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Daily Newsletter, Saturday, 2/25/2017

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

Saved at the Bell

by Jim Brown

Click here to email Jim Brown

The Dow did not turn positive on Friday until the last 30 seconds of trading but it kept the streak of gains alive.

Weekly Statistics

Friday Statistics

The dip was bought on Friday with the Dow down 73 points and the Nasdaq down -34. The other indexes returned to positive territory throughout the day but the Dow waited until the last 30 seconds of trading to turn green. Another dip bought and another record close in the books. There was $1.5 billion to buy in market on close orders on the NYSE.

For everyone who is still waiting for a market decline so that overbought conditions can be equalized, I give you the following cartoon from Hedgeye. This has been the trend since the election and apparently, it is going to continue until buyers run out of money.


The economic reports were slightly negative but the market was already rebounding then they were released. The New home sales for January rose from 536,000 to 555,000 but that was well under the consensus estimate for 570,000 and Moody's forecast for 588,000. The recent peak in sales was 622,000 back in July.

January sales rose 3.7% from December and +5.5% over January 2016. The median price of a new home rose 7.6% YoY to $318,900. The Northeast saw the biggest percentage gain at 15.8% with the Midwest second at 14.8%. The South recovered from five months of negative sales to rise 4.3% and the West posted its first sales decline since September at -4.4%.


The end of month revision for Consumer Sentiment for February rose slightly from the first reading at 95.7 to 96.3. This is still down 2.2 points from the 98.5 in January. This was the first monthly decline since October. January was a multiyear high.

The present conditions component rose from 111.3 to 111.5 and the expectations component declined from 90.3 to 86.5. That could be due to the waning honeymoon period that the new president was enjoying. Consumers are founding out that promises are easier than action in a divided government. Only 35% of respondents now expect their incomes to rise in 2017.


We have a very busy economic calendar for next week but the key event is the president's speech to a joint session of congress on Tuesday night. It is not officially a State of the Union speech but it will pass for that since there is no SOTU in inauguration years. Reports claim it will be a victory lap of sorts with the president restating all his victories and the things he has done since the election. He will also restate his promises for what he expects to get done in 2017.

The challenge here is that the president is stuck in a routine of giving campaign speeches and boasting rather than giving specifics about what lies ahead. In this particular prime time speech, he will have a full audience and they will be looking for a full meal of red meat. If there are no plan specifics and too much boasting, we could see a sell the news event on Wednesday. The market has rallied for four months on expectations without any details. If investors find that the emperor has no clothes there could be a general depression settle over the market until such time as actual details emerge.

Do not get me wrong. I believe the president has great intentions and the capability to do great things for the economy as long as he does not get bogged down in the political circus and spend too much time fighting the press. The senate is still delaying his cabinet appointments and this is the longest any president has gone without having his cabinet approved. There is a phrase that goes something like this. "When you are up to your neck in alligators, it is hard to remember that your initial objective was to drain the swamp." That means it is easy to lose sight of the initial objective and be caught up in tasks and subtasks that are only remotely related to the original goal. If the president gets caught up in fighting the minor battles, it could significantly slow the bigger goals.

I am not the only investor that understands these facts. If the speech is a letdown for whatever reason, the market could suffer.

The Richmond Fed Manufacturing Survey and the ISM Manufacturing Index are the next two reports of importance. Everything else is important but they are not market movers.


There was a flurry of earnings on Friday but JC Penny (JCP) and Foot Locker (FL) garnered the most headlines.

JC Penny reported earnings of 64 cents that beat estimates for 61 cents. Revenue of $3.96 billion was just shy of consensus estimates for $3.97 billion. They guided for full year earnings of 40-65 cents. Analysts were expecting 52 cents and that is right in the middle of the guidance. The company said it was closing 140 stores and cutting 6,000 workers in order to adjust to the world of lower mall traffic and strong online competition. They are also shutting two distribution centers. The restructuring will save Penny about $200 million a year and they will take a $225 million charge in Q2. Penny's sales are less than half what they were at the peak in 2002. They forecast same store sales of -1% to +1% for 2017.


Foot Locker reported earnings of $1.37 that beat estimates for $1.31. Revenue of $2.11 billion matched street estimates. Full year profits were $4.91 per share. Same store sales rose 5.0% and beating estimates for 4.5%. The CEO said "we are facing a challenging retail sales environment as we enter 2017. However, we believe the strategic initiatives we have in place, coupled with strong vendor relationships, will enable us to deliver another year of record performance." Marketing 101. Paint a grim picture of the problems you will have to overcome but promise to do your best. If events go against you, the warning was there. If events turn out in your favor, you did a good job under tough circumstances.

The company cited strong demand for Nike, Puma and Adidas shoes but did not mention Under Armour. Shares spiked 9% on the earnings.


Applied Optoelectronics (AAOI) reported earnings of 84 cents compared to estimates for 79 cents. Revenue of $84.9 million beat estimates for $82.7 million. Guidance for the current quarter was 80-88 cents with revenue between $87-$91 million. AAOI makes fiber optic components used by cable TV providers. Shares spiked 23% to $46 on the news. They were under $10 in June.


Intuit (INTU) shares spiked 6% after the company reported earnings of 26 cents compared to estimates for 25 cents. Revenue of $1.02 billion met estimates. They guided for current quarter revenue of $3.5 to $2.55 billion and analysts were expecting $2.45 billion. The tax season got off to a slower than normal start and the company said activity was finally starting to increase.


Berkshire Hathaway (BRK.B) reported a 15% increase in earnings for Q4. The company reported adjusted earnings of $2,665 per share compared to analyst estimates of $2,717. Warren Buffett said that "absent a recession, earnings will likely grow in 2017 thanks to the acquisition of Duracell and Precision Castparts." Berkshire shares rose 29% in 2016.

Berkshire disclosed the company had paid an average of $110.17 for 61.2 million shares of Apple and that position is up $1.6 billion since the acquisition. Buffett also said the company bought $12 billion in stocks immediately after the November election. Berkshire shares are up 18% since the election.

In Q4 Dow Chemical (DOW) converted Berkshire's $3 billion in preferred shares into more than $4 billion of common stock. Dow shares rose more than $11 in Q4 so that worked out for Berkshire.

Buffett's letter to shareholders is always insightful reading. Here it is in PDF form: Warren Buffett Letter to Shareholders


Despite the Q3 earnings cycle coming to an end there are still some good sized companies reporting next week. Priceline, Costco, Broadcom, Sears and Best Buy are the highlights.


