Option Investor
Newsletter

Daily Newsletter, Wednesday, 4/17/2019

Table of Contents

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

Market Wrap

The Slowdown Is Over

by Thomas Hughes

Click here to email Thomas Hughes

Introduction

Economic data confirms activity slowed from last year but it wasn't as bad as feared and signs of a rebound are already emerging. Today's news includes data from China and the FOMC's latest Beige Book, both of which suggest economic activity is already re-accelerating. The bad news is that earnings, while better than expected, haven't been enough to spark a rally. The outlook from companies like Netflix have fallen short of consensus estimates and cast a shadow of doubt on the season's potential.

Market Statistics


New from China is that GDP grew faster than expected in the first quarter. The 6.4% reported is a tenth hotter than expected and helps assuage fear of economic slowdown. The March Industrial Production and Retail Sales figures back up the GDP read and suggest activity is accelerating in the 2nd quarter. Both Chinese Retail Sales and Industrial Production came in above expectations and the previous month's read. The risk in China now is that the PBOC will begin to rethink the need for additional stimulus since it looks like what they've already done is working.

The Beige Book was little changed from the previous month. Overall U.S. activity grew at a slight to moderate pace but there is a ray of light. While most districts reported economic growth as unchanged a few say the activity is accelerating. The caveat is that outlook did not improve so economic re-acceleration is likely to be restrained without some other catalyst for growth. Retail sales were sluggish but held steady, tourism was good, home sales are stronger, and manufacturing conditions are favorable although trade uncertainty lingers.

On the employment front, the Beige Book says employment continues to grow and wages are on the rise. Demand for high-skilled labor is highest but shortages are seen across the spectrum. Labor market tightening is adding to wage pressures as employers are forced to offer higher wages and benefits. Labor market tightening is also said to be restraining growth in some areas of the country and segments of the economy.

The Beige Book also shows that prices are rising. The word used to describe inflation is modest as tariffs, freight costs, and wages cut into margins. The bad news is that tariffs are adding to inflation, the good news is that rising freight costs and wages are a sign of economic expansion, inflation tied to them is healthy so long as it is managable.

With all that is going on in the market, it was comments from United Health CEO David Wichman that had today's indices moving. He says proposals from Democratic lawmakers like Medicare For All will surely jeopardize peoples relationships with their doctors, destabilize the nation's health care system, and limit clinicians ability to practice medicine. His comments had the entire health care sector down nearly -3.0%.


Economic Calendar

The Economy

Mortgage applications fell -3.5% over the last week but that is not important. The decline is small compared to gains in the last few weeks and not unexpected. Further, the decline in mortgage apps is due solely to a decline in refinance applications and offset by a 1% increase in applications to buy. Applications to buy are now up 7% YOY and sitting at a 9-year high. Lower interest rates and pent up demand are fueling the gains and likely to sustain this growth into the foreseeable future. The risk, of course, is in the FOMC and the data, and the two of them guide the market's view of inflation.

Wholesale Inventories rose in February from an upwardly revised January figure. Inventories rose 0.2% MOM and are up 6.9% YOY. The pace of sales also increased and this month, for the first month in several, outpaced the inventory build. Sales increased by 0.3% as activity in the broader economy begins to re-accelerate. The increase in sales can be seen in the Sales-to-Inventory Ratio. The ratio has begun to roll over and sign inventory growth is slowing. With activity re-accelerating and inventory growth slowing and/or about to decline it's logical to assume manufacturing activity will pick up to meet the demand.


Tomorrow's economic calendar is full. There is a read on Retail Sales, the Philly Fed's MBOS, Flash PMI from Markit on manufacturing and services, Business Inventories, and the Index of Leading Indicators along with the weekly jobless claims. This bundle, as a whole, is a fairly broad reflection of U.S. economic activity; if it confirms what we're already seeing in other data the second half of the year could be really good.

The Dollar Index

The Dollar Index edged lower in today's session but basically is holding steady near the middle of its trading range. Today's data was dollar positive but not enough by itself to tip the balance in favor of the bulls. U.S. economic activity has stopped slowing and may be rebounding but so has that of China, the EU, and the UK. With this situation still in place, that of U.S. data offset by global data, the DXY is likely to remain range bound in the near-term. The top and bottom of the range are $97.50 and $95.50, no change there, but it looks like the top may be retested again before the index moves lower. A move above $97.50 is not expected unless tomorrow's data is strong and data from abroad comes in weak.


