Option Investor

Daily Newsletter, Sunday, 4/21/2019

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

No Conviction

by Jim Brown

Click here to email Jim Brown
Investors have no conviction even at market highs as we move into earnings. The S&P has struggled for over a week with a tight range from 2895-2910 despite the Nasdaq 100 closing at a record high for two consecutive days. Every spike on the S&P and Russell 2000 is sold but not with enough conviction to really push those indexes lower. We are at a standoff while investors watch the headline flows.

Last week we had the release of the Mueller report crowding the stock headlines out of the news. Many analysts were worried that the report would create even more acrimony in Congress and that would depress investors leading to a market decline. We definitely got the acrimony and it will be interesting to see if the market is going to react in the days ahead or ignore it.

Since the Chinese trade agreement is reportedly complete, I am wondering if President Trump has postponed the potential meeting with President Xi until the Mueller headlines blow over. There is no reason to waste the good news on China if the trade headlines are going to be regulated to the back pages of the paper.

Asian markets opened lower on Sunday after a headline broke that the US was prepared to end the oil waivers on Iran in order to pressure that country back to the bargaining table. Crude prices spiked to $66 on the news and Asian markets declined because they are big consumers.

S&P futures fell to -6 mainly on the weakness overseas. Oil rising to $66 is not going to be material to the US and dozens of our energy companies will rise on this news. When coupled with the normal peak in crude prices around Memorial Day I would not be surprised to see $70 oil by then.

The Easter bombings in Sri Lanka has reached 290 dead and about 500 wounded. This is also going to be in the headlines for days and it will depress investor sentiment around the world.

We are so close to new highs but there is very little momentum. The Dow has been struggling with plunging prices on shares of UnitedHealth and volatility in the tariff sensitive stocks. However, the index is still moving slowly higher.

The Nasdaq Composite has been posting minimal gains while the Nasdaq 100 has quietly made new highs. The Russell 2000 is struggling to hold on to recent gains and appears to be losing the battle.

This is a perfect example of a few mega cap tech stocks leading the market higher while the broader market flounders around looking for direction.

All the major indexes were positive on Friday with the Dow adding 110 points. However, the overall market saw 3,774 advancers and 3,773 decliners. You could not make that up. The market was exactly even, and the individual indexes showed similar ratios but not dead even.

The market needs a catalyst to produce a real directional move. Earnings have been better than expected but the forecast is still negative for Q1 and every post earnings spike is sold.

Chines economics have improved, and the announcement of a deal could provide a significant boost in their market. This has already been priced into the US markets although we could see a short-term bounce when the meeting is announced.

Brexit was put off indefinitely since October 31st is years away in market time. This hurdle is no longer a factor in the current market.

So, what are investors waiting for as a signal to buy stocks? As I have warned for weeks, we could be facing a sell the news event when the major indexes reach the prior highs. The markets are up 20% in 2019, more if you count from the December lows, and with earnings negative, there is little excitement about buying a market top. Everyone appears to be waiting for a dip to buy. With the summer doldrums ahead, we could see a sell the news event and a slide into summer given the weak earnings.

While we are close to new highs, sentiment is lackluster at best. That could be predicting a coming decline. Granted, sentiment can change very quickly but normally it requires a sudden change in outlook for either economics or earnings. The challenge here is that the main earnings push will be over in two weeks and the stocks with the weaker earnings will begin to report and the overall earnings growth forecast will begin to decline.

Thank you, UnitedHealth! After two weeks of volatility and erasing roughly 275 Dow points at the lows, the stock rebounded on Friday to return 31 of those Dow points. Once investors feel the bad news is priced in, we should see the stock rebound sharply and drag the Dow higher.

Merck and Pfizer accounted for -117 points of negativity on the Dow over the last two weeks as the Medicare for All proposal tanked their shares. Now that the fiscal stupidity of that proposal has been disseminated, we should see those stocks begin to recover.

Clearly, if it were not for those three stocks erasing nearly 400 Dow points, we would already be at a new high on the Dow. That does not mean there will not be some more surprises as other Dow components report but the worst should be over.

The Dow is only 269 points below a new high. We could do that in one day with the right catalyst. The key is whether the index surges over that level or remains pinned to that level.

There is always the potential for a head and shoulders pattern on the Dow. We are right at the right shoulder and a material decline from this level could trigger significant technical selling.