According to Factset, 92% of S&P companies have reported Q4 earnings and 66% have beaten estimates with 52% beating on revenue. Blended earnings growth for Q4 is now 4.9%, up from estimates for 3.1% on December 31st. For Q1, 67 companies have given negative guidance and 31 have issued positive guidance. The forward PE for the S&P is now 17.7 compared to the ten-year average of 14.4.

Dow component Goldman Sachs (GS) was downgraded from hold to sell at Barenberg based on valuation. The company said all the good news was already priced into the stock. Goldman fell -3.84 and knocked more than 26 points off the Dow.

Goldman warned they did not believe the market rally would continue. They said investors are reaching "the point of maximum optimism" that will eventually lead to a pullback. They reiterated their call for the S&P to close out the year at 2,300, below its current level of 2,367. They believe the market could gain another 2% during the year but decline 4% from that level to reach their end of year target.

Goldman said investors have grown too confident that tax cuts and other initiatives would have a major impact on the economy. Goldman said once investors realize that policies do not change overnight and this is a long-term process, the market will have to adjust. David Kostin said, "Financial market reconciliation lies ahead. We are approaching the point of maximum optimism and the S&P will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tail wind to corporate earnings than originally expected." He also warned that guidance with Q4 earnings was slightly negative with full year guidance down 1%. He said there was "cognitive dissonance" in the market with expectations outpacing reality. Investors are feeling optimistic while analysts are cutting expectations based on guidance and economic data.


The king has fallen. Nvidia (NVDA) has crashed. If you believe all the hype "now is the time to sell." Seriously? The double top at $120 would have been the time to sell. Now is the time to buy. Nvidia is at the leading edge of technology today and nobody else is even close.

Short seller Citron Research said they closed their short on Nvidia after making a good call on December 28th. Citron had targeted $90 but said the quick decline to $95 as of Friday morning had exhausted the sellers.

Helping accelerate the decline was a downgrade from buy to sell by Romit Shah at Nomura. He had a call similar to the Goldman call on the market saying investors were at maximum optimism on Nvidia. He cut his price target from $100 to $90.

On January 31st, Nvidia was the second most shorted stock by hedge funds according to market cap with 7% of the shares sold short. This is what makes a market. On Friday, UBS reiterated a buy rating with a $132 price target saying datacenter sales would double.

At the opening low on Friday, Nvidia shares were down nearly $15 in two days as investors began to take profits in Nasdaq stocks. With support at $99 and a $25 decline since February 10th, the stock has gone from being very overbought to very oversold.

I am disappointed it broke through the 50-day average but things happen. That has been support for the last 15 months. I firmly believe any decline in Nvidia is a buying opportunity and this is definitely a bargain level. I have said several times in these pages I would like to see a dip to $90 as an opportunity but I am doubtful we are going there unless the market corrects.


Citron said they were transferring their profits in Nvidia into a short on Mobileye. Citron called them a one-trick pony. In the self-driving sector they are "bringing a knife to a gunfight" according to Citron. They are competing with Google, Apple, Nvidia, Uber and dozens of other companies but they are spending less on R&D and trying to rest on their early engineering advances. However, they have been bypassed in the sector. Even Tesla has dropped their technology. Insider sales have been booming and their PE is twice that of Nvidia. Citron is targeting $35 on MBLY.


Prison stocks exploded higher after the new Attorney General Jeff Sessions signaled a reversal of the Obama directive to phase out private prisons. The prior administration directed the Bureau of Prisons to withdraw or decline contracts for private prison operators at their expiration. Session issued a memo on Thursday saying the prior directive "impaired the Bureau's ability to meet future needs of the correctional system."

Prison stocks have been moving rapidly higher since President Trump won the election in anticipation of the prior directive being rescinded. Stocks had fallen about 50% after the initial directive was issued.



CBOE Holdings (CBOE) will replace Pitney Bowes (PBI) in the S&P 500 at the open on March 1st. PBI will replace CBOE in the S&P-400. CBOE is acquiring Bats Global Markets (BATS) and the combined company will have a market cap worthy of the S&P-500.

Incyte Corp (INCY) will replace Spectra Energy (SE) in the S&P-500 at the open on Tuesday. Spectra is being acquired by Enbridge (ENB).

Regency Centers (REG) will replace Endo International (ENDP) in the S&P-500. Endo will replace Regency in the S&P-400 and Nuskin (NUS) will replace Equity One (EQY) in the S&P-400 at the open on Thursday.

Dillards (DDS) will replace Intersil Corp (ISIL) in the S&P-400 at the open on Tuesday. CyrusOne (CONE) will replae Clarcor (CLC) in the S&P-400 on Wednesday at the open. Clarcor is being acquired by Parker Hannifin.

Here is one for the "What the heck" category. On the 17th, somebody bought 70,000 of the Union Pacific (UNP) January $130 calls for $2.57 each. I made a note of it but never got back to do the research. When I was reviewing my notes this weekend I discovered that somebody had bought 140,000 of those calls and sold 140,000 of the January $150 calls at 50 cents. They put on 70,000 contracts on January 30th and another 70,000 contracts on February 17th. This is important because they spent just over $29 million in premium to put on this January spread with UNP at $108. I am betting that you have to be pretty sure of a trade to invest $29 million for a spread that is roughly $25 out of the money.

Somebody knows something. After Warren Buffett bought BNSF Railway, maybe somebody else is looking to grow by acquisition. I have no clue what is going on but you do not bet $29 million just because you are feeling lucky.


Crude prices continued to tick slowly higher as we near the end of February and should start getting some production cut numbers from OPEC. They continue to brag about how successful this program is but talk is cheap.

Meanwhile energy equities continue to slide and most stocks at three-month lows. There is definitely a disconnect between crude prices and equities. This is typically a low point of the year for energy equities and we are definitely approaching a buying opportunity.



The growth in active rigs slowed last week with a net gain of only 3 rigs. Gas rigs declined -2 to offset a gain of 5 oil rigs. We may have reached a saturation point until crude prices move over that $55 resistance level. At $60, we could see another wave of activations.