The Gold Index

Gold extended its fall below $1,280 in today's action and in so doing has confirmed resistance at a level that was once market support. The metal is losing is luster in favor of equities as global data points to less slow-down than previously expected. The metal shed only a quarter percent in today's action but set a new low and below resistance. The indicators are bearish and pointing lower so lower prices are expected. My target now is $1,260 and possibly $1,240 depending on data, events, etc. The risk is that stochastic is already nearing oversold levels which sets up the possibility for a rebound should the right catalyst emerge. I'm thinking a set-back in trade talks, a weak data point, weak earnings outlook, Fed-Speak, Trump-Speak, just to name a few.


The GDX Gold Miners ETF fell a full percent in today's action. The ETF created a long red candle moving down to hit support at the bottom of its range at $21.50. The ETF is also supported by the long-term moving average which is sitting exactly at the bottom of the range. The indicators are bearish and gold is indicated lower so a move lower is expected. Support may be strong at the $21.50 level and may produce a rebound. If so I would pay attention because this ETF often leads gold with its bigger moves. A fall below $21.50 would be bearish and likely take the ETF down to $21.00, $20, and $19.00.


The Oil Index

Oil prices moved lower in today's session but are basically holding steady near the recent high. WTI has been in a small consolidation band over the past week or so and set up for its next move. With OPEC+, the Venezuelan and Iranian situations, and better than expected data supporting the market a move up is what I expect over the short to long-term. In the near-term, there may be a small correction or profit-taking event. The indicators are bullish but consistent with a peak so it would not be out of place for prices to pull back.


The energy sector is beginning to percolate. Rising oil prices are fuel for rising earnings forecasts and that is what drives stock prices higher. The XOI Oil Index fell in today's trading but remains near the freshly set high and consistent with a rising market. The index is slowing edging higher week by week and building up to what I think could be a nice rally. The candles, the moving averages, and the indicators are all set up to produce a textbook move that could easily send this index up to retest 1,600 or +28%. The only question now is if oil prices follow through on the OPEC+ Call or not.


In The News, Story Stocks and Earnings

Morgan Stanley reported before the bell and beat on the top and bottom lines. The bank says Q1 adjusted EPS is $1.33, $0.13 above consensus. The GAAP EPS include a net tax benefit not seen in all quarters so was left out for comparison reasons. The bad news is that revenue was down from the prior year in what management described as a slow start to the year. Institutional Securities, Investment Banking, and Trading revenues all fell but were offset by growth in NII, Wealth Management and Investment Management. Earnings were also helped by lower compensation expenses but that should not be expected to continue in today's labor market.

Morgan Stanley also says it feels good about guidance. The company is looking for mid-single digit loan and NII growth despite the flat yield curve and interest rate uncertainty. A healthy pipeline of deal-making is also noted as a driver of future results. Shares of the stock rose 2.6% on the news.


Facebook announced today that it was working on a new device to rival Amazon's Alexa and Apple's Siri. The tool would help users interface with the Internet and help Facebook collect more data, and expose you to more risk. Despite the risks, I am sure people will flock to it so Facebook is likely to turn out a winner. Social media is on the outs and regulators are ready to swoop so Facebook needs a strategy for change or else go the way of websites like Yahoo that are now irrelevant. Shares of the stock closed with a small loss but set a fresh 8-month intraday high before the close.


Las Vegas Sands reported after the bell and delivered a solid beat. Not a jackpot but enough to keep investors interested. Adjusted EPS of $0.91 beat by $0.04 while revenue rose 2.0% and also beat estimates. EBITDA grew 8.7% or better across all properties with revenue and EPS strength driven by the integrated resort property in Macau. Good news within the report includes updates on the progress of two other major projects and favorable outlook for the remainder of the year. Shares moved up nearly 4.0% in after-hours trading.


The Indices

The indices were mostly flat and mixed in today's session. There is one index however that move up 1.0%. The bad news is that even with that 1.0% gain the chart on the Dow Jones Transportation Average does not look good. The candle is a nice little shooting star doji right below a major resistance point; all it will take is a drop in tomorrow's action for this to turn into a Shooting Star Doji reversal. The indicators are bullish but not strongly. Momentum is weak and stochastic is showing a bearish crossover that could spell trouble. A fall from this level would confirm resistance and the possibility of a deeper correction. If so my targets for support are 10,750 and then 10,500.