Like the S&P, the Nasdaq has stalled in a tight range just below 8,000 for the last five days. The prior high was 8,109 so the index is only 109 points below its high. So why can't it gain 100 points in five days? The A/D line on the broader Nasdaq composite is almost dead even. Big cap advancers beat decliners 18:12 but the amount of the gains was minimal. The index was up 2 points for the day. The overall AD was 1,449 advancers to 1,535 decliners.

As I have said for the last week there is no conviction by either the buyers or the sellers.

The small cap index remains the weakest link and the Russell typically leads the broader market. With the major indexes stalled and the Russell weakening, there is no incentive for investors to leave the safety of cash. If the Russell suddenly pushed over 1,600, I think it would trigger a broad market rally. If it falls back below the 50-day average at 1,556, it could trigger a broad market decline. Investors are waiting for the Russell to commit to a direction.

The calendar for next week is led by home sales and the Richmond Fed Manufacturing Survey. The survey is not a market mover, but strong home sales numbers could lift the economic outlook.

We have a big week of earnings ahead with a lot of big names on Wednesday and Thursday. Earnings have been coming in better than expected with many companies beating estimates by 5-7%. The average beat in prior quarters is about 3.5%. However, there are still a few companies every day that stink up the place. There have been 77 S&P companies that have reported and 77.9% have beaten on earnings with 48.1% beating revenue estimates. The current earnings forecast for Q1 is -1.7% and a 5.0% increase in revenue. It is very unusual to see earnings decline when revenue is increasing. The forward PE is 16.8. There have been 85 earnings warnings for Q1, and 31 companies issued positive guidance. During the coming week 155 S&P companies report earnings.

I recommend we continue to be cautious until the S&P and Dow move to new highs on decent volume. I don't mean just a few points over the prior highs but a real breakout that triggers some short covering and price chasing. The Blackrock CEO, Larry Fink, said investors were sitting on near record amounts of cash that could be put to work on a breakout. I hope he is right. Personally, I would rather use that cash to buy a summer dip than a market top, but a true breakout could be powerful.

Enter passively and exit aggressively!

Jim Brown

Send Jim an email


Peak Altitude

by Jim Brown

Click here to email Jim Brown

Current Position Changes

UNH - UnitedHealth
The long position was entered on Monday.

DGX - Quest Diagnostics
The long position was stopped on 4/17.

Stop Loss Updates

Check the portfolio graphic for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any lines in gray were previously closed.

Current Portfolio

New Plays

Severely Oversold

by Jim Brown

Click here to email Jim Brown

CI - Cigna - Company Description

Cigna Corporation, a health service organization, provides insurance and related products and services in the United States and internationally. It operates through Integrated Medical, Health Services, International Markets, and Group Disability and Other segments. The Integrated Medical segment offers medical, pharmacy, dental, behavioral health and vision, health advocacy programs, and other products and services to insured and self-insured clients; Medicare Advantage, Medicare Supplement, and Medicare Part D plans to Medicare-eligible beneficiaries, as well as Medicaid plans; and health insurance coverage to individual customers on and off the public exchanges. The Health Services segment provides clinical solutions, specialized pharmacy care, home delivery pharmacy, retail network pharmacy administration, benefit design consultation, drug utilization review, drug formulary management drug claim adjudication, digital consumer health and drug information, provider, and medical benefit management services. The International Markets segment offers supplemental health, life and accident insurance products, and health care coverage, as well as health care benefits to mobile employees of multinational organizations. This segment offers health coverage, hospitalization, dental, critical illness, personal accident, term life, and variable universal life products. The Group Disability and Other segment provides group long-term and short-term disability, group life, accident, and voluntary and specialty insurance products and related services; and permanent insurance contracts to corporations to provide coverage on the lives of certain employees for the purpose of financing employer-paid future benefit obligations. The company distributes its products and services through insurance brokers and insurance consultants; and directly to employers, unions and other groups, or individuals. Cigna Corporation was founded in 1792 and is headquartered in Bloomfield, Connecticut. Company description from FinViz.com.

Cigna was hammered last week along with UnitedHealth and Humana. The Medicare for All proposal crushed the insurance companies, drug and biotech sectors. I believe the damage is overdone. Cigna ha earnings on May 2nd and if they have a decent report, investors will forget about the long-term threat of government health care and go back to buying stocks.

Earnings May 2nd.

Multiple fund managers recently added positions in Cigna including Dan Loeb, Jeff Auxier, Larry Robbins, Richard Pzenas, etc.

Buy Jan $160 Call, currently $16.15, stop loss $139.85.
Optional: Sell short Jan $130 put, currently $8.10, stop loss $142.25.
Net debit $8.05.

