Option Investor
Newsletter

Daily Newsletter, Saturday, 7/6/2019

Table of Contents

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

Market Wrap

Fed Expectations Waiver

by Jim Brown

Click here to email Jim Brown

A stronger than expected payroll report dimmed expectations for a large rate cut.

Weekly Statistics

Friday Statistics

The market had worked itself into a frenzy with expectations for a 50-basis point rate cut at the July 31st FOMC meeting. The stronger than expected jobs report dashed those hopes and the Dow fell -232 at the open. At least that was the conventional wisdom being spread around on stock TV. While I am sure there was some truth to that story, the lack of volume in an oversold market let those taking new high profits, push the market lower at the open.


The only economic report on Friday was the Nonfarm Payrolls for June. The economy created 224,000 jobs in June compared to estimates for 75,000. May was revised lower from 75,000 to 72,000 and April was revised lower from 224,000 to 216,000.

The unemployment rate rose from 3.6% to 3.7% because of more people entering the workforce. The average monthly jobs for Q2 were 171,000 per month and about twice what are needed to keep pace with the growing workforce. This is down from the 200,000 average rate in 2018. The labor force participation rate increased one tenth to 62.9%. Some 335,000 people joined the workforce. This is related to the 2019 graduating class heading out to find their first real job. This was up from 179,000 in May.

Goods producing jobs rose 37,000 and service jobs rose 187,000. There was not a big surge in census hiring. Only 33,000 jobs came from federal government sources and there will eventually be hundreds of thousands when they begin ramping up. The labor market has grown every month for 114 consecutive months and the longest ever period of growth.

Education and health services added 61,000 jobs, professional and business services 51,000, Transportation and warehousing 23,900, construction 21,000, manufacturing 17,000 and leisure and hospitality only 8,000. That last number is bullish because it has declined significantly. Workers are finding more stable, higher paying jobs and are not being forced to work as a waiter or bartender to make ends meet. Retail lost 5,800 jobs and mining (energy) lost 1,000.

The floods in the Midwest were blamed for the low numbers in May. If that was the case, we should continue to see strong job growth in the 185,000-215,000 range for the rest of the year.


The surprise in the payroll report reduced the odds of a 50-point cut from about 50% to 4.9% or next to impossible. There is a 100% chance of a 25-point cut to head off weakness from the global economy.


The yield on the ten-year note also spiked with the decline in rate cut expectations. The 1.95% level was a two-year low.


The calendar for next week has four opportunities for market disruption. Chairman Jerome Powell speaks on "Stress Testing" on Tuesday. That is expected to be a tame speech and not deal with rate policy. However, on Wednesday and Thursday he gives testimony to Congress and in each instance, he will be rigorously questioned about his plans and his ability to withstand President Trump's calls for lower rates. The Wednesday session will be the most dangerous with Thursday just a recap of what was said on Wednesday. Also, on Wednesday we will get the minutes from the last FOMC meeting and analysts will be searching for rate cut clues.

Thursday and Friday have the inflation reports in the CPI and PPI. This impacts the Fed's outlook on inflation, and they are not expected to show any signs of rising prices.


The first trickle of Q2 earnings reporters will appear next week with Pepsico, Bed, Bath and Beyond, Delta Airlines and Fastenal.

So far in the Q2 cycle, 21 companies have reported, and earnings growth has been zero with revenue growth at 3.4%. Of those reported 86% have beaten on earnings estimates and 76% have beaten revenue estimates. The current projections are for earnings growth of 0.7% and revenue growth of 3.4%. Typically, the early earnings forecasts are low by up to 3% and that suggests the overall quarter will still be positive.

June had the most Q2 earnings warnings at 85 since 2014. There were 23 guidance upgrades. The number of warnings, nearing 20% of the S&P, suggest this could be a rocky quarter.


There were no earnings of note last week.