The S&P 500 posted the largest decline at -0.22%. The broad market index opened with a small gain but fell throughout the day to form a medium-sized red candle. The candle forms a Dark Cloud Cover with the candle before it and may lead the index lower in the next few days. The indicators are showing bearish crossovers that confirm the presence of selling pressure. A move lower is expected over the next few days, my first target for support is near 2,875, a fall below that could lead to a much deeper decline.


The NASDAQ Composite closed with a loss of only -0.05% but it too formed a Dark Cloud Cover. This index looks like a textbook example of an overextended market at its peak and about to pull back. The candle signals reversal and that is backed up by the indicators. The indicators are both showing bearish crossovers with an index well extended from reasonable support at the short-term moving average. Even if this index is still in an uptrend and heading higher I would expect to see prices consolidate at this level. A fall from this level would be bearish and may take the Comp down to 7,790 or 7,500 in the near to short-term.


The Dow Jones Industrial Average posted the smallest loss at -0.01%. The blue-chip index is still in consolidation near the recent high and it is indicated higher. A move higher is possible but not expected in light of what I'm seeing in the other indices. A move sideways or lower is more likely; my target for support in that event is 26,000.


The market has been rallying for a long time, since the end of December, and it looks extended. It has looked extended for some time and it has thrown off at least one reversal signal that failed. I have been anticipating a pullback and possibly correction to December's lows and this may be it. If it is there will be a much better signal to sell on than what we're seeing today. When that signal comes, if it comes, I'll be ready to sell for some short-term gains. The slowdown may be over but the reacceleration has yet to begin. I am still firmly bullish for the long-term.

Until then, remember the trend!

Thomas Hughes


New Option Plays

Mixed Emotions

by Jim Brown

Click here to email Jim Brown

Editors Note:

A few investors are bullish, but the majority are turning even more bearish. According to Blackrock's Larry Fink, the market will see a surge of buying once it makes new highs. The Nasdaq 100 closed at a new high but the S&P futures are down more than 8 points. The Russell 2000 lost 15 points for the day and more than the Dow, S&P and Nasdaq Composite combined. The Russell is the sentiment indicator for the market, and it is flashing a huge warning sign. I have warned about a potential sell the news event at the new highs. No new plays with the weak market and sharply negative futures.

 

New positions are only added on Wednesday and Saturday except in special circumstances.


NEW DIRECTIONAL CALL PLAYS

No New Bullish Plays


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

New High

by Jim Brown

Click here to email Jim Brown

Editors Note:

The Nasdaq 100 closed at a new record high while the other indexes fizzled. This was a tale of two markets, one good and one bad. The small caps sank again while the tech stocks rallied. The Dow and S&P were flat. In theory the new high close is bullish for the broader market but the big drop in the Russell is bearish. There are a lot of investors afraid to buy this market top.



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.





Current Position Changes


No Changes


Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

FIVE - Five Below - Company Profile

Comments:

Bank of America initiated coverage with a buy rating and $150 price target. It costs $300,000 to open a Five Below store and they generate about $450,000 in operating income in the first 12 months. The cash payback period is just seven months.

Original Trade Description: April 10th

Five Below, Inc. operates as a specialty value retailer in the United States. It offers accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and T-shirts, as well as nail polishes, lip glosses, fragrances, and branded cosmetics; and items used to complete and personalize living space, including glitter lamps, posters, frames, fleece blankets, plush items, pillows, candles, incense, lighting, novelty decor, and related items, as well as provides storage options for the customers room. The company also provides sport balls; team sports merchandise and fitness accessories, such as hand weights, jump ropes, and gym balls; games, including name brand board games, puzzles, collectibles, and toys covering remote control; and pool, beach, and outdoor toys, games, and accessories. In addition, it offers accessories, such as cases, chargers, headphones, and other related items for cell phones, tablets, audio, and computers; books, video games, and DVDs; craft activity kits; arts and crafts supplies that consist of crayons, markers, and stickers; and trend-right items for school comprising backpacks, fashion notebooks and journals, novelty pens and pencils, locker accessories, and everyday name brand items. Further, the company provides party goods, decorations, gag gifts, and greeting cards, as well as every day and special occasion merchandise products; assortment of classic and novelty candy bars, movie-size box candy, seasonal-related candy, and gum and snack food; chilled drinks through coolers; and seasonally-specific items used to celebrate and decorate for events. It primarily serves tween and teen customers. As of February 2, 2019, Five Below, Inc. operated 750 stores. The company was formerly known as Cheap Holdings, Inc. and changed its name to Five Below, Inc. in August 2002. Five Below, Inc. was founded in 2002 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com.