 


 

Markets

The Dow has closed at a record high for 11 consecutive days. That is the longest streak since 1987. If the Dow can stretch that streak to 13 days, that will be the longest ever. Thanks to the barely positive close on Friday, the streak of daily gains is now tied with the longest in 25 years. The Dow gains have been an exercise in stock rotation. There have been different winners nearly every day and yesterday's winners can be today's losers only to revert back to leaders over the next couple days. It has been interesting to watch.

The Dow is only 179 points from Dow 21,000. At this point, it would seem inconceivable that we will not touch that level in the next several days except for the possible volatility event surrounding the president's speech on Tuesday night. That could be a major pothole in the market road or a launching pad for a new leg higher. It all depends on the tone, substance and delivery of this critical speech.

Friday's gains came on the back of Home Depot's earnings, which are still powering a move higher in HD shares plus an outsized gain in Johnson & Johnson. The number of positive stocks helped to overcome the declines in the six big losers. The energy sector and financial sector were both weak and provided an anchor for the index.

The Dow is up 2,898 points since the election and real support is nonexistent above 20,000. The actual support is coming from the dip buyers rather than a line on the chart where technicals provide guidance.



The S&P closed at a new high on Friday and is well above support at 2,300 and the rising 30-day average. The 2,350 level would probably produce a decent pause on any material decline. Friday's gap down open only succeeded in reaching 2,355.

The 2,300 level would now be a 3% decline and should be major support if there was an earthquake on Wall Street.


The Nasdaq broke its string of gains with the decline on Thursday and Friday's rebound came mostly at the close with the index in negative territory until 15 min before the bell. This would probably qualify as three consecutive down days despite the spike at the close. While there was a solid top on the index at 5,828-5,830 for the majority of the day, the intraday candles were progressively shorter as the dip buyers pressed the sellers. The final breakout in the last 15 minutes was a capitulation event on an intraday scale. Initial support is now 5,800.



The Russell 2000 struggled back from a 12-point decline to close flat with only a .10 loss. The Russell did make a lower low at 1,382 and continues to fight the prior resistance at 1,400. The small cap stocks are trying to shake off the depression but they need another injection of tax cut expectations to provide stimulus. The Russell was up 16% after the election and they have stalled at that early December resistance at 1,395 for the last three months. That is a long time to trade sideways in an otherwise bullish market. When a Russell move finally appears it could be strong regardless of direction.


You may have noticed that the bond market has decided it no longer believes in the equity rally. Treasuries are suddenly being bought in volume and the yield on the ten-year treasury closed at 2.317% on Friday and a three-month low. This is important. If treasuries are suddenly seeing large inflows of cash, it means equities have a little less firepower behind their record run. Bond investors appear to be losing confidence in the potential for big political changes. This could be a warning for equities.


This has turned into a "hold your nose and buy" market. The meltup has been gradual rather than a violent rally and that is actually the best kind. It is just hard to look at a chart that has been breaking out to new highs for several weeks and get excited about buying that chart.

Sometimes you have to "just do it" (Sorry Nike) and take the plunge. Just keep your position sizes manageable since we all know there will be a day of reckoning eventually.



Random Thoughts


The bullish sentiment rose by 5.4% to 38.5% and the highest since January 12th. Bearish sentiment remains only 1.5% below the highest level since the week before the election. The survey ends on Wednesday and that was before the late week softness.

Last week results


According to CFRA's Sam Stovall, since 1945 there have been 27 times when the S&P made positive gains in both January and February. The S&P went on to post gains for the full year in 27 of those 27 years with an average annual gain of 24%. Sam cautions with the "past performance is no guarantee of future results" warning.

February is typically the second worst month of the year for the S&P. The S&P has now seen 93 sessions without a 1% decline. The last time the S&P lost 1% in a single day was October 11th and the Cubs were in the World Series. Source




Cybersecurity is going to get a lot tougher this year. Security company FireEye said Iran and Russia were actively trying to penetrate government and military installations not only in the U.S. but also in Europe. The company said the new administration has created a lot of uncertainty that foreign adversaries are trying to unravel with their hacking.

Iran is not just intent on hacking to gain information. They were credited with destroying more than 10,000 computers in Saudi Arabia with the malware called Shamoon. If Iran were to go proactive against the U.S. there could be serious consequences. U.S. computers focus their protection on firewalls to prevent intrusions. There is little or no protection once a firewall is breached and that could lead to entire networks being taken down by Iranian malware.

FireEye said Russian hackers were very active around political institutions in Europe with a target of disrupting or influencing the coming elections. Russia is also planting false news and creating an "information operation" using social media trolls. Source


 

Enter passively and exit aggressively!

Jim Brown

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New Plays

Behind the Curve

by Jim Brown

Click here to email Jim Brown
Editor's Note

Technology is tough. Stand still for a couple months and a dozen companies will leapfrog your products. Infinera manufactures networking components but so do a dozen other companies.


NEW BULLISH Plays

No New Bullish Plays


NEW BEARISH Plays

INFN - Infinera Corporation - Company Profile

Infinera Corporation provides optical transport networking equipment, software, and services worldwide. The company offers Infinera DTN-X family of platforms for subsea, long-haul, regional, and metro mesh networks; Infinera DTN platform for subsea, long-haul, and regional mesh networks that support a range of Ethernet and optical transport network client interfaces; and Infinera FlexILS Line System platform that connects various Infinera platforms over long distance fiber optic cable. It also provides Infinera TM-Series, a carrier-grade packet-optical transport platform; Infinera TS-Series, a passive optical wavelength-division multiplexing (WDM) product; Infinera Cloud Xpress Platform, a compact platform for cloud/data center interconnect applications; and Infinera ATN Platform, a small form-factor WDM platform. In addition, the company offers Infinera Open Transport Switch, a software platform that enables abstraction and virtualization of the underlying Infinera platforms; and Infinera Management Suite, a network management system used by network operators to manage various Infinera platforms. Further, it provides various support services for vraious hardware and software products. The company serves communications service providers, Internet content providers, cable providers, wholesale and enterprise carriers, research and education institutions, and government entities. Company description from FinViz.com.

Infinera makes products primarily used by telecom companies to increase their capabilities over existing fiber optic cables to reduce the need to laying more fiber. Their major market today relies on infrastructure upgrades in China, which is a very competitive market.

The company reported a loss of 12 cents that narrowly beat estimates for a 13 cents loss but was down sharply from the 5 cent profit in the year ago quarter. Revenue declined 30% to $181 million but did beat estimates for $175 million. For the current quarter they guided for revenue of $167-$178 million, down from $249 million in the year ago quarter. Analysts were expecting $171 million. However, they guided for a loss of 16 cents and analysts were expecting 11 cents.

