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Ambarella, Inc. - AMBA - close: 79.86
AMBA is finally breaking out from its recent consolidation under the $77.50 area. The stock had a pretty good week with a surge from almost $70 toward $80.00. We had AMBA on our watch list. The plan was to wait for shares to close above $77.50 and then buy calls. Well AMBA met that requirement with Friday's +5.2% surge to new all-time highs and its close near $80.00.
This trade will open on Monday morning, May 18th. However, after a +10% gain last week, traders may want to wait for a dip. It would not surprise me to see AMBA retest the $77.00-77.50 area as new support so you could use a dip in that area as an alternative entry point.
I also want to caution readers about AMBA's earnings report. AMBA makes video chips for GoPro (GPRO) and GPRO recently announced a very strong quarterly report. I expect AMBA to also deliver a strong report. They will announce on June 2nd, after the closing bell. However, the earnings report is not just about the EPS number. Wall Street is looking at revenues, margins, growth rates, and AMBA's guidance. There is a risk that if AMBA disappoints on one of those factors it could spark a sharp decline since the stock is at record highs.
Trade Description: May 3, 2015:
If you're looking for relative strength then AMBA has it in spades. Year to date the stock is already up +50%. AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in October 2012 at $6.00 a share. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.
The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.
The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. GPRO came to market in June 2014 and the stock has been in rally mode since mid August with a rally in GPRO from less than $40 to $90 a share. I mention GPRO because AMBA happens to make the HD camera sensors in many of GPRO's action camera products. GPRO's IPO drew a lot of attention to AMBA. Now GPRO's rally has collapsed while AMBA has continued to climb.
Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies.
Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.
AMBA has been killing it on the earnings front. They have beaten Wall Street's earnings and revenue estimates for the last five quarters in a row. Their most recent report was their Q4 results on March 3rd. Analysts were expecting a profit of $0.49 a share on revenues of $59.3 million. AMBA delivered $0.68 a share with revenues soaring +61% to $64.7 million.
AMBA's next earnings report is not until June 2nd. However, GPRO's recent earnings could be an early look at AMBA's business. GPRO just reported its Q1 results on April 28th. Earnings were better than expected and revenues soared +54% to $363 million. GPRO beat Wall Street estimates on both the top and bottom line. GPRO's management raised their 2015 Q2 guidance significantly above analysts' estimates. That's bullish news for AMBA. Shares of AMBA rallied on GPRO's results.
Currently AMBA is sitting just below resistance in the $76-77 area. I am suggesting we wait for AMBA to close above $77.50 and then buy calls the next morning with an initial stop loss at $69.00. More aggressive traders may want to use an intraday trigger instead since AMBA could breakout and surge higher. I am putting a limit on this trade. We do not want to open positions if AMBA spikes above $81.00. Essentially our entry window to launch bullish positions is the $77.50-81.00 zone.
Breakout trigger: Wait for a close above $77.50,
Then buy calls the next morning with a stop at $69.00.
BUY the 2016 Jan $90 call (AMBA160115C90) current ask $7.60
05/18/15 Trade begins.
05/15/15 Triggered. AMBA closed at $79.86, above our trigger of $77.50
Option Format: symbol-year-month-day-call-strike
Originally listed on the Watch List: 05/03/15
Anthem Inc. - ANTM - close: 161.37
ANTM is another watch list candidate that graduated with Friday's rally. We were waiting for ANTM to close above $161.00. Shares closed at $161.37 on Friday. Our plan is to buy calls on Monday morning (May 18th).
Trade Description: May 10, 2015:
The Affordable Care Act (a.k.a. Obamacare) was first feared by healthcare companies. Now they have embraced it. Obamacare has definitely been good for ANTM with waves of new enrollees.
ANTM, previously known as Wellpoint, is in the healthcare sector. According to the company, "Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give their members access to the care they need. With nearly 71 million people served by its affiliated companies, including more than 38 million enrolled in its family of health plans, Anthem is one of the nationâ€™s leading health benefits companies."
ANTM has raised its guidance the last four quarters in a row!
Their most recent earnings report was April 29th. ANTM delivered their 2015 Q1 results of $3.14 per share. That was 45 cents above estimates. Revenues came in below expectations but traders didn't care because ANTM raised their guidance above Wall Street's estimate.
Now analysts are starting to raise their price targets on the stock. Shares have broken out of a multi-week consolidation pattern. ANTM is poised to rally through resistance near $160.00 and hit new all-time highs.
Tonight I am suggesting we wait for ANTM to close above $161.00 and then buy calls the next morning with a stop loss at $152.00.
Breakout trigger: Wait for a close above $161.00
Buy calls the next morning with a stop at $152.00
BUY the 2016 Jan $170 call (ANTM160115C170) current ask $7.70
Option Format: symbol-year-month-day-call-strike
Chart of ANTM:
Originally listed on the Watch List: 05/10/15