Five Below has 750 stores and is targeting 2,500. Their rapid expansion is the key to their surging 22% rise in revenue. They are not planning on 2,500 in 2019 but that is their goal over the next several years. They opened 125 stores in 2018. Average store volume is $2 million. Same store sales on those open more than a year was +4.4%. This rapid expansion should keep investors attention.

They are projecting 2019 revenue to rise 19.6%-20.9% to $1.865-$1.885 billion with a goal of 145-150 new stores. They are adding three new states and will be operational in 36 states plus DC by year-end.

Their Q4 earnings of $1.59 beat estimates for $1.57. Revenue of $602.7 million narrowly beat estimates for $601.0 million.

Shares spiked $10 after earnings but gave it all back before beginning the current rally. Shares are very close to a breakout over $130.

Earnings June 26th.

Position 4/11/19:
Long May $135 call @ $6.00, see portfolio graphic for stop loss.


INTC - Intel - Company Profile

Comments:

Intel lost the Apple 5G modem contract to Qualcomm and shares declined initially. Then Intel announced it was getting completely out of the 5G business and shares soared because that was a cash drain development and would have been a low margin product.

Original Trade Description: Feb 16th

Intel Corporation designs, manufactures, and sells computer, networking, data storage, and communication platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, desktops, and wireless and wired connectivity products; enterprise, cloud, and communication infrastructure market segments; and retail, automotive, industrial, and various other embedded applications. The company offers microprocessors, and system-on-chip and multichip packaging products. It also provides NAND flash memory products primarily used in solid-state drives; and programmable semiconductors and related products for communications, data center, industrial, military, and automotive markets. In addition, the company develops computer vision and machine learning, data analysis, localization, and mapping for advanced driver assistance systems and autonomous driving. It serves original equipment manufacturers, original design manufacturers, industrial and communication equipment manufacturers, and cloud service providers. Intel Corporation has collaboration with Tata Consultancy Services to set up a center for advanced computing that develops solutions in the areas of high performance computing, high performance data analytics, and artificial intelligence. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.

In November Intel announced a $15 billion share buyback program. Intel had $4.7 billion remaining under a prior authorization putting them just shy of $20 billion. This represents almost 10% of the outstanding shares. Six years ago, Intel had 6.5 billion shares outstanding. If they complete this buyback program, they will have just over 4 billion shares outstanding.

Intel is poised to profit from the coming 5G revolution. Apple has already said they are going to use Intel's 5G model in their 2020 phones. Intel has participated in more than 25 5G trials with potential partners. In the last quarter Intel said revenue from communications service providers rose 30%. The company said in August it is pursuing the $24 billion communications infrastructure segment of the market and expects to gain significant market share by 2022. Intel is not just a PC and server processor company any more.

Intel reported Q4 earnings of $1.28 that beat estimates for $1.22. However, revenue of $18.66 billion missed estimates for $19.02. Their biggest problem was guidance for Q1 of 87 cents on $16 billion in revenue. Analysts were expecting $1 on $17.29 billion.

Intel is poised to benefit from a trade agreement with China. They currently get 24% of their revenue from China. With the advent of 5G, Intel is poised to be a leading player. They bill themselves as an "end to end" provider. The 5G revolution is not only going to replace nearly every piece of networking gear on the planet, every cellphone owner will be upgrading to a new 5G phone, many with an Intel modem. Remember the old commercials from the 2000's, "Intel Inside?" With Intel's new push into the internet of things (IoT), smartphone communications and self-driving vehicles, they really will be inside most electronic products.

Intel is expected to grow revenue by 5% in 2019. That is better than the sector forecast for 2% growth.

Earnings April 25th.

We have to reach out to the June option cycle to get a strike that comes after earnings and will keep the premiums inflated. We can buy time, but we do not have to use it.

Position 2/19:
Long June $55 call @ $1.53, see portfolio graphic for stop loss.