Analysts claim the company is suffering from a perfect storm of M&A among its biggest clients that has reduced demand.

Earnings May 11th.

After trading flat at $8.50 for seven months the shares spiked to just over $12 on the better than expected earnings. Short covering is a wonderful thing if you are long. However, everyone that sat on the $8 stock for seven months is now running for the exits. I believe the stock will return to its prior levels given the negative guidance.

Sell short INFN shares, currently $10.88, initial stop loss $11.85.

Optional: Buy July $10 put, currently 90 cents. No initial stop loss.




In Play Updates and Reviews

Minor Gains

by Jim Brown

Click here to email Jim Brown

Editors Note:

The major indexes recovered from a sharp drop at the open to post minor gains for the day. The Dow came back from a 73-point decline to post an 11 point gain and close at a record high for the 11th consecutive session. The Nasdaq recovered from a 34 point loss to gain 10 points. The Russell 2000 rebounded from a 12 point loss to close flat but still fractionally negative.

It was a decent rebound ahead of the weekend and most of the gains came in the last 20 minutes. That suggests short covering rather than a surge of buyers suddenly wanting to own stock over the weekend. The Dow recovered 60 points in the last 30 minutes, which suggests some financial engineering to keep the strong alive. Merck, Apple and UnitedHealth saw big gains right at the close to push the index higher.





Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.




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Current Position Changes


FEYE - FireEye
The long stock position was stopped at $11.15.

UA - Under Armour
The long stock position was stopped at $19.35.



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BULLISH Play Updates

AMD - Advanced Micro Devices - Company Profile

Comments:

No specific news. Minor decline in a mixed market.

Original Trade Description: February 22nd.

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. The company's products primarily include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete graphics processing units (GPUs), and semi-custom System-on-Chip (SoC) products. It provides x86 microprocessors for desktop PCs under the AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; and microprocessors for notebook and 2-in-1s under the AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands. The company also offers chipsets with and without integrated graphics features for desktop, notebook PCs, and servers, as well as controller hub-based chipsets for its APUs under the AMD brand; and AMD PRO mobile and desktop processors. In addition, it provides discrete desktop graphics products and discrete GPUs for notebooks under the AMD Radeon brand; professional graphics products under the AMD FirePro brand; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. Further, the company offers microprocessors for server platforms under the AMD Opteron; embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, and G-Series brands; and semi-custom SoC products that power the Sony Playstation 4 and Microsoft Xbox One game consoles. Advanced Micro Devices, Inc. sells its products through its direct sales force, independent distributors, and sales representatives. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors. Advanced Micro Devices, Inc. was founded in 1969. Company description from FinViz.com.

AMD has played second fiddle to Intel nearly its entire life. Intel technology is always a couple steps ahead and that means AMD is always running to catch up to a moving target. Recently, Intel's advances have slowed. PC computing power has reached a point where there are no slow PCs for sale at the local computer store. Performance is cheap and that performance is more than a normal user will ever need. Gamers will spend big bucks for the fastest processor but even that has migrated into the video cards themselves and Nvidia owns that market.

Consumers do not need a super fast computer for email, spreadsheets and web browsing. In the server sector the processors have become so fast that the input-output devices cannot keep up. Very few servers today run anywhere near their rated speeds.

AMD has spent four years developing their Zen processor in an attempt to meet Intel head on in the PC and server markets. They announced on Wednesday the first processors will ship in March and are priced about half of Intel for the top of the line and just under Intel for the midrange processors. Neither company wants to get into a price war. With only two companies making computer processors, to fight on price would only hurt profits for both and probably not change the consumer demand.

The key here is that AMD can be competitive again with their new Ryzen or Zen processors. ADM said their one goal in developing the new processor was to "disrupt the PC market and bring innovation, choice and performance to as many people as possible."

The fastest processor in the line is an 8-core Ryzen 7-1800X at $499. That compares to a similar Intel 8-core Core i7-6900K processor at $1,000.

AMD reported a Q4 loss of a penny which easily beat estimates for a loss of 10 cents. Revenue of #1.11 billion beat estimates for $1.07 billion. They guided for revenue of $988 million in Q1 and analysts were only expecting $964 million. Gross margins rose from 30% to 32%. Shares spiked on the February 1st news. Shares spiked again on the new processor announcement on Feb-22nd.

Earnings May 2nd.

The gain on Wednesday saw a close at a new 52-week high and above the post earnings consolidation phase. AMD may be choppy from here but I think it has enough going for it today that the rally can continue.

Position 2/23/17:

Long AMD shares @ $14.20, see portfolio graphic for stop loss.

Optional:
Long Apr $16 call @ 67 cents, no stop loss.



ARNC - Arconic - Company Profile

Comments:

No specific news. Arconic shares were punished this week as the entire metals sector crashed on news the infrastructure stimulus program could be delayed until 2018.

We have plenty of time.

Original Trade Description: February 16th.

Arconic Inc develops and manufactures engineered products and solutions for the aerospace, industrial gas turbine, commercial transportation and oil and gas markets. Company description from FinViz.com.

What that description does not tell you is that Arconic is the old Alcoa. Back in October Alcoa spun off the aluminum smelter business and named it Alcoa. The remaining hith tech manufacturing business they named Arconic. Basically, this is the profitable part of the old Alcoa. They produce all sorts of high tech aluminum products for nice profits.

Their Q4 earnings were mixed because of expenses incurred as a result of the spinoff.

Zacks reported Q1 estimates have risen from 20 cents to 25 cents over the last several weeks as analysts reevaluate the new company. Full year estimates have risen from 92 cents to $1.10, a 19.6% increase.

On Wednesday Arconic said it had sold 60% of the Alcoa stake it kept during the spinoff for $890 million and would use the money to pay down debt and buy back shares. They also retained loss carry forward tax credits that will offset future earnings.

Earnings May 2nd.

Shares went ballistic after the Q4 earnings and rose from $23 to $30. Every day I kept watching the stock and thinking, "ok, tomorrow they will dip and I will add them to the portfolio." They never dipped until this week. That dip was very shallow and has lasted only 3 days.

We never know. They could fall off a cliff tomorrow and retest the $23 pre-earnings. I seriously doubt it because funds have been adding Arconic as a new position.

