Option Investor
Newsletter

Daily Newsletter, Saturday, 7/13/2019

Table of Contents

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

Market Wrap

Rate Cuts Trump Earnings

by Jim Brown

Click here to email Jim Brown

I closed with that statement last week and Powell proved it to be true on Wednesday.

Weekly Statistics

Friday Statistics

While Q2 earnings are expected to decline by -0.4% after only 1.4% rise in Q1, the big cap markets have broken out to new highs thanks to the outlook for rate cuts. Even the lingering uncertainty over Chinese trade talks and the potential for military action in the Persian Gulf have been unable to hold the markets back. With the breakout to new highs we have officially entered FOMO territory where investors will chase prices for fear of missing out.

There have been four times as many earnings warnings than positive guidance upgrades for Q2 and investors do not seem to care. At this point expectations are so low that we have moved into the "just don't screw it up" phase. Investors are expecting earnings to be flat while hoping for a minor upside surprise. Since estimates for the next four quarters are for only 4% growth on average, everyone is just hoping for a neutral Q2, so future estimates do not decline.

The markets had stalled their upward trajectory ahead of the Powell testimony on Wednesday but exploded higher once those prepared remarks were released. With the Fed seemingly on track for 2-3 cuts over the next six months, investors were celebrating.


There is currently a 100% chance of a 25-point rate cut at the July meeting with a 22.5% chance for a 50-point cut. The current rate of 225-250 is not even represented on the futures chart because there is zero chance of rates staying the same.

For the January meeting there is roughly a 64% chance for a total of 3 rate cuts to a 150-175 basis point rate. This is astounding for an economy not in recession. The Fed is being forced to do this to offset the global economic weakness, stimulus by other central banks and uncertainty over the Chinese trade war.



There was only one economic report on Friday and that was the Producer Price Index for June. There was still no inflation present with overall prices rising only +0.1% and core inflation flat at unchanged for the third consecutive month. Goods inflation declined -0.4% while services prices rose +0.4%. Intermediate processed goods declined -1.1% while unprocessed goods declined -3.3%. Core processed goods declined -0.1% but unprocessed goods fell a whopping -7.6%.

The headline number would have been significantly lower were it not for the 19.9% rise in corn prices due to late spring flooding. This influences multiple sectors including food, animal feed and ethanol prices.

Producer prices are up +1.6% over the trailing 12-month period. Core unprocessed goods are down -15.9% over the same period. Inflation is plunging with competition forcing prices lower.


The economic calendar for next week is rather tame and will be ignored because of the arrival of Q2 earnings. The housing reports, retail sales and the Philly Fed Survey will be the highlights. The Fed Beige Book is important but unless several districts suddenly report a sharp drop in economic activity it will be ignored.


This is bank earnings week. Goldman Sachs and JP Morgan will get the most attention and the rest will trail in their shadows. IBM, Netflix and Ebay will kick off the big cap techs on Wednesday. IBM completed the acquisition of Red Hat after the close on Monday, so their earnings guidance is going to be confusing at best.

Microsoft is the sleeping giant and shares closed at a new high on Friday. Their market cap is now $1.064 trillion and more than Amazon ($990B) and Apple ($935B).


Non-techs UnitedHealth and American Express will close the week.


There were only a couple of companies with material earnings last week. Delta (DAL) reported earnings on Thursday of $2.35 that rose 39% and beat estimates for $2.28. Revenue rose 6.5% to $12.54 billion. The carrier said it benefitted from higher fares and full planes since the 737 MAX fleet has been grounded. Most domestic flights from all airlines have been at capacity since the grounding. Discount fare programs have shrunk to almost nonexistent given the lack of excess capacity.

The company raised its full year earnings guidance from $6.00-$7.00 per share to $6.75-$7.25 per share.