Tesla (TSLA) surprised everyone with deliveries of 95,200 vehicles. Analysts were expecting 89,084. That included 77,550 Model 3s and beat estimates for 73,144. There were a combined 17,650 for the Model S and X. The prior record quarter was Q4 with 90,700 vehicle deliveries.

A challenge for Tesla was the 50% decline in the $7,500 tax credit at the end of December and that was cut again to $1,875 on Monday. It expires completely at the end of 2019. The drop in the tax credit in Q1 caused deliveries to plunge and triggered demand worries among analysts. Likewise, analysts said the surge in Q2 could have been customers pulling their orders forward to beat the second tax credit decline on July 1st.

There was also a help from the 10,600 vehicles in transit at the end of the first quarter. That provided an extra boost to the total deliveries in Q2. At the end of Q2 there were 7,400 vehicles in transit. Tesla said it would no longer provide that guidance. The latest guidance from Tesla is for delivery of 360,000-400,000 vehicles in 2019. Most analysts are skeptical since even the good Q2 quarter is likely surrounded by not only a poor Q1 but a potentially poor Q3 because of the reduced tax credit.

Tesla shares spiked on the news as shorts were forced to cover. I would still recommend buying long term puts on Tesla if the premiums were reasonable. There are far too many factors working against the company as competition increases. UBS just reiterated a sell rating and cut their price target from $200 to $160. Goldman reiterated a sell rating and cut their price target from $200 to $158. Barclays has a sell rating and cut their target from $192 to $150.


Rumors broke on Wednesday that Broadcom (AVGO) was in late stage talks to acquire Symantec. Shares of SYMC spiked from $21 to $25.50 on the news before fading. Symantec is one of the largest security software companies in the world, but shares have been struggling. Keeping management has been a systematic problem and that suggests there are internal issues. Investors saw a lack of synergies and Broadcom shares crashed.

On Wednesday news broke that Broadcom may also be interested in acquiring Tibco Software. Tibco platforms are used by Jet Blue, NASA, General Mills, Macy's Royal Caribbean and others. Tibco sold itself to PE firm Vista Equity Partners in 2014 for $4.3 billion.

Broadcom bought CA Technologies last year for $19 billion and software now accounts for about 25% of Broadcom's revenue. Broadcom is under investigation by the FTC for forcing customers into illegal contracts promising not to buy from competitors.



Electronic Arts (EA) shares fell 5% on Friday after they released the new version of Apex Legends. When legends first launched in early 2019, they quickly accumulated more than 10 million players. After the release of season 2, the game only had about 45,000 viewers on Twitch. That was down from 100,000 viewers a day back in March. Apparently, the interest in the game has died but some analysts are blaming it on the holiday weekend keeping players outside and away from their consoles.


Drug stocks declined on Friday after President Trump said they were working on a new drug pricing plan. US consumers would buy drugs based on the lowest prices paid by other countries. It is not fair for US consumers to pay $1,000 for the same drug that is sold for $100 in Europe. The plan would have a "favored nations" component for averaging down drug prices. The US pays the highest prices for drugs of any country.

Amazon filed a request with the FCC to launch 3,236 near earth satellites to offer satellite based broadband internet access. The plan would provide high speed access to "tens of millions" of underserved customers around the world. Bezos said the Kuiper project would cost "multiple billions of dollars" and it not related to his Blue Origin space launch company. Low orbit is considered 112 to 1,200 miles high. Amazon's satellites would orbit at 370-390 miles. In order to remain in orbit, they have to continually race around the earth with orbits as short as every 90 minutes. As one satellite moves out of range of ground receivers it passes off those connections to the next satellite in line and adds signals from new receivers it is approaching.

Elon Musk's Space X has already received approval for 11,943 satellites for the same purpose. They launched an initial batch of 60 in May and have already lost communications with three of them. Other companies with the same plan include Boeing, OneWeb and Leosat Enterprises. Combined they could launch more than 50,000 low orbit devices that are programmed to commit suicide by plunging into the atmosphere when their life cycle ends.