I am going to recommend an options only strategy with a four-week duration. I am recommending we buy a $30 call and a $28 put. The total cost will be $1.52 and that is our total risk. We only need ARNC to move in either direction more than a couple bucks and we should be profitable.

Either way at least one option should be profitable and offset the cost of the other. Depending on the market we could actually profit on both if we got a big dip and then a big rebound. The only way we lose both premiums is if the stock holds at $29 for the next month. That is not likely.

Update 2/17/17: Hedge fund Lion Point, a minor shareholder in Arconic, urged the company to "promptly engage" with Elliott Management to increase shareholder value. Elliott is the largest shareholder in Arconic is trying to get the CEO replaced and they have nominated five board members. Lion Point and Elliott both believe "the intrinsic value of Arconic materially exceeds the company's current stop price."

Update 2/23/17: Arconic declared a quarterly dividend of 6 cents on common stock, 93.75 cents on Class A preferred stock and $6.71875 on Class B shares. The dividends are payable on May 25th to holders on May 5th.

Position 2/17/17:

Long Mar $30 call @ 90 cents. No stop loss.
Long Mar $28 put @ 60 cents, No stop loss.



BRKS - Brooks Automation - Company Profile

Comments:

No specific news. Closed at a new high.

Original Trade Description: February 13th

Brooks Automation, Inc. provides automation and cryogenic solutions for various applications and markets. It operates through two segments, Brooks Semiconductor Solutions Group and Brooks Life Science Systems. The Brooks Semiconductor Solutions Group segment offers critical automated transport, vacuum, and contamination controls solutions and services. This segment's products include atmospheric and vacuum robots, robotic modules, and tool automation systems that provide precision handling and clean wafer environments; automated cleaning and inspection systems for wafer carriers, as well as reticle pod cleaners and stockers; and vacuum pumping and thermal management solutions for use in critical process vacuum applications. This segment also provides support services, including repair, diagnostic, and installation, as well as spare parts and productivity enhancement upgrades. The Brooks Life Science Systems segment provides automated cold storage systems; consumables, including various formats of racks, tubes, caps, plates and foils; and instruments used for labeling, bar coding, capping, decapping, auditing, sealing, peeling, and piercing tubes and plates. This segment also provides sample management services, such as on-site and off-site sample storage, cold chain logistics, sample relocation, bio-processing solutions, disaster recovery, and business continuity, as well as project management and consulting. In addition, this segment offers sample intelligence software solutions and customer technology integration; and laboratory work flow scheduling for life science tools and instrument work cells, sample inventory and logistics, environmental and temperature monitoring, and clinical trial and consent management, as well as planning, data management, virtualization, and visualization services. The company sells its products and services in approximately 50 countries. Company description from FinViz.com.

Brooks reported earnings of 25 cents that beat estimates for 20 cents. Revenue of $160 million also squeezed by estimates for $159.7 million. For the current quarter they guided to earnings of 24 to 27 cents and revenue from $165 to $170 million.

The company provides automation and cryogenic solutions for various markets. Their expected growth rate for 2017 is 105% compared to the industry rate of 19.5%. Consensus estimates for the current year rose from 82 cents to 96 cents over the last 30 days. Estimates for the current quarter rose from 21 to 24 cents and the company guided for 24 to 27 cents.

Shares spiked from $17.50 to $21.00 on the earnings beat on February 1st. After three days of consolidation and profit taking, shares have started to rise again. They closed at a new high on Monday. I know this chart is over extended but the strong earnings, guidance and expected growth rate suggests they can continue climbing, market permitting.

Earnings May 3rd.

Position 2/14/17:

Long BRKS shares @ $21.58, see portfolio graphic for stop loss.

No options recommended because of wide spreads.



FEYE - FireEye - Company Profile

Comments:

We were stopped out by a penny at $11.15 despite an announcement by FireEye that Iranian and Russian hackers were very active since the election as those governments try to find out what U.S. policy will be toward their nations.

Original Trade Description: February 11th

FireEye, Inc. provides cybersecurity solutions for detecting, preventing, analyzing, and resolving cyber-attacks. The company offers vector-specific appliance solutions that provide threat protection from network to endpoint for inbound and outbound network traffic that may contain sensitive information. It also offers Central Management System that provides cross-enterprise threat data correlation to identify and block attacks across multiple attack vectors; and Threat Analytics Platform to identify and respond to cyber threats by correlating enterprise-generated security event data from any security product with real-time threat intelligence, as well as Malware Analysis System to manually execute and inspect advanced malware, zero-day, and other advanced cyber-attacks embedded in files, email attachments, and Web objects. In addition, the company offers Network Forensics Platform that helps in detecting threats and view specific packets and sessions before, during, and after the attack to confirm what may have triggered a malware download or callback; Investigation Analysis System, a centralized analytical interface to the Network Forensics Platform; and Mandiant Intelligent Response that enables remote investigation of endpoints and allows security teams to collect targeted forensic data to identify attacker behavior, tools, and techniques. Further, it provides cloud-based subscription services; Security-as-a-Service; and incident response, compromise assessments, and related consulting, as well as training and professional, and customer support and maintenance services. Company description from FinViz.com.

FireEye is transitioning from a firewall appliance vendor to a cloud service and as always happens when companies go this route, the revenue slows temporarily. They reported Q4 results of a loss of 3 cents. Analysts were expecting a loss of 16 cents. This compares to a loss of 55 cents in the year ago quarter. Revenue of $184.7 missed estimates for $191.1 million.

For the current quarter the company guided to earnings of 26 to 28 cents and revenue of $160-$166 million. Analysts were expecting $177.5 million.

The company said several large deals had been expected to close in Q4 and they were pushed into Q1 versus being "lost."

They added 330 net new customers during the quarter. They closed 34 deals for more than $1 million each, including one of their largest SaaS deals ever. They announced a new product called Helix and more than 250 customers have already signed up to get the product as soon as it is released.

Other onetime negatives from the earnings release was news the CFO was leaving to pursue another opportunity and Chairman David Dewalt resigned from the board.

Earnings May 4th.

Cisco (CSCO) recently acquired AppDynamics and that is expected to start a flurry of acquisitions in the cybersecurity space. The space is fragmented today and highly competitive with each player commanding its own niche. The quickest way to expand your product offerings is to acquire somebody else that is a leader in their niche. FireEye is a leader in intrusion detection and tracking. Their recent fall from grace should make them an attractive target with only a $2 billion market cap.