Delta is expected to submit a bid on Monday for up to 15% of Air Alitalia. The airline has filed bankruptcy twice in the last ten years. Railway operator Ferrovia and the Italian Treasury are expected to own 50%. Delta already owns 49% of Virgin Atlantic and Aeromexico with smaller stakes in Air France-KLM, Brazil's Gol Linhas and China Eastern Airlines. Adding a stake in Alitalia would boost Delta's grip on international travel. Shares closed at a new high on Friday.


Another retailer could be headed for that great vacant mall in the sky. Bed Bath and Beyond (BBBY) reported "adjusted" earnings of 12 cents, down from 38 cents in the year ago quarter. For GAAP earnings they lost $2.91 per share on revenue of $2.57 billion. The company took an impairment charge of $401 million, only slightly better than the $500 million charge in the prior quarter. Sales declined 6.5% year over year but are down -44% for the last 12 months. Needless to say, they missed all the estimates.

Analysts claim the stores are understaffed, have shrinking inventory and declining market share. Competition with Target, Walmart and Amazon is proving to be nearly impossible. The new CEO of two months has a herculean task ahead of her and she knows it. She said in order to compete "we need to give consumers a reason to keep shopping in our brick and mortar stores and in order to do that we need to update the stores and enhance the shopping experience." Unfortunately, that costs money and unless consumers drop in, they will never know anything has changed.

BBBY is heading the way of dozens of other retailers. They are following the path of Sears where inventory became nonexistent and salespeople even scarcer. Shares closed at a multiyear low and more than likely will move lower.


Shareholders of Tower International (TOWR) received a nice surprise on Friday. Autokiniton Global Group announced it was acquiring Tower for $31 per share in cash. That was a 70% premium to Thursday's close. The total value of the transaction was $900 million including debt. Tower is a leading maker of structural metal components for the automotive sector. Tower has a 35 day "go shop" period where they may solicit a better offer.


On Thursday, President Trump dropped his plans for curbing drug rebates to pharmacy benefit managers (PBMs). With the rebate ban off the table Cigna (CI) and Humana (HUM) exploded higher. Cigna recently acquired Express Scripts for $67 billion and that gave them a huge exposure to the PBM business. PBMs help manage prescription claims for insurers and Medicare Part D plans. Tens of billions of dollars of rebates flow through these PBMs.



Thursday after the close Illumina (ILMN) cut its revenue guidance and shares imploded. The company said revenue would be in the range of $835 million compared to $830 million in the year ago quarter. They said revenue would decline by $50 million due to issues with its population genomics initiatives. The CEO said their analysis suggests the challenges are transitory and do not reflect a macro change in the business. That did not help the stock price.


Johnson & Johnson (JNJ) shares fell sharply after Bloomberg said the company was facing a criminal probe about the potential cancer risks in baby powder. JNJ has repeatedly denied there was asbestos in baby powder, but the stories will not die. JNJ disclosed in its annual report it had received subpoenas from the Justice Dept and the SEC related to the ongoing investigation. They told Reuters on Friday there had not been any new developments in the matter.

JNJ is the defendant in suits by more than 14,000 plaintiffs who allege the product gave them cancer. Reuters released an article on December 14th claiming JNJ had known for decades that small amounts of asbestos had been found in its products in more than 30 years of tests begun in 1970. Not only will it be tough to prove that baby powder decades ago contained asbestos, but it will also be hard to prove that the baby powder caused someone's cancer a decade or more after use.


Facebook shares surged late Friday after Bloomberg said the FTC had voted to impose a $5 billion fine for privacy issues. Facebook had previously taken a reserve of $3 billion in anticipation of a fine but said the number could rise to as much as $5 billion. Facebook has $45 billion in cash, so this is not material. However, it also puts Facebook on notice that any future problems could trigger significantly higher fines and regulations. The details of the settlement have not yet been disclosed and there could be other measures imposed to try and prevent future data breaches. The deal reportedly still needs to be approved by the Justice Dept.