Amazon also said their system could provide mobile broadband to planes, ships and mobile vehicles.

In 2017 more than 26% of US consumers did not have any broadband service. In May the FCC said 33 million Americans do not have access to broadband. Worldwide 3.8 billion people do not have broadband access. Only about 20% of the earth is covered by cell towers.

In other news the divorce between Jeff Bezos and wife Mackenzie was finalized on Friday. She will receive $38.3 billion in Amazon stock, about 4%, and make her the world's 22nd richest person. Jeff will retain 12% worth $114.8 billion and he will remain the world's richest man. Mackenzie will give Jeff voting control of her stock to insure his continued leadership at Amazon. She also gave Jeff all her interest in the Washington Post and Blue Origin.


The co-CEOs at Canopy Growth are leaving. Bruce Linton, the public face of Canopy was terminated by the board. His counterpart Mark Zekulin said he would leave as soon as a replacement can be found. The exits are the result of Constellation Brands $4.1 billion investment. With that buy in and succeeding option exercises they acquired four of the seven board seats. After the big Q1 earnings disappointment the board, at least the Constellation side, believed they needed somebody with more experience running and building public companies. Linton and Zekulin had the foresight to start the company but neither are public company managers. Linton said he feared being displaced when he agreed to the Constellation investment, but it was too critical for Canopy and worth the risk. Linton was a pioneer for not just Canopy but the industry in general. He was also the visionary that crafted the agreement with Acreage Holdings that will eventually be acquired by Canopy.


Samsung Electronics warned on Friday that Q2 earnings could be cut in half because of weak demand that has intensified because of the trade war with China. Micron (MU) said it was experiencing "intense competition" from Samsung in the memory and storage markets. The memory chip price war is helping consumers but hurting both companies.


The oil market was relatively quiet after OPEC agreed to extend the 1.2 million bpd production cuts for the rest of 2019. Prices declined on the outlook for stables supplies.

However, over the weekend the UK seized the Iranian tanker Grace I which was transporting oil to Syria in violations of the EU sanctions. The tanker was carrying two million barrels of oil. Iran warned the UK to release the tanker immediately or face retaliation, which could include the seizure of a UK tanker in response. This is sure to cause another spike in prices next week. If Iran strikes out with protest attacks, the US is likely to intervene militarily.

Active oil rigs declined by five for the week ended on July 5th.





Markets

The S&P gained 17.35% in the first six months of 2019. That is only the tenth time in 70 years that it has gained over 15%. In those years the S&P declined an average of 12.5% in the second half of the year and as much as 34% in the crash of 1987. With Q2 earnings expected to be flat that would normally be a cause for worry. The prospect of rate cuts in a non-recession environment should fuel a continue rise. Rate cuts trump weak earnings.

However, the markets remain overbought after the big June rebound. It will be very interesting to see if investors are content to keep adding to positions at new highs.

The Dow has rebounded 8% over the last five weeks. The path has not been straight up but contained two pauses to refresh. The initial sprint paused on the 10th for several days and that was followed by another uptick on the 18th. The index again paused for several days as the headlines played out. In theory, this could continue for a long time if the pattern continues to repeat. The sprints are short squeezes and the pauses trick the shorts into building new positions only to be squeezed again. The pauses also allow time for investors to rationalize adding to positions.


The Dow recovered the initial drop on Friday to close with only a minor loss. The A/D line was roughly 2:1 in favor of decliners. We still have a week before the first Dow components begin reporting earnings. Without any China trade news next week, the headlines impacting Dow stocks should be slim.

The index is poised for a new leg higher, but we may need a catalyst to overcome the overbought conditions.



The S&P is well above the prior high at 2,954 and closing in on the 3,000 level. The index hit 2,995 on Wednesday and could test that 3,000 mark this week. With so many analysts having year end targets of 3,000-3,100 there will be a lot of incentive for fund managers to take some profits and lock in their performance bonuses for the year.