LOW - Lowes Companies - Company Profile

Comments:

No specific news. New high close.

Original Trade Description: March 30th

Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. It offers a line of products for maintenance, repair, remodeling, and decorating. The company provides home improvement products in various categories, such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, seasonal and outdoor living, lawn and garden, paint, millwork, flooring, and kitchens, as well as outdoor power equipment. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers. As of November 5, 2018, it operated 2,390 home improvement and hardware stores. The company also sells its products through online sites comprising Lowes.com and Lowesforpros.com; and through mobile applications. Lowe's Companies, Inc. was founded in 1946 and is based in Mooresville, North Carolina. Company description from FinViz.com.

Earnings May 29th.

Lowes is in the midst of a restructuring and the new CEO, Marvin Ellison took over in July. Since then he has closed stores all across the country and hired thousands of IT workers to improve online sales. As a result, Lowes is closing the gap with Home Depot.

In the last quarter the company posted earnings of 80 cents that beat estimates by a penny. Overall revenue rose 1% to $15.65 billion. The slower revenue growth was due to the store closures.

The CEO said the hard work has now been done over the last six months and they are fully prepared for a strong spring and summer selling season. In January alone, same store sales rose 5.8%.

Shares closed at a 6-month high on Friday and appear poised to retest the peak of $117 from September. I am using the June option to retain premium ahead of the May earnings. We will exit before the earnings.

Position 4/1/19:
Long June $115 call @ $2.51, see portfolio graphic for stop loss.


MSFT - Microsoft - Company Profile

Comments:

Microsoft is rumored to be ready to announce, "Surface Buds," wireless earphones to compete with Apple and they will be powered by Cortana. Shares closed at a new high.

Original Trade Description: March 23rd

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. Its company's Productivity and Business Processes segment offers Office 365 commercial products and services, such as Office, Exchange, SharePoint, Skype for Business, Microsoft Teams, and related Client Access Licenses (CALs); Office 365 consumer services, including Skype, Outlook.com, and OneDrive; LinkedIn online professional network; and Dynamics business solutions comprising financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and medium businesses, large organizations, and divisions of enterprises. The company's Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform; and enterprise services, including premier support and Microsoft consulting services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions, as well as provides training and certification to developers and IT professionals. Its More Personal Computing segment offers Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, and MSN display advertising; devices comprising Surface, PC accessories, and other intelligent devices; Xbox hardware and software and services; and Bing and Bing Ads search advertising. The company markets its products through original equipment manufacturers, distributors, and resellers; and online and Microsoft retail stores. Microsoft Corporation has collaboration with E.ON; strategic alliance with Nielsen Holdings plc and PAREXEL International Corp.; collaboration with NIIT Technologies Ltd.; and a strategic collaboration with Mastercard Incorporated. The company was founded in 1975 and is headquartered in Redmond, Washington. Company description from FinViz.com.

Microsoft is closing in on one billion Windows 10 installations. This is a money printing machine. Their server software, Office 365, SQL Server, Azure cloud service, are all money printers. They are very close to killing the video game market and putting Gamestop out of business by releasing a download only video game console. They are going to put the Xbox in the cloud. This is called Project XCloud. The idea is to be able to play any game on any device at any time without a controller or software CD. This took some of the excitement out of the Google Stadia announcement.

This is a simple recommendation. Shares closed at a new high on Thursday and pulled back to short-term support on Friday. "IF" the market recovers, Microsoft should make new highs again.

Earnings May 1st.

Position 3/25/19:
Long May $120 call @ $2.99, see portfolio graphic for stop loss.


NTNX - Nutanix - Company Profile

Comments:

No specific news. Shares are moving nicely higher again.

Original Trade Description: March 13th

Nutanix, Inc., together with its subsidiaries, develops and provides an enterprise cloud platform in North America, Europe, the Asia Pacific, the Middle East, Latin America, and Africa. Its solution addresses a range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications, and big data analytics. The company offers Acropolis, an open platform comprising hyperconvergence, native virtualization, enterprise storage, virtual networking, and platform services; and Prism, an end-to-end consumer-grade management plane providing management and analytics across its software products and services. It also provides Nutanix Calm that offers native application orchestration, automation, and lifecycle management to its enterprise cloud platform. In addition, the company offers Beam, a multi-cloud optimization service; and Frame, a desktop-as-a-service. It serves customers in a range of industries, including automotive, consumer goods, education, energy, financial services, healthcare, manufacturing, media, public sector, retail, technology, and telecommunications, as well as service providers. The company was founded in 2009 and is headquartered in San Jose, California. Company description from FinViz.com.