The settlement is actually positive for Facebook because it lessens the chance for a breakup at least on the current issues. If there is another Cambridge Analytica event in the future, the company will probably not be so lucky. That would prove they cannot be regulated in their current form because they are too complex. Splitting them into their component parts of Facebook, Instagram, WhatsApp, etc could reduce that complexity.

The plan to create the global Libra digital currency is drawing a lot of heat and calls for severe regulation. Creating a currency that could be used for purchases in 144 countries could upset the global currency markets. Having 2.6 billion users with access to that currency is the biggest selling point and the biggest problem. Multiple countries are talking about financial regulation if they go ahead with the plan.

Facebook, Amazon, Google and Apple will all face an antitrust hearing in the House at 2:PM on Tuesday. The hearing is titled "Online Platforms and Market Power." The FTC and Justice Dept recently agreed on areas of responsibility over antitrust issues for those four companies. They are now pursuing antitrust probes in their designated areas and they will include the impact of prior acquisitions.


Crude prices rocketed higher after Iran tried to hijack a British oil tanker in the Persian Gulf. Three Revolutionary Guard boats were turned away by a British navy vessel. It would have been no contest.

Hurricane Barry shutdown 1.1 million bpd of crude production in the Gulf of Mexico and that also helped to lift prices. That threat has passed, and production is already being restarted. Gasoline prices rose about a nickel ahead of the weekend.

Inventories have been trending lower as is normally the case in the summer but the summer is rapidly coming to a close. School in our area restarts in just over four weeks. All the back to school sales are in full swing. This suggests that the normal decline in crude prices in late August could retest the low $50s by mid September.





Markets

The S&P pushed through resistance at 2,954 the prior week then retraced some of its gains while investors waited for Powell to testify. They were rewarded with the ideal situation and the indexes rebounded sharply to close at new highs.

The challenge for this week is whether the breakout continues if some of the early reporters disappoint on earnings. If those earnings are better than expected I would not be surprised to see a continued relief surge. The FOMO buyers will be providing the buying at new highs. On the flip side, if we see a flurry of mild earnings disappointments the markets will likely wander aimlessly in search of direction. Rate cuts still trump earnings but that is a longer-term process compared to the individual declines on earnings disappointments.

Current short-term support is roughly 2,990 followed by 2,970. After two weeks of gains it would not be unusual to see some profit taking but the trend should still be higher for the next couple of weeks.


Boeing was a major market driver for the Dow with a $15 rebound over the last two days. That accounted for well over 100 Dow points. UnitedHealth was up on the rebate ban. Caterpillar was up sharply on no news and 3M rallied despite a $20 target price downgrade by UBS.

Home Depot received its normal hurricane boost on the idea that reconstruction will require tens of millions of dollars of lumber, sheetrock and paint in Louisiana. It did not hurt that Goldman initiated coverage with a buy rating and $235 price target.

The Dow exploded over round number resistance at 27,000 and closed at the high of the day on Friday. I would not be surprised with some retracement.



The Nasdaq did manage to make a new high, but it lagged the Dow and S&P in terms of relative performance. The chip sector rallied after Powell's testimony but there were still a lot of smaller tech stocks refusing to join the party. The index can only run so far on the strength of the big caps.

The resistance at 8164-8170 held the index back for a week and the Wednesday breakout was lackluster. The index pulled back on Thursday but surged with the broader markets on Friday. Investors like to chase new highs on the Nasdaq so let's hope this continues.



The Russell remains the anchor for the market. The small caps have not been able to make any material gains and just barely closed over correction resistance on Friday when the other indexes were surging. Apparently, investors are not confident the current rally is going to continue, and they are avoiding the small caps. Keep your eye on the Russell for long term market direction.


