one of their main products is Unisys Stealth for protection of digital and physical assets. Stealth Mobile protects secur emobile applications and Stealth Cloud expands that protection to the cloud.
Just before their recent earnings they announced a deal with Mitel to provide the Unisys stealth technology to protect their 60 million mobile and enterprise customers. Business is booming but it has been a long time coming. In Q1 revenue declined -3% and services declined -2%. However, the company said its "lumpy" quarter-to-quarter strategy was changing with a stronger focus on the Stealth products and their rapid wide scale adoption. They expect the amount of money spent on cybersecurity to more than double from the $75 billion in 2015 to more than $170 billion in 2020. The cost of data breaches will rise to $2.1 trillion annually by 2019 and more than four times the cost in 2015.
Unisys has been a stealth company for the last year with shares declining from $30 to $7. With their new products and the rapid acceptance of those products their stock is rebounding off the three month consolidation pattern.
Earnings July 28th.
Shares moved over resistance at $8.25 last week and are preparing to move higher. The big decline in March was a $190 million offering of convertible senior notes due 2021 with a conversion price of $9.76. That was a 20% premium to the stock price post announcement.
If the current rebound continues the next material resistance is $12.
Long UIS shares @ $8.47, no initial stop loss.
Long October $9 call @ 80 cents. No stop loss.
BEARISH Play Updates
ENDP - Endo Intl Plc - Company Description
No specific news. Endo appears to be coiling for a potential breakout. It did not decline after ASCO and some analysts are talking about $40-$50 as a price target. I am dropping this position but I would not close the option. It has no value so holding it another week will not hurt. You never can tell when a headline could tank the stock. I am going to recommend Endo as a long position since there was no post ASCO decline.
Original Trade Description: May 11th.
Endo develops, manufactures and distributes pharmaceutical products and devices worldwide. The market well known brands including Percocet, Lidoderm, Voltaren and a wide range of pain medications and testosterone replacement therapies.
Shares have declined from $26 last week to $14 today. The company slashed full year guidance by -11% on revenue and -23% on earnings. The acceleration of the decline over the last several weeks has been in reaction to some generic competitors expected to receive approvals from the FDA soon.
The company also disclosed they were being investigated by the U.S. Attorney's Office for its relationship with pharmacy benefit managers or PBMs. In light of the improper relationship between Valeant and Philidor the USAO is investigating to see if the same problems exist at Endo. In November, Novartis had to pay a $390 million fine to settle charges it paid specialty pharmacies for illegal kickbacks in exchange for inducing patients to refill certain medications.
Endo is also under pressure as a result of the Valeant Pharmaceutical disaster and the overall decline in the biotech sector.
Earnings are August 4th.
Even though shares are down significantly from the May 6th news, I believe they will continue falling and could go into single digits. The similarities to Valeant's pharmacy problems and the impact to Valeant's stock are too close and should weigh on Endo.
Dropping: Long June $12.50 put @ $1.05, currently zero, Hold until expiration.
Previously closed 6/1/16: Short ENDP shares @ $13.81, exit $16.45, -2.64 loss.
NLNK - Newlink Genetics - Company Profile
No specific news. Today's rebound erased Tuesday's decline. I am cancelling this recommendation.
Original Trade Description: June 4th.
NewLink Genetics Corporation, a biopharmaceutical company, focuses on discovering, developing, and commercializing immunotherapeutic products to enhance treatment options for patients with cancer. Its portfolio includes biologic product candidates based on its HyperAcute cellular immunotherapy technology, which is designed to stimulate the human immune system; and small-molecule product candidates that are focused on breaking the immune system's tolerance to cancer by inhibiting the indoleamine-2, 3-dioxygenase pathway and the tryptophan-2, 3-dioxygenase pathway.
The company's lead product candidate, algenpantucel-L, an investigational immunotherapy, was being studied in Phase III clinical trials for patients with pancreatic cancer. They announced on May 10th the drug did not meet the goals of the study and may have actually made the patient sicker in the process. The company said a late-stage clinical trial for its algenpantucel-L treatment did not statistically improve survival rates in patients with resected pancreatic cancer. "In light of these negative results, our scientific and clinical teams will focus on other promising opportunities in our pipeline," said CEO Charles Link. Patients treated with the drug lived an average of 27.3 months compared to 30.4 months on existing treatment programs.
Shares collapsed from $17 to $9 and that was already down from $60 late in 2015. The problem is that Newlink had invested a lot of time and effort in that drug and it had already progressed into stage III trials. That cost them a lot of momentum and investors lost interest. Analysts now say that Newlink's cancer vaccine platform is now empty. They will have to rely more heavily on its IDO inhibitors, another form of cancer immunotherapy, which is only in early stage development. This field is very crowded and Newlink is fading to the back of the pack.
Earnings July 28th AM.
Shares of Newlink rose slowly from $10 to just under $13 on the ramp into ASCO. Investors were definitely not excited about the companies potential for a market moving presentation. Shares fell -8% on Friday as traders sold the ASCO news before the weekend. Nobody wanted to end up holding a company on Monday that was sinking on a negative headline. If some other company announces some new treatment than everyone else in the space will decline.
The conference runs until Tuesday afternoon so I am putting an entry trigger on the position just to make sure it is going lower before we jump in.
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