Nutanix shares were crushed on March 1st after they posted an adjusted loss of 14 cents. Analysts were expecting 25 cents, so this was a beat. Revenue of $335.4 million beat estimates for $331 million. However, billings rose from $355.9 million to $413.4 million. Analysts were expecting $416.5 million and not a big miss.

The problem came from guidance. They guided for the current quarter for a loss of 60 cents on revenue of $290-$300 million and billings of $360-$370 million. Analysts were expecting 28 cents on revenue of $348 million and billings of $430.2 million. That was a major miss.

The CFO said, "The guidance reflects the impact of inadequate marketing spending for pipeline generation and slower than expected sales hiring." "We took a critical look at these areas and have taken actions to address them."

Shares fell $17 to $33 on the news. After a week of sideways consolidation shares have started to move higher. The CFO said they corrected the problem. That may not mean there will be a recovery in the current quarter but there will be a recovery. I am recommending we buy the dip.

The first option cycle out of the 30-day premium depreciation window is July. We can buy time, but we do not have to use it.

Position 3/14/19:
Long July $42.50 call @ $3.25, see portfolio graphic for stop loss.


SWKS - Skyworks - Company Profile

Comments:

Macquarie downgraded Skyworks from buy to hold because of the Apple deal with Qualcomm. The analyst said Qualcomm has some chips they could supply to apple that could produce price pressures for Skyworks, which gets 50% of its revenue from Apple. That is one person's opinion.

Original Trade Description: April 6th

Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable markets. It sells its products through direct sales force, electronic component distributors, and independent sales representatives. Skyworks Solutions, Inc. has a collaboration agreement with MediaTek Incorporated to deliver standards-based 5G solution. The company was founded in 1962 and is headquartered in Woburn, Massachusetts. Company description from FinViz.com.

The chip sector has rallied 38% in 2019 compared to 23% for the S&P. However, some chip stocks have not participated. Skyworks spiked to $85 after its earnings in February then traded sideways until last week. Friday's close was a 5-month high and a breakout of the recent range.

They reported earnings of $1.83 that missed estimates for $1.84. Revenue of $972 million missed estimates for $973 million. The generated a record $549 million in free cash flow from operations and ended the quarter with more than $1 billion in cash. Obviously, those misses were minor, and shares spiked on their strong guidance. They guided for Q2 for earnings of $1.43 and revenue of $800-$820 million. Q1/Q2 are normally light quarters for chip stocks because the surge in smartphone building occurs in Q3/Q4.

They also announced a $2 billion stock buyback program that replaced their expiring $1 billion program that had $129 million left to spend. They also announced a quarterly dividend of 38 cents that was paid on March 19th.

Skyworks will be a major beneficiary of the 5G rollout. They have already installed 5G base stations all across Europe and have secured contracts with multiple vendors for 5G chips. They are also a major supplier for Apple and Samsung and those new phones will begin hitting the market in August.

Earnings May 7th.

I am using a short-term May option because we will exit before the May earnings.

Position 4/8/19:
Long May $90 call @ $2.60, see portfolio graphic for stop loss.


XRAY - Dentsply Sirona - Company Profile

Comments:

No specific news but shares of XRAY fell -3.2%. Shares missed our stop loss by 7 cents. I considered closing but with the stop 26 cents below the close, we could see a forced exit on Thursday we still have the potential for a rebound. There is nothing to be gained by closing at the open.