In theory the market should continue to edge higher as long as earnings are simply neutral. Nobody knows how negative earnings would have to be to overcome the rate cut sentiment, but I am thinking a 4-5% decline. I don't see that happening. At this point slightly negative economics are a plus because it solidifies the Fed rate cut plan. Much better than expected economics could derail the Fed. I do not see that happening either. I would continue to buy the dip until proven wrong by a short-term support break. August is when I will start to worry about a direction change.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email

 

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Index Wrap

Breakout!

by Jim Brown

Click here to email Jim Brown
Big cap sentiment is surging as the major indexes rise on Fed hopes. Unfortunately, the big cap indexes hit new highs on very weak volume. Shares only traded above 6 billion shares twice and the average for the week was under that level.

This is the generals leading the charge. The troops are lagging behind. The Russell 2000 actually lost ground for the week while the Dow added 1.5%. The S&P 400 midcaps and S&P 600 small caps also posted losses for the week.

Comparing the large cap S&P A/D with the small cap A/D gives us a clear picture of the divergence. The big cap line set a new high while the small caps remain choppy with no overall trend.

The small cap stocks are supposed to lead the market. They are not currently leading and they are acting as somewhat of an anchor. The small caps are the fund manager sentiment indicator for the market, and they do not appear very excited about it today. We are being led higher by the fear of missing out syndrome and that always affects highly liquid large cap stocks.



The correlation between the Dow and Russell indexes paints a clear picture of the difference in direction. The Russell is barely able to trade sideways while the Dow is surging.


The chip stocks recovered from an early week decline and were instrumental in lifting the Nasdaq higher. The spike on July 1st was related to the blacklist reprieve for Huawei and the post spike decline was realization that some sanctions still existed. The government was not saying it was suddenly business as usual. Tensions eased when Powell spoke and suddenly everything was buyable.


The FAANG stocks, appeared to peak last week. Facebook received good news on Friday and surged out of the pack and Amazon was near a new high ahead of its Prime Day shopping event this week. However, Netflix and Apple were trading sideways. The lack of forward motion was a drag on the Nasdaq. Google continued to rebound but remains well out of the pack.


The Russell is the most critical index this week. The downtrend resistance from September is solid and the index cannot even manage a test.


In contrast the S&P is clearly in breakout mode with a close well above 3,000. Multiple major analysts had 3,000 as a year end target so there is always the worry that fund managers will hedge their long bets in order to capture their gains and preserve their year end bonuses. The average high forecast is 3,100 with one estimate at 3,150. I fear the closer we get to 3,100 the more likely we will see a sustained pause.


Another risk is the low VIX. When the VIX falls below 12 it represents complacency and the lack of fund managers buying protection with options. As you can see on the chart, it can remain here for prolonged periods, but the rebound can be dramatic. Another adage is "when the VIX is low it is time to go." However, with the Fed ready to embark on three rate cuts, I doubt there will be many investors leaving.


I am somewhat bullish for the next couple weeks. I believe the early earnings will be slightly better than expected and since expectations are so low we could get a market boost. However, once we reach August, I would be careful to tighten your stop losses. August is typically the worst month of the year for the markets.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


New Option Plays

Slim Pickings

by Jim Brown

Click here to email Jim Brown

Editors Note:

With 85% of the tradable stocks reporting earnings over the next four weeks the pickings are slim. For stocks reporting earnings over the next three weeks the August option premiums are priced too high. If we step out in time to September options the prices are even higher.

The Q2 earnings cycle is typically short. The majority of companies cram their reporting dates into a very short period and that is right at the start of the summer doldrums. Companies that report early will become a drag on the market post announcement and that sours sentiment.

I am only recommending one position this week. I scanned earnings dates and charts for several hundred companies and the charts were either vertical or earnings were imminent.