Regardless of whether an acquisition cycle has begun, the stock decline to support is a buying opportunity.

Position 2/13/17:

Closed 2/24/17: Long FEYE shares @ $11.75, exit $11.15, -.60 loss.



UA - Under Armour - Company Profile

Comments:

No specific news. The market drop at the open stopped us out of the stock position. However, shares rebounded to close right below resistance once again. Now that Foot Locker earnings are over I expect UA shares to rise based on the good news about the sector from Foot Locker. I am recommending we reload the long stock position with a trade at $20.15. Resistance has been $19.85-$20.00 and I want to own the stock on a breakout.

Buy UA shares with a trade at $20.15. Initial stop loss $19.25.

Original Trade Description: February 15th

Under Armour, Inc. together with its subsidiaries, develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company offers its apparel in compression, fitted, and loose types to be worn in hot, cold, and in between the extremes. It provides various footwear products, including football, baseball, lacrosse, softball and soccer cleats, slides, performance training, running, basketball, and outdoor footwear. The company also offers accessories, which include headwear, bags, and gloves; and digital fitness platform licenses and subscriptions, as well as digital advertising, as well as licenses its brands. It primarily provides its products under the UA Logo, UNDER ARMOUR, UA, ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR, PROTECT THIS HOUSE, and I WILL, as well as ARMOURBITE, ARMOURSTORM, ARMOUR FLEECE, and ARMOUR BRA trademarks. The company sells its products through wholesale channels, including national and regional sporting goods chains, independent and specialty retailers, department store chains, institutional athletic departments, and leagues and teams, as well as independent distributors; and directly to consumers through a network of brand and factory house stores, and Website. Company description from FinViz.com.

UA posted 26 consecutive quarters of +20% revenue growth. For Q4 that fell to 12%. That was a major blow for the stock. They also announced the CFO was leaving immediately for personal reasons. Could it be because he missed so badly on guidance?

They guided for 2017 for revenue growth of 11% to 12%. That is significantly lower than the 20% bar they have been reaching for the last 9 years.

However, Q4 was a really bad quarter for retailers. Traffic was down everywhere and overall sales only rose 1.4%, Under Armour gets 85% of its revenue from the U.S. and 60% of its revenue from retail stores. Under Armour supplied the products but retailers were unable to attract any traffic. It was not a shoe problem but a retailer problem.

To be fair there was a shoe problem as well. The super high dollar famous player shoes were discounted heavily because of the lack of retail customers. Foot Locker was having 50% off sales on their website because shoes were not moving. The lack of buyers was due to a weak retail season rather than a specific drop in UA products.

Earnings May 2nd.

Shares fell from $25 to $18 on the earnings and after two weeks in the dungeon they closed at a two week high on Wednesday.

I am going to recommend a distant option because the stock is $19.86 at the close making the $20 call "at the money" with an inflated premium of $1.20 for April. The $22.50 option is only 40 cents but it is 12% out of the money or $2.64 away from the strike. However, we have 65 days and if UA cannot move $2.64 in 65 days, I picked the wrong play.

Position 2/16/17:

Closed 2/24/17: Long UA shares @ $19.94, exit $19.35, -.59 loss.

RELOAD: Buy UA shares with a trade at $20.15. Initial stop loss $19.25.

Optional: Long April $22.50 call @ 35 cents, no stop loss.




BEARISH Play Updates

CRAY - Cray Inc - Company Profile

Comments:

No specific news. Support finally broke. This could trigger further declines.

Original Trade Description: February 18th

Cray Inc., together with its subsidiaries, designs, develops, manufactures, markets, and services high-performance computing systems. The company operates through Supercomputing, Storage and Data Management, Maintenance and Support, and Engineering Services and Other segments. It offers a range of supercomputing systems, including the Cray XC40-LC, XC40-AC, CS400-AC, CS400-LC, and CS-Storm supercomputers. The company also provides analytics products comprising Cray Urika-GD Graph Discovery Appliance, which addresses the interactive data discovery with graphs; and Cray Urika-XA Extreme Analytics Platform used for production-class data analytics workloads. In addition, it offers storage and data management products, such as the Cray Sonexion storage systems that embeds the Lustre parallel file system and other software in an optimal configuration; Cray DataWarp applications I/O accelerator; and Cray Tiered Adaptive Storage, a flexible storage and archiving solution, which allows customers to transparently move data among fast, primary, and archival tiers. Further, the company provides custom engineering solutions; and customer support services comprising hardware and software maintenance, applications support, installation project management, system installation and de-installation, site preparation, and technical training for its systems, as well as ancillary services in application consulting, third-party software support, site engineering, on-site analysts for defined projects, and specialized training. Company description from FinViz.com.

Shares of CRAY were weak in January after the company provided selective guidance that was not specifically positive. They reported earnings on Feb 9th and spiked from $17.50 to $22.50 but never rose any higher.

The earnings of $1.38 were good and beat estimates for $1.24. Revenue of $346.6 million also beat estimates. However, the earnings guidance and commentary was lackluster. "While 2016 was not nearly as strong as we originally targeted we finished the year well." "Due to current market conditions, the company has limited visibility into 2017. While a wide range of results remains possible, the company continues to believe it will be difficult to grow revenue compared to 2016." Revenue is expected to be flat to down. Operating expenses are expected to be higher and gross profits are expected to be slightly lower. It was hardly an exciting outlook.

Earnings May 9th.

Shares began to decline last week and are poised to break below the post earnings support at $21. With a lackluster outlook, any decline in the Nasdaq could be magnified in Cray.

Position 2/21/17:

Short CRAY shares @ $21.30, see portfolio graphic for stop loss.

Optional but not recommended: April $20 put, $1.00.




Left Over Lottery Tickets

These positions were left over from prior plays where we had an optional option with no stop after the stock position was closed. Rather than close these for a few cents they are left open as a "Lottery Ticket" play. With months before expiration, anything is possible. A strong move in a single stock can be well worth the additional patience.

These positions are only updated on the weekend.


AKS - AK Steel - Company Profile

Comments:

The entire metals sector was crushed last week on worries an infrastructure stimulus program could be put off until 2018. This weighed on multiple sectors but steel, copper and aluminum were killed.