Original Trade Description: April 3rd

DENTSPLY SIRONA Inc. designs, develops, manufactures, and markets various dental and oral health products, and other consumable healthcare products primarily for the professional dental market worldwide. The company operates in two segments, Technologies & Equipment; and Consumables. Its dental supplies include endodontic instruments and materials, dental anesthetics, prophylaxis pastes, dental sealants, impression materials, restorative materials, tooth whiteners, and topical fluoride products; and small equipment products comprise dental hand pieces, intraoral curing light systems, dental diagnostic systems, and ultrasonic scalers and polishers. The company also offers dental laboratory products, such as dental prosthetics that include artificial teeth, precious metal dental alloys, dental ceramics, and crown and bridge materials. In addition, it provides dental technology products, including dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialist, and dental laboratories; and dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners and laboratories. Further, the company offers healthcare consumable products, such as urology catheters, medical drills, and other non-medical products. It markets and sells dental products through distributors, dealers, and importers to dentists, dental hygienists, dental assistants, dental laboratories, and dental schools; and urology products directly to patients, as well as through distributors to urologists, urology nurses, and general practitioners. The company was formerly known as DENTSPLY International Inc. and changed its name to DENTSPLY SIRONA Inc. in February 2016. DENTSPLY SIRONA Inc. was founded in 1899 and is headquartered in York, Pennsylvania. Company description from FinViz.com.

XRAY was one of the three worst performing healthcare stocks in 2018. Things are looking up now that they are well into their restructuring program. The company reported earnings of 58 cents that beat estimates for 54 cents. Revenues of $1.06 billion beat estimates for $1.03 billion. Both metrics were down from the year ago quarter.

However, the company projected for earnings to rise 15.5% in 2019 with revenue of $3.95-$4.05 billion, which beat estimates for $3.94 billion. They guided for 2019 earnings of $2.25-$2.40 with a midpoint of $2.32 that easily beat estimates for $2.15.

Shares spiked sharply after the report and have traded sideways for the last month. There is an uptick in progress and Today's close was a 12-month high.

Earnings May 31st.

If XRAY can move over current resistance they have room to run.

Position 4/4/19:
Long July $55 call @ $1.40, see portfolio graphic for stop loss.


BEARISH Play Updates

LYFT - Lyft Inc - Company Profile

Comments:

No specific news. Lyft shares spiked $2 in the last 20 min of trading. Analysts believe this is due to the favorable pricing of the Pinterest IPO lifting the IPO market.

Original Trade Description: April 13th

Lyft, Inc. operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It provides Ridesharing Marketplace, which facilitates lead generation, billing and settlement, support, and related activities to enable drivers to provide their transportation services to riders. The company also offers a network of shared bikes and scooters in various cities to address the needs of riders for shorter routes; Express Drive program, a flexible car rentals program which connects drivers who need access to a car with third-party rental car companies; and concierge for organizations to manage the transportation needs of their customers and employees. In addition, it integrates third-party public transit data into the Lyft app to offer various enterprise programs, including monthly ride credits for daily commutes, supplementing public transit by providing rides for the first and last leg of commute trips, late-night rides home, and shuttle replacement rides. The company was formerly known as Zimride, Inc. and changed its name to Lyft, Inc. in 2013. Lyft, Inc. was incorporated in 2007 and is headquartered in San Francisco, California. Company description from FinViz.com.

Analysts are perplexed at the valuations for rid sharing companies. The drivers are free agents and the customer is a free agent. As one analyst said, "there is no stickiness in the business." Lyft managed to pump up its revenue over the last quarter because they were giving huge discounts to lure customers away from Uber ahead of the Lyft IPO. Offers like "50% off your next ten rides" were common. Lyft said it took market share from Uber in Q1 but they did not tell you it was because they were giving away highly discounted rides.

This is going to be a cutthroat business. I know several drivers that drive for both Uber and Lyft and several have said they have picked up the same people on both services. It is whoever is closest and which ride will be the cheapest. With multiple competitors gearing up to enter the space the cost per ride is going to decline along with the payments to the drivers.

This space is going to be a cat fight for the next couple of years while each of these companies tries to claw their way to profitability.

With the Uber IPO now announced and Uber being a much larger and much more integrated company, they are going to be the assumed winner in the months ahead. Anyone investing in this space is going to want to be in Uber and not Lyft. You want to go with the winner and not the underdog that is losing money on every ride.

In the Uber S1 they warned that they may never reach profitability. Lyft lost $900 million in 2019 and the cash burn is continuing. If Uber cannot be profitable with their multifaceted global business, how is Lyft going to be profitable offering only the cheapest rides available?

I believe Lyft shares are going to trade well under $50 in the coming months. I could be sorely mistaken but that is what I expect. When Uber begins trading, I expect Lyft to decline even further.

Wide stops because of expected volatility.

Position 4/15/19:
Long June $55 put @ $4.21, see portfolio graphic for stop loss.
Short June $45 put @ $1.30, see portfolio graphic for stop loss.
Net debit $3.10.