NEW DIRECTIONAL CALL PLAYS

DELL - Dell Technologies - Company Profile

Dell Technologies Inc. designs, develops, manufactures, markets, sells, and supports information technology (IT) products and services worldwide. It operates through three segments: Infrastructure Solutions Group (ISG), Client Solutions Group (CSG), and VMware. The ISG segment provides traditional and next-generation storage solutions; and rack, blade, tower, and hyperscale servers. It also offers networking products and services that help its business customers to transform and modernize their infrastructure, mobilize and enrich end-user experiences, and accelerate business applications and processes; and attached software, and peripherals, as well as support and deployment, configuration, and extended warranty services. The CSG segment offers desktops, notebooks, and workstations; displays and projectors; third-party software and peripherals; and support and deployment, configuration, and extended warranty services. The VMware segment offers compute, cloud management, and networking, as well as security storage, availability, and other end-user computing offerings that provides a flexible digital foundation to enable the digital transformation. The company also offers cloud-native platform that makes software development and IT operations a strategic advantage for customers; information security and cybersecurity solutions; cloud software and infrastructure-as-a-service solutions that enable customers to migrate, run, and manage mission-critical applications in cloud-based IT environments; cloud-based integration services; and financial services. It has a collaboration with Microsoft to deliver a joint Internet of Things (IoT) solution. The company was formerly known as Denali Holding Inc. and changed its name to Dell Technologies Inc. in August 2016. Dell Technologies Inc. was founded in 1984 and is headquartered in Round Rock, Texas. Company description from FinViz.com.

Dell shares crashed at the end of May when they reported weak revenue as a result of the trade war with China. Shares fell from $70 to $50.50 over about three weeks. We have seen multiple tests of that support level and shares are trying to rebound.

While the trade war with China is continuing, the back to school sales which occur in Q2 for Dell should be positive. They do not report earnings until September 5th so we can use an August option to capture about four weeks of market movement.

Dell will react positively to new Nasdaq highs. The options are cheap, so we have decent potential for a rebound and minimal risk.

Buy Aug $55 call, currently $1.85, stop loss $50.00.


NEW DIRECTIONAL PUT PLAYS

No New Bearish Plays



In Play Updates and Reviews

Price Chasing

by Jim Brown

Click here to email Jim Brown

Editors Note:

The new highs on the three major indexes has triggered a decent bout of price chasing. The comments from Chairman Powell released the chains on the market and the upward progress has been steady. Once the Dow and S&P broke over key levels the FOMO buying began. Now it is up to the earnings cycle to maintain this momentum.



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


ADSK - Autodesk
The long position was entered at the open on Monday.

PAYX - PayChex
The long position was entered at the open on Monday.

BOOT - Boot Barn
The long position was stopped at the open on Monday.

GILD - Gilead Sciences
The long position was stopped at 66.00 on drug headlines.


BULLISH Play Updates

ADSK - Autodesk - Company Profile

Comments:

No specific news. Shares closed at a 6-week high but our option is still flat after a minor uptick at the open on Monday to inflate the premium.

Original Trade Description: July 6th

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.

Position 7/8:
Long Aug $180 call @ $2.70, see portfolio graphic for stop loss.


AJRD - Aerojet Rocketdyne - Company Profile

Comments:

No specific news. Shares continue to hold at the 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 gapped lower with the market at the open on Monday to stop us out before rebounding back to the prior 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:
Closed 7/8: Long August $35 Call @ $2.70, exit $2.30, -.40 loss.


GILD - Gilead Sciences - Company Profile

Comments:

Uncertainty in the drug sector and changing rules to impact drug pricing caused Gilead to decline and stop us out.

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:
Closed 7/11: Long August $72.50 call @ $1.47, exit .35, -1.12 loss.


PAYX - PayChex - Company Profile

Comments:

PayChex announced a regular quarterly dividend of 62 cents payable on August 22nd to holders on August 1st. Shares closed at a 4-week high.

Original Trade Description: July 6th

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.

Position 7/8:
Long September $87.50 call @ $1.55, see portfolio graphic for stop loss.


WMT - Walmart - Company Profile

Comments:

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

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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