Original Trade Description: February 4th

AK Steel Holding Corporation, through its subsidiary, AK Steel Corporation, produces flat-rolled carbon, stainless and electrical steel, and tubular products in the United States and internationally. It produces flat-rolled value-added carbon steels, including coated, cold-rolled, and hot-rolled carbon steel products; and specialty stainless and electrical steels in sheet and strip forms. The company also produces carbon and stainless steel that is finished into welded steel tubing, which is used in the automotive, large truck, industrial, and construction markets; buys and sells steel and steel products, and other materials; and produces metallurgical coal from reserves in Pennsylvania. It sells its flat-rolled carbon steel products primarily to automotive manufacturers and to customers in the infrastructure and manufacturing markets, including electrical transmission, heating, ventilation and air conditioning equipment, and appliances; and coated, cold-rolled, and hot-rolled carbon steel products to distributors, service centers, and converters. The company sells its stainless steel products to manufacturers and their suppliers in the automotive industry; manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors and service centers. It also sells electrical steel products to manufacturers of power transmission and distribution transformers, as well as for use in the manufacture of electrical motors and generators. Company description from FinViz.com.

Shares spiked from $5 to $11 after the election on hopes for a surge in infrastructure projects, lower regulations and a growing economy. AK shares peaked early and traded sideways for a month. The week before earnings they began to decline as analyst said the market gains were overdone.

The reported earnings of 25 cents on January 24th that beat estimates for 7 cents. Revenue of $1.42 billion was slightly lower than estimates for $1.43 billion. Shares spiked on the earnings news and collapsed on guidance that shipments to automakers had declined in Q4. The next day a spokesman clarified that saying the "decline in shipments compared to 2015 was primarily the result of a 41% decline in shipments to the distributor and converters market as the company intentionally reduced sales of commodity products." In other words, AK wanted to focus its efforts on the higher margin products and reduce exposure to low margin products.

Shares quit declining after the clarification and bottomed just under $8. Friday's close was right on the verge of a 7-day high. One more positive day and we could see a rebound begin.

Update 2/21/17: AK Steel said they were increasing prices by a minimum of $30 a ton effective immediately.

Earnings April 25th.

The optional option position is for a longer-term holder with a June expiration. Very limited risk in terms of dollars invested and could be a decent winner if AKS returns to the $11.25 highs or higher on infrastructure stimulus headlines.

Position 2/6/17:

Long-term option:

Long June $10 call @ 59 cents. No stop loss.

Previously closed 2/23/17: Long AKS shares @ $8.18, exit $8.65, +.47 gain.



CX - Cemex - Company Profile

Comments:

No specific news. Shares are fading from the highs with no recent headlines about the border wall.

Original Trade Description: January 25th

CEMEX, S.A.B. de C.V. produces, markets, distributes, and sells cement, ready-mix concrete, aggregates, and other construction materials in Mexico and internationally. The company also offers various complementary construction products, including asphalt products; concrete blocks and roof tiles; architectural products; concrete pipes for storm and sanitary sewers applications; and other precast products comprising rail products, concrete floors, box culverts, bridges, drainage basins, barriers, and parking curbs. In addition, it provides building solutions for housing projects, pavement projects, and green building consultancy services; and information technology solutions and services. The company has operations in Mexico, the United States, Northern Europe, the Mediterranean, South America, the Caribbean, and Asia. Company description from FinViz.com.

Bernstein Research researched all the contractors that could supply materials for a border wall. In the Bernstein map below Cemex is represented by the red blocks. Building 1,000 miles of wall, which is what Trump has promised will take a lot of concrete.

Cemex is one of the world's largest suppliers of cement and readymix concrete. Analysts believe the wall will cost between $15 to $25 billion to build and concrete would be a major expense. Based on various comments about what Trump is asking for, analysts expect 7 feet deep and up to 40 ft high for 1,000 miles. That will take 7.1 million cubic meters of concrete worth $700 million. However, engineers believe it would be easier and cheaper to build precast panels like the wall in Israel and other places. That would allow the panels to be constructed close to Cemex locations and not have 1,000 concrete trucks rotating up and down the wall every day. The picture below is the Israeli wall made with concrete panels and it stretches 420 miles.

Regardless of how the wall is constructed, it will take a lot of concrete and Cemex is going to be a supplier. Cemex has a large presence in the U.S. so it is immune from the US First rule.

Update 2/2/17: The secretary of Homeland Security said they are planning to complete the border wall in less than two years. They plan on a crash construction project in the heavily traffic areas and then fill in the blanks over the next two years. That means once construction begins it could be in multiple locations at once and the velocity could be extreme in order to get most of it done before the 2018 elections.

Update 2/10/17: CX said sales rose 4% in Q4 to $3.2 billion. EBITDA rose 10% to $654 million and +15% for the full year to $2.7 billion. Free cash flow rose 91% to $1.7billion in 2016. Debt declined by $2.3billion. Asset sales reached $2 billion of which $1 billion will close in 2017. .

Earnings Feb 9th.

CX shares have already spiked in January once it became apparent the wall was actually going to happen. The stock broke out to a new high on Wednesday and probably has a long way to go.

Position 1/26/17:

Long July $11 call @ 52 cents. No initial stop loss.

Previously closed 2/6/17: Long CX shares @ $9.42, exit $9.05, -.37 loss.



FCX - Freeport McMoran - Company Profile

Comments:

The battle with the government of Indonesia is ongoing. Freeport threatened to take the matter to arbitration and will begin to layoff contract workers next week. More than 20,000 of the 32,000 workers at the mine are contract workers. Shares have declined to critical support. With the option at 11 cents there is no reason to close the position.

Original Trade Description: January 31st

Freeport-McMoRan Inc., a natural resource company, acquires, explores, and develops mineral assets, and oil and natural gas resources. The company explores for copper, gold, molybdenum, cobalt hydroxide, silver, and other metals, as well as oil and gas. It holds interests in various mines located in the Grasberg minerals district in Indonesia; Morenci, Bagdad, Safford, Sierrita, Miami, Chino, Tyrone, Henderson, and Climax in North America; Cerro Verde and El Abra in South America; and the Tenke Fungurume minerals district in the Democratic Republic of Congo, Africa. The company's oil and gas operations include oil production facilities in the Deepwater Gulf of Mexico; oil production facilities onshore and offshore in California; onshore natural gas resources in the Haynesville shale in Louisiana; natural gas production from the Madden area in central Wyoming; and a position in the Inboard Lower Tertiary/Cretaceous natural gas trend onshore located in South Louisiana. As of December 31, 2015, its consolidated recoverable proven and probable mineral reserves included 99.5 billion pounds of copper, 27.1 million ounces of gold, 3.05 billion pounds of molybdenum, 271.2 million ounces of silver, and 0.87 billion pounds of cobalt; and its estimated proved oil and natural gas reserves totaled 252 million barrels of oil equivalents. Company description from FinViz.com.