Play Updates

Stocks Paused

by Jim Brown

Click here to email Jim Brown

Editors Note:

Despite a slight gain for the week in the Dow and Nasdaq, most stocks were lower. I do not know what is keeping investors on the sidelines other than fear of heights but buying interest was minimal.

In theory, investing in LEAPS is a long-term proposition where we hold over earnings in anticipation of a long-term gain. LEAPS should be exited in the normal November rally.

Original Play Recommendations (Alpha by Symbol)

ABBV - AbbVie - Company Profile


No specific news. Shares continued to crash with the biotech sector and the Medicare for All proposal from Bernie Sanders. That would significantly reduce reimbursements for drugs.

I am recommending we sell a January $90 call, currently $2.01 to offset some of the loss on the initial position.

Original Trade Description: February 11th.

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson's disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; Infinity Pharmaceuticals, Inc.; M2Gen; and Principia Biopharma Inc. Company description from FinViz.com.

A lot of companies have 1-2 real drugs in the pipeline that may be approved. Several companies have one drug that could be a blockbuster and reach $1 billion in sales annually. AbbVie has multiple blockbusters in the pipeline and dozens of other drugs already in the market.

AbbVie was a spinoff from Abbott Laboratories in 2012 and they are doing great. The company reported Q4 adjusted earnings of $1.48 compared to estimates for $1.44. Revenue of $7.74 billion beat estimates for $7.57 billion. They guided for full year earnings in the range of $7.33-$7.43 per share, up from $6.37-$6.57. The FactSet consensus estimate was $6.66. The company said it planned to invest $2.5 billion in US capital projects and a possible expansion to its US facilities. Sales of Humira, Imbruvica, Lupron, Creon, Synagis, Kaletra, Sevoflurane and Duodopa all came in above expectations. Shares spiked $15 on the news.

The company's many new drugs are going to be cash cows. Imbruvica generated $1.8 billion in sales in 2016 and could reach $7 billion annually over the next couple of years. Venclexta was approved in 2016 for leukemia and sales could peak at $3.5 billion a year. An experimental cancer drug called Rova-T could hit $5 billion a year when approved. A psoriasis drug called risankizumab could produce $4 billion a year and arthritis drug upadacitinib could peak at $3.5 billion.

AbbVie's drug Humira is expected to sell more than $20 billion in 2018 after a $18 billion revenue in 2017. The FDA has 10 FDA approved indications giving it a massive patient base. This is just one of AbbVie's billion dollar blockbuster drugs. AbbVie and Amgen reached an agreement on a biosimilar for Humira. Amgen can sell its copy in the US starting Jan 23rd, 2023 and several European countries on Oct 16th, 2018. Amgen will pay royalties to AbbVie for the marketing rights. Both parties canceled legal proceedings regarding existing patents. The marketing agreement grants "non-exclusive" right, which suggests AbbVie will repeat the same agreement with other companies and thereby guaranteeing future royalty streams.

AbbVie has declared war on the Gilead Sciences Hep-C franchise. The AbbVie drug Mavyret has a 97.5% cure rate and only costs $13,200 for four weeks of treatment compared to Gilead's newest drugs at $25,000 for four-weeks. Most patients are cured in 8 weeks but some have to continue for 12 weeks. Gilead's Harvoni was initially $96,000 for a 12-week treatment.

Here is the key point for AbbVie. The company said non-Humira sales are expected to rise from $9.6 billion in 2017 to $35 billion by 2025. The company is launching 20 additional products by 2020 with at least 8 of them expected to generate more than $1 billion in annual sales. These drugs will focus on Alzheimers, women's health and Hepatitis C.

Update 1/27: Friday was a bad day for ABBV. The company reported earnings of $1.90 that missed estimates for $1.94. Revenue of $8.305 billion missed estimates for $8.350 billion. Sales of their key drugs rose 9% but competition from generics provided a stiff headwind. They guided for 2019 for earnings of $8.65-$8.75 and analysts were expecting $8.72. Shares fell 6% on the news.

Position 2/12/18:
Position 7/30/18:
Long Jan 2020 $100 call @ $7.70, see portfolio graphic for stop loss.

Dropped 12/9/18: Long Jan 2019 $120 LEAP Call @ $8.50, expiring.
Position 3/26/18:
Long Jan 2019 $120 LEAP Call @ $3.30.
Adjusted cost now $5.90. expiring -5.90 loss.

ADP - Automatic Data - Company Description


No specific news. Still holding at the highs in a weak market.