If by chance a sudden rally appeared that pushed the S&P past 3,100 it could get crazy. The price chasing would be extreme. While I am not expecting that the possibility does exist.

Support should be the prior high at 2,954.


The Nasdaq is still troubled by a group of large cap tech stocks that refuse to trend higher. Each has its own story and they cannot seem to maintain a trend. Should the Nasdaq breakout to a big new high, it could be a driving force for the rest of the market. Investors like to follow tech breakouts and the Nasdaq is very close.



The Russell 2000 was the only major index to post a gain on Friday. It was minimal but it was still a gain. There is the possibility that fund managers are switching out of big caps exposed to the global economic weakness and into domestically focused small caps. The more likely excuse is a continued adjustment of the Russell reconstitution the prior Friday. There were probably a few funds that had not completed their reconstitution.


I was cautious last week because of the expected short squeeze on Monday. I said Monday was not going to be an entry point. The Dow gapped opened on Monday to 26,890. After trading for the week, it closed on Friday at 26,925 only 35 points higher. While Monday was a short squeeze there was significant volatility the rest of the week. This was new high uncertainty. On the Dow we are nearing triple top resistance. A breakout here would be huge but it is also a potential failure point. This is normally a continuation pattern so plan for the breakout. If earnings are bad it may only be temporary but remember, rate cuts trump earnings.


Enter passively and exit aggressively!

Jim Brown

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"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."

Winston Churchill


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Index Wrap

Inflection Point

by Jim Brown

Click here to email Jim Brown
The markets are at key levels where a breakout could be imminent. All of the major indexes except for the Russell 2000 made a new high last week. Even the broader Russell 3000 made a new high on Wednesday. Friday's decline was just a knee jerk reaction to the payroll report as well as some minor profit taking before the weekend. We should not expect too much or worry that a top is taking place.

The internals remain strongly positive and volume was actually about two billion shares more than I anticipated on Friday at 5.2 billion shares. I asked myself why volume was so high for a summer holiday Friday. Was it investors getting out at a potential market top? I am sure there were some of those. Was it investors in panic mode because rate cut expectations suddenly declined from 50 points to 25 points? I am sure there was some of that as well. However, after looking at the charts and the internals, I believe the volume came from investors buying the dip. For a combination of reasons there was a sharp drop at the open. That dip was bought, and the Dow rebounded from -232 to -10 just before the close. That is a huge recovery for a holiday Friday.

Granted, for every buyer there had to be a seller, but the rebound showed that the buyers won the day. I was a little disappointed that we did not finish in the green but there were plenty of reasons why some investors would not have wanted to hold over the weekend.

The A/D line was negative at 8:5 on Friday with decliners over advancers but the rest of the week was strongly positive even on Tuesday when the indexes were choppy. Wednesday was very strong at 5:2 advancers over decliners.

Long term the A/D line is a great indicator of market sentiment and it is telling up the buyers are in control. Note how unbroken the line is for the last 8 days. It is almost vertical. That is due to the calming of China trade fears and Fed expectations but also with the historic highs so close, investors are sucked into the market in hopes of a breakout.


The Nasdaq A/D was strongly positive despite some weakness in the big caps. The A/D closed at a two-month high. Tech stocks were 2:1 advancers over decliners on Wednesday and almost 4:3 on Friday despite the minor Nasdaq loss.

Retail investors like to follow the Nasdaq when it is making new highs. The tech stocks move faster than industrials and when they are hot, they attract a crowd. If the Nasdaq can break out this coming week we could have a strong market.


The Nasdaq is going to be fighting the chip drag this week. The warning by Samsung of a 50% decline in Q2 earnings, the potential crash in Broadcom on acquisition headlines and the antitrust loss by Qualcomm are going to be a drag. Note the reversal in the $SOX last week. That kept the Nasdaq from moving higher.