Freeport has had its share of problem over the last couple years. They bought back their spinoff oil and gas company in 2014, just as the price of oil began to crater. They bought the dip and added additional reserves in the deepwater gulf but the dip was not over. They tried for a year at the worst of the market to sell the energy business and could find no takers. Finally in Q4 they sold the deepwater assets to Anadarko Petroleum for $2 billion and far less than they were worth but at least they stopped the bleeding.

The decline in the global economy caused prices for copper to fall sharply and they were forced to sell some copper reserves as well as some other mining properties. Copper was selling for less than it cost to mine it so mines shut down and the industry restructured.

After copper bottomed at $1.93 in early 2016 it remains just over $2.00 for nine months until the surplus inventories started to deplete. Copper was $4.50 back in 2011. With copper prices at a 52-week high this week, Freeport shares also made a new 52-week high today.

Freeport has also had a battle with the government of Indonesia. With copper a major export, the government implemented a program a couple years ago that only allowed refined copper to be exported. The idea was to have the multiple mining companies build huge copper smelters and hire a lot of workers at decent wages. The miners battled the government to a standstill several times and production slowed to a crawl. With copper revenue crashing the government relented to some extent. However, Freeport reported with earnings that the pressure was on again and they were going to be forced to shut down production if the government did not allow them to export. A multiweek standoff occurred. On Tuesday, the government said it was going to exempt Freeport from some of the rules and shares rose.

Freeport is actually in good shape right now. The global economy is accelerating and commodity prices are rising. They have reduced debt and refocused their priorities. I expect shares to continue climbing.

Update 2/3/17: Freeport provided an update on the progress of negotiating with the Indonesian government on the new rules for exports the government put in place in January. Freeport warned that an unsuccessful outcome could reduce production by 70 million pounds of copper and 70,000 ounces of gold per month until approvals are received. This a high stakes game of chicken. The government wants to limit production and export of raw material and increase the amount that is smelted in Indonesia. However, there is not enough capacity at the jointly owned smelter and the mining companies do not want to commit millions of dollars to build a new smelter unless they are guaranteed an operating contract longer than five years, which is what the government is offering. The government is offering the option of a five-year extension but it is not guaranteed. Also, at the end of ten years the miners must have sold at least 51% of their business to Indonesian investors. So, spend millions to build a smelter, live under our austerity rules for the next five years and maybe we will let you continue but after 10 years controlling interest in your business belongs to Indonesia. Freeport has been fighting government rules for years and typically the government buckles because they need the export income and the jobs.

Update 2/10/17: Freeport surged 7% at the open on Friday but gave back half of those gains. The Indonesian government said it had issued a new mining permit to Freeport and the company could apply for a new export license at any time now that the permit was in force.

However, Freeport immediately rebutted those claims saying the new mining permit was unacceptable because it increased taxes and required Freeport to divest 51% of its operations in Indonesia. The company said all those terms were in violation of its long term contract with the country. Freeport warned again it would be shutting down production if it did not receive a permit on the same terms and conditions of the prior permits and existing contract.

Update 2/17/17: The Indonesia saga continues. On Friday, Freeport declared force majeure at the Greasburg mine after a five-week export ban. At the same time, the government said it issued a permit allowing for the export of 1.1 million tons for 2017. Freeport has said it will not accept the permit if it is not based on the current contract with the government. There was no word on Friday if the new permit was acceptable. Shares are declining on the battle despite copper prices being at 20-month highs.

Earnings April 26th.

Position 2/2/17:

Long April $18 call @ $.99, see portfolio graphic for stop loss.

Previously closed 2/7/17: Long FCX shares @ $16.69, exit $15.45, -1.24 loss.



STM - STMicroelectronics - Company Profile

Comments:

No specific news. The company made multiple new product announcements. Barclay's upgraded the company from equal-weight to overweight. Shares rallied to a new high after the close on Friday.

Original Trade Description: February 6th

STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and markets semiconductor products, and subsystems and modules worldwide. The company offers a range of products, including discrete and standard commodity components, application-specific integrated circuits, full-custom devices and semi-custom devices, and application-specific standard products for analog, digital, and mixed-signal applications, as well as silicon chips and smartcards. It also provides subsystems and modules, including mobile phone accessories, battery chargers, and ISDN power supplies for the telecommunications, automotive, and industrial markets; and in-vehicle equipment for electronic toll payment. The company sells its products through its distributors and retailers, as well as through sales representatives. Company description from FinViz.com.

STM is Europe's third largest chipmaker. The company reported revenue of $1.86 billion, an 11.5% increase. The also raised guidance for Q1 saying they expect 12.5% growth. The CEO said, "Based on market forecasts, a positive booking trend, and a strong performance at our distributors, we see the momentum from the second half of 2016 continuing as we enter 2017."

The chipmaker said improved efficiencies and product mix lifted gross margins from 33.5% to 37.5%. Their smartphone market share helped increase sales in that division by 17.8%. The automotive and industrial products segment saw sales increase 12.5%. STM is a supplier to Apple, Cisco Systems, HP, Seagate and Western Digital. Every one of those companies are reporting stronger sales and new product lines, all of which helps STM. They also make chips for drones, 3D printing and a wide variety of IoT products.

The consensus earnings estimates are for 103.4% growth in 2017.

Earnings April 27th.

Shares have caught fire because of expectations for a large boost in chips for the iPhone 8 or X whatever they end up calling it.

This stock is not cheap with a PE of 75 but the outlook is so strong that volume is exploding and the stock will not go down. We are going to hold our nose and buy it. A safer way to play this would be to buy the call option. That way your total risk is 70 cents a share.

Position 2/7/17:

Long April $15 call @ 65 cents. See portfolio graphic for stop loss.

Previously closed 2/9/17: Long STM shares @ $14.22, exit $13.75, -.47 loss.





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