Original Trade Description: March 3rd.

Automatic Data Processing, Inc. provides business process outsourcing services worldwide. It operates through two segments, Employer Services and Professional Employer Organization (PEO) Services. The Employer Services segment offers various human resources (HR) outsourcing and technology-based human capital management solutions. Its offerings include payroll, benefits administration, talent management, HR management, time and attendance management, insurance, retirement, and compliance services. This segment provides a range of solutions, which businesses of various types and sizes can use to activate talent, as well as recruit, pay, manage, and retain their workforce. It serves approximately 630,000 clients through its cloud-based strategic software as a service offering. The PEO Services segment provides HR outsourcing solutions through a co-employment model. This segment offers HR administration services, including employee recruitment, payroll and tax administration, time and attendance management, benefits administration, employee training and development, online HR management tools, and employee leave administration. It also provides employee benefits that enable eligible worksite employees with access to a 401(k) retirement savings plan, health savings accounts, flexible spending accounts, group term life and disability coverage, and an employee assistance program, as well as group health, dental, and vision coverage. In addition, this segment offers employer liability management services comprising workers' compensation program, unemployment claims management, safety compliance guidance and access to safety training, access to employment practices liability insurance, and guidance on compliance with the United States federal, state, and local employment laws and regulations. The company was founded in 1949 and is headquartered in Roseland, New Jersey. Company description from FinViz.com.

For Q4, the company reported earnings of $1.34 that beat estimates for $1.18. Revenues of $3.50 billion beat estimates for $3.44 billion. Employer services rose 7% to $2.45 billion. PEO services rose 12% to $1.06 billion. Employees paid by PEO services rose 9% to 545,000. Interest on client funds rose 21% to $129 million. Client balances rose 5% to $23.6 billion. Margins rose 320 bps to 22.4%. Margins on employer services rose 460 bps. Cash on hand was $2.79 billion with long term debt of $2.0 billion. They generated net cash of $782.3 million, paid dividends of $302.4 million and repurchased $299.5 million in shares.

They raised guidance for 2019 for revenue growth of 6-7%. Adjusted earnings are expected to rise 17-19%, compared to prior guidance for 15-17%.

Shares are at a new high but solid performance suggests they will go higher. ADP may not be a sexy tech stock like Facebook or Adobe but they are dependable and rock solid fundamentally. Options are not that expensive relatively speaking.

Update 4/1/19: Bill Ackman praised ADP in his annual Pershing Square shareholder letter. Shares rallied to a new high. Link

Position 3/4/19:
Long Jan $160 Call @ $8.70, see portfolio graphic for stop loss.
Optional: Short Jan $130 Put @ $3.59, see portfolio graphic for stop loss.
Net debit $5.11.

AMD - Advanced Micro Devices - Company Description


No specific news. The earnings date was changed from the 24th to the 30th.

Original Trade Description: Dec 23rd

Advanced Micro Devices, Inc. operates as a semiconductor company worldwide. It operates in two segments, Computing and Graphics; and Enterprise, Embedded and Semi-Custom. The company's products include x86 microprocessors as an accelerated processing unit (APU), chipsets, discrete and integrated graphics processing units (GPUs), and professional GPUs; and server and embedded processors, and semi-custom System-on-Chip (SoC) products and technology for game consoles. It provides x86 microprocessors for desktop PCs under the AMD Ryzen, AMD Ryzen Pro, Threadripper, AMD A-Series, AMD E-Series, AMD FX CPU, AMD Athlon CPU and APU, AMD Sempron APU and CPU, and AMD Pro A-Series APU brands; microprocessors for notebook and 2-in-1s under the AMD Ryzen processors with Radeon Vega GPUs, AMD A-Series, AMD E-Series, AMD C-Series, AMD Z-Series, AMD FX APU, AMD Phenom, AMD Athlon CPU and APU, AMD Turion, and AMD Sempron APU and CPU brands; and microprocessors for servers under the AMD EPYC and AMD Opteron brands. It also offers chipsets under the AMD brand; discrete GPUs for desktop and notebook PCs under the AMD Radeon and AMD Embedded Radeon brand; professional graphic products under the AMD Radeon Pro and AMD FirePro brands; and customer-specific solutions based on AMD's CPU, GPU, and multi-media technologies. In addition, it provides embedded processor solutions for interactive digital signage, casino gaming, and medical imaging under the AMD Opteron, AMD Athlon, AMD Sempron, AMD Geode, AMD R-Series, G-Series, and AMD Embedded Radeon brands; consumer graphics under the AMD Radeon brand; and semi-custom SoC products. It serves original equipment and design manufacturers, datacenters, system integrators, distributors, and add-in-board manufacturers through its direct sales force, independent distributors, and sales representatives. Advanced Micro Devices, Inc. was founded in 1969 and is headquartered in Santa Clara, California. Company description from FinViz.com.