The FANG stocks all turned higher with FB, NFLX and AAPL nicely correlating. Google is finally rebounding but they have a long way to go to catch up. Fortunately, as long as all four stocks along with Amazon are moving higher the Nasdaq will rise as well. These five stocks plus Microsoft account for more than 30% of the weighting of the Nasdaq.


The small cap A/D line is actually positive, and the Russell 2000 posted a minor gain on Friday. Unfortunately, I do not believe it was an influx of retail buyers. I believe it was the final adjustments on the reconstitution trade.

I am adding a new chart this week and it is the Russell 2000 ETF (IWM) compared to the S&P ETF (SPY). These are more reflective of the actual indexes than the index symbols themselves. Note that the two traded in parallel until the June 3rd rebound. That is where they diverged and have continued to diverge. We need them to converge and the IWM to take the lead to the upside. The IWM is normally the leadership ETF. This suggests the small caps are still weak and i can attest to that with as much trouble as I am having finding small cap long recommendations.



While the other indexes are at new highs, the Russell is stuck below two levels of resistance. This could be the Achilles Heel for the market. Now that the reconstitution is over and we are facing the summer doldrums, we could see small caps weaken again. The only bright side is that they have little exposure to global economic weakness.


Midcaps are also struggling with the MDY facing strong resistance at 260 and again at 375.


On a positive note, the Russell 3000, the 3,000 top stocks by market cap, broke out to a new high and showed no signs of a big retracement on Friday. As I said last week, if this index continues making new highs, the other major indexes are going to follow. This is the market.


The Volatility Index traded down to 12.04 and very close to long term support lows. There is still a lot of uncertainty about a market top so we could see a lot of fluctuation here before it settles down.


I am expecting a short-term rally of 2-3 weeks. Historically, August is the worst month of the year and a flurry of bad earnings and guidance could accentuate that trend. China has not been solved. They are only on the back burner and could boil over at any time. Powell could develop foot in mouth disease at any time and that would be market negative. Until then rate cuts trump bad earnings.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Breakouts Ahead

by Jim Brown

Click here to email Jim Brown

Editors Note:

With a positive market these stocks should make new highs soon. Both had earnings challenges and both are recovering.



NEW DIRECTIONAL CALL PLAYS

PAYX - PayChex - Company Profile

Paychex, Inc. provides payroll, human resource (HR), retirement, and insurance services for small to medium-sized businesses in the United States and Europe. The company offers payroll processing services; payroll tax administration services; employee payment services; and regulatory compliance services, such as new-hire reporting and garnishment processing. It also provides HR outsourcing services, including Paychex HR solutions comprising payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative; and retirement services administration, including plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition, the company offers insurance services for property and casualty coverage, such as workers' compensation, business-owner policies, and commercial auto, as well as health and benefits coverage, including health, dental, vision, and life; cloud-based HR administration software products for employee benefits management and administration, time and attendance, recruiting, and onboarding solutions; and other HR services and products, such as employee handbooks, management manuals, and personnel and required regulatory forms. Further, it provides various accounting and financial services to small to medium-sized businesses comprising payroll funding and outsourcing services, which include payroll processing, invoicing, and tax preparation; and various services, such as payment processing services, financial fitness programs, and a small-business loan resource center. The company markets its products and services through direct sales force. Paychex, Inc. was founded in 1979 and is headquartered in Rochester, New York. Company description from FinViz.com.

Paychex reported earnings that missed estimates by a penny and guided slightly below analyst estimates for full year earnings. Paychex said earnings would rise 8-9% and analysts were expecting 9.2% growth. Revenue guidance was for 10-11% growth and analysts were expecting 10.5% so inline.

Shares declined sharply because they had risen 50% since December. Investors have a memory and they remember the gains and the trend. Shares are rebounding from the earnings drop.

Buy September $87.50 call, currently $1.60, stop loss $81.50.


ADSK - Autodesk - Company Profile

Autodesk, Inc. operates as a design software and services company worldwide. The company offers AutoCAD, a professional design, drafting, detailing, and visualization software; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution for civil engineering, including land development, transportation, and environmental projects; AutoCAD LT, a professional drafting and detailing software; BIM 360, a construction management cloud-based software; computer-aided manufacturing (CAM) software for computer numeric control machining, inspection, and modelling for manufacturing; Fusion 360, a 3D CAD, CAM, and computer-aided engineering tool; and Industry Collections software products for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment industries. It also provides Inventor tools for 3D mechanical design, simulation, analysis, tooling, visualization, and documentation; Maya and 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and PlanGrid, a cloud-based field collaboration software, which provides general contractors, subcontractors, owners, and architects access to construction information in real-time. In addition, the company offers Revit software for building information modeling; and Shotgun, a cloud-based software for review and production tracking in the media and entertainment industry. Autodesk, Inc. sells its products and services to customers directly, as well as through distributors and resellers. The company was founded in 1982 and is headquartered in San Rafael, California. Company description from FinViz.com.

Autodesk reported adjusted earnings of 45 cents, up from 6 cents in the year ago quarter. Revenue rose 31% to $735 million. Analysts were expecting a GAAP profit of 12 cents and they posted a GAAP loss of 11 cents. Shares collapsed on the news.

However, think about it. They increased adjusted profit 700% and revenue 31% and analysts were not happy. This is another case of analysts getting ahead of themselves with their forecasts.

ADSK shares are rebounding sharply and could easily make a new high in a couple weeks. I recommend we buy performance!

Earnings August 22nd.

Buy Aug $180 call, currently $2.84, stop loss $167.50.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Decent Week

by Jim Brown

Click here to email Jim Brown

Editors Note:

Considering it was a holiday week on low volume the indexes posted decent gains. However, the Dow gapped open to 26,890 on Monday and closed on Friday at 26,925, only 35 points higher. That is deceptive since the gain for the week was 322 points. It was just that all the gains came on Monday before the selling began. Wednesday saw another surge in buying to close at a new high on low volume and that same volume drought was a factor in the decline on Friday. To make a long story short, the Dow spent a week digesting Monday's initial gain.



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


BULLISH Play Updates

AJRD - Aerojet Rocketdyne - Company Profile

Comments:

No specific news. Shares continue making new highs.

Original Trade Description: May 31st.

Aerojet Rocketdyne Holdings, Inc. designs, develops, manufactures, and sells aerospace and defense products and systems in the United States. The company operates through two segments, Aerospace and Defense, and Real Estate. The Aerospace and Defense segment offers aerospace and defense products and systems for the United States government, including the Department of Defense, the National Aeronautics and Space Administration, and aerospace and defense prime contractors. This segment provides propulsion systems, such as liquid, solid, air-breathing, and electric propulsion systems for space, defense, civil, and commercial applications; and armament systems. The Real Estate segment engages in the re-zoning, entitlement, sale, and leasing of the company's excess real estate assets. It owns 11,451 acres of land adjacent to the United States Highway 50 between Rancho Cordova and Folsom, California east of Sacramento. The company was formerly known as GenCorp Inc. and changed its name to Aerojet Rocketdyne Holdings, Inc. in April 2015. Aerojet Rocketdyne Holdings, Inc. was founded in 1915 and is headquartered in El Segundo, California. Company description from FinViz.com.

Earnings July 30th.

Aerojet reported earnings of 44 cents that beat estimates for 27 cents. Revenue of $491.7 million also beat estimates for $478.2 million. Revenue was flat year over year because of the phase out of the AJ60 solid rocket motor. However, the uptick in Patriot missile components offset that end of life product. Order backlogs were $3.8 billion.

I am sure everyone has noticed the increase in launches by dozens of companies and everyone needs rocket motors. SpaceX, Blue Origin, NASA and other countries all around the world are adding to the 4,091 satellites in orbit. Every satellite requires a rocket. In addition, Aerojet has numerous contracts with the government to supply defense contracts. With the defense sector seeing increased orders from around the globe, the outlook for Aerojet is strong.

Shares rose over prior resistance at $38 on the strength of their earnings. New high resistance is $40 and only $1.50 away.

Update 6/23: Aerojet said it has delivered the jettison motor to NASA for the upcoming test of the Orion crew capsule on the Artemis 1 launch. The company also announced upcoming tests of a non-toxic rocket fuel in its Green propellant propulsion system. The future test will provide propulsion for a 13-month test flight of a new satellite. The launch will be on June 24th. Shares hit a new high on Thursday.

Update 6/29: Aerojet said it has delivered four RS-25 engines to NASA for integration into the first Space Launch System (SLS) rocket core stage. Aerojet engines have powered every astronaut that has launched from the USA. The SLS will eventually power flights to the moon and Mars. Shares spiked nearly 4% on the news.

Position 6/3:
Long August $40 Call @ $2.00, see portfolio graphic for stop loss.


BOOT - Boot Barn - Company Profile

Comments:

No specific news but shares are holding at the recent highs.

Original Trade Description: June 16th

Boot Barn Holdings, Inc., a lifestyle retail chain, operates specialty retail stores in the United States. The company's specialty retail stores offer western and work-related footwear, apparel, and accessories for men, women, and kids. It offers boots, shirts, jackets, hats, belts and belt buckles, handbags, western-style jewelry, rugged footwear, outerwear, overalls, denim, and flame-resistant and high-visibility clothing. The company also provides gifts and home merchandise. As of March 30, 2019, it operated 240 stores in 33 states. Boot Barn Holdings, Inc. also sells its products through e-commerce Websites, including bootbarn.com; sheplers.com; and countryoutfitter.com. The company was formerly known as WW Top Investment Corporation and changed its name to Boot Barn Holdings, Inc. in June 2014. Boot Barn Holdings, Inc. was founded in 1978 and is based in Irvine, California. Company description from FinViz.com.

Boot Barn is a niche retailer and appears to be doing well. They reported earnings of 28 cents that beat estimates for 27 cents. They reported revenue of $192.8 million that beat estimates for $189.1 million. They guided for Q2 for revenue of $178-$180 million.

Boot Barn said full year same store sales rose 10% with e-commerce sales up 12.2%. Retail store front sales rose 9.5%. Last quarter consolidates same store sales rose 12.1% and held despite Q1 normally being a down quarter for retail. Store sales rose 9.8% and 20% growth on a two-year basis. Profitable store brands rose to 18.1% of sales in Q1 compared to 16.2% in Q1-2018. They added 17 stores over the last year and six in the last quarter.

Earnings August 14th.

Shares broke out to a new high on Friday and could be poised for a new leg higher.

Position 6/17:
Long August $35 Call @ $2.70, see portfolio graphic for stop loss.


GILD - Gilead Sciences - Company Profile

Comments:

Gilead said it was going to ask the FDA to approve the arthritis drug Filgotinib in 2019. They held talks with the FDA and arrived at a path for approval.

Original Trade Description: June 23rd

Gilead Sciences, Inc., a research-based biopharmaceutical company, discovers, develops, and commercializes medicines in the areas of unmet medical needs in the United States, Europe, and internationally. The company's products include Biktarvy, Descovy, Odefsey, Genvoya, Stribild, Complera/Eviplera, Atripla, and Truvada for the treatment of human immunodeficiency virus (HIV) infection in adults; and Vosevi, Vemlidy, Epclusa, Harvoni, and Viread products for treating liver diseases. It also provides Yescarta, a chimeric antigen receptor T cell therapy for adult patients with relapsed or refractory large B-cell lymphoma; Zydelig, a kinase inhibitor; Letairis, an oral formulation of an endothelin receptor antagonist for pulmonary arterial hypertension; Ranexa, a tablet to treat chronic angina; and AmBisome, an antifungal agent to treat serious invasive fungal infections. In addition, the company offers its products under the name Cayston, Emtriva, Hepsera, Sovaldi, and Tybost. Further, it develops product candidates for the treatment of HIV/AIDS and liver diseases, hematology/oncology, inflammation/respiratory diseases, and others. The company markets its products through its commercial teams; and in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaboration agreements with Bristol-Myers Squibb Company; Janssen Sciences Ireland UC; Japan Tobacco Inc.; Galapagos NV; Scholar Rock Holding Corporation; Tango Therapeutics; National Cancer Institute; Pfizer, Inc.; Sangamo Therapeutics, Inc.; Gadeta B.V.; HiFiBiO Therapeutics; Agenus Inc.; HOOKIPA Pharma Inc.; Goldfinch Bio, Inc.; and insitro Inc. The company was founded in 1987 and is headquartered in Foster City, California. Company description from FinViz.com.

Gilead just announced a partnership with Nurix Therapeutics to develop new ways to attack cancers and hematology. Nurix has developed a novel approach to destroy disease causing proteins. Gilead said there are many molecular targets involved in a disease pathway that have traditionally been challenging to manipulate using conventional approaches. Nurix has developed a protein degradation technology that will allow Gilead to target these diseases with that new technology. Nurix received an up front payment of $45 million and is eligible to receive up to $2.3 billion in progress payments as the drugs are developed. They will also share in future costs and sales. This is a good deal for both companies.

Shares are moving higher after six months of base building.

Earnings August 1st.

Position 6/24:
Long August $72.50 call @ $1.47, see portfolio graphic for stop loss.


WMT - Walmart - Company Profile

Comments:

No specific news. Shares rallied to close at a new high on Wednesday.

Original Trade Description: June 9th

Walmart Inc. engages in the retail and wholesale operations in various formats worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, discount stores, drugstores, and convenience stores; membership-only warehouse clubs; e-commerce Websites, such as walmart.com, jet.com, shoes.com, and samsclub.com; and mobile commerce applications. The company offers grocery products, including meat, produce, natural and organics, deli and bakery, dairy, frozen foods, alcoholic and nonalcoholic beverages, floral and dry grocery, as well as consumables, such as health and beauty aids, baby products, household chemicals, paper goods, and pet supplies; and health and wellness products. It also provides electronics, cameras and supplies, photo processing services, wireless, movies, music, video games, and books; stationery, automotive, hardware and paint, sporting goods, and outdoor living and horticulture; apparel for women, girls, men, boys, and infants, as well as shoes, jewelry, and accessories; and home furnishings, housewares and small appliances, bedding, home decor, toys, fabrics, crafts, and seasonal merchandise, as well as brand name merchandise. In addition, the company offers fuel and financial services and related products, including money orders, prepaid cards, wire and money transfers, check cashing, and bill payment. It operates approximately 11,300 stores and various e-commerce Websites under the 58 banners in 27 countries. The company was formerly known as Wal-Mart Stores, Inc. and changed its name to Walmart Inc. in February 2018. Walmart Inc. was founded in 1945 and is based in Bentonville, Arkansas. Company description from FinViz.com.

Walmart has fought its way back to the prior highs after a 20% decline in Nov/Dec. They are hitting on all cylinders and no longer look like Amazon roadkill. They are fleshing out their online ordering, store pickup and next day delivery and showing no signs of losing market share to Amazon.

This is a technical position. The stock has risen to the prior highs and could be positioned to break out for a new leg higher. Options are cheap and the August option expires one day after earnings so it should hold its value. We will exit before earnings.

Earnings August 15th.

Update 6/23: Walmart said it was paying $282 million to settle a long running six-year probe into bribery of foreign officials in Brazil, China, India and Mexico. The payments were made by third party intermediaries and did Walmart did not know about the payments until after the fact. They blamed delayed accounting and lack of internal controls for third party payments in foreign countries. Bribery is a way of life in those countries.

Position 6/10:
Long August $110 call @ $2.10, see portfolio graphic for stop loss.


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