AMD was always the red-headed stepchild that Intel kept around to prevent Intel from being called a monopoly. They let them have just enough business to keep them going. After decades of picking up Intel's scraps, the company has finally come of age and has announced multiple processor families that are more technological advanced than Intel's chips and they are 12-18 months ahead of Intel's first foray into this level of manufacturing.

Cloud operators are taking notice of the faster, cooler, cheaper processors and this sector buys hardware by the truckload. AMD is stealing market share from Intel and this is likely to accelerate as these new processor families flood the market before Intel can catch up.

Earnings Jan 23rd.

Over the last two weeks of Nasdaq decline, AMD pulled back to uptrend support and could be ready to rebound sharply if the market cooperates.

Update 1/11: AMD's president and CEO, Dr Lisa Su, gave the keynote address at CES 2019 on Wednesday. She announced the fastest GPU video card they have ever produced running on a 7nm process. The card has 60 compute units, 3840 stream processors, 16gb of ultra-fast HBM2 memory with a 1 TB memory bandwidth for stunning high-speed graphics on 4K and 8K monitors. Shares popped at the open but faded in the afternoon.

Update 2/3/19: AMD reported earnings of 8 cents that matched estimates. Revenue of $1.42 billion missed estimates for $1.44 billion. AMD guided for Q1 revenue of $1.2-$1.3 billion and analysts were expecting $1.65 billion. With the misses you would have expected shares to fall. However, Intel appointed a business CEO rather than a "technologist" and that was seen as an opportunity for AMD to extend their lead in the server area.

Update 2/10: The Abu Dhabi sovereign wealth fund is exercising warrants for 75 million shares at $5.98 that it received in 2016. It is then selling 35 million shares for cash. AMD gets $448.5 million for the warrants and the fund sells half its stake and retains a 7% position in AMD. With shares up nearly 400% since the $1.75 low in 2016, the fund has made a nice profit and said it was recycling that profit into other investments as it does from time to time. By keeping a 7% stake in the company they can continue to profit as the stock moves higher.

Position 12/24/18:
Long Jan 2020 $20 LEAP Call @ 3.57, see portfolio graphic for stop loss.

APA - Apache Corp - Company Description


No specific news. Apache is being discussed as the next acquisition target in the Permian.

Original Trade Description: Nov 11th.

Apache Corporation, an independent energy company, explores for, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company has operations in onshore assets located Permian and Midcontinent/Gulf Coast onshore regions; and offshore assets situated in the Gulf of Mexico region. It also holds onshore assets in Egypt's Western desert; and offshore assets in the North Sea region, including the United Kingdom. As of December 31, 2017, the company had total estimated proved reserves of 1.2 billion barrel of oil equivalent, including 583 million barrels of crude oil, 204 million barrels of NGLs, and 2.3 trillion cubic feet of natural gas. Apache Corporation was founded in 1954 and is based in Houston, Texas. Company description from FinViz.com.

In September 2016, Apache announced a monster discovery in Texas that could contain 75 Tcf of "rich" gas and 3 billion barrels of oil. This "was" a primarily wet gas play decades ago and companies overlooked it while they were searching for "dry" gas. The "Alpine High" play is in Reeves County of the Southern Delaware basin. Apache drilled some test wells and silently acquired nearly all the acreage in the entire play for an average cost of $1,300 per acre. This compares to prices recently paid in the Permian of $9,000 to $42,000 an acre. After Apache acquired nearly all the available acreage they drilled 19 wells to prove out the reserves.

Apache said it was raising capex from $200 million to $2 billion to reflect their anticipated activity in this area. Well costs are $4-$6 million for 4,100 foot laterals. They have an estimated 3,000 drilling locations in the Woodford and Barnett formations alone.

The Alpine High has 4,000 to 5,000 feet of stacked pay in up to five distinct formations including the Bone springs, Wolfcamp, Pennsylvanian, Barnett and Woodford.

Apache said they also discovered oil at the Garten Prospect in the North Sea. The initial well found more than 700 feet of net pay with expectations for 10 million barrels of recoverable oil. This was the 2,500th exploration well off the UK coast. Apache owns 100% of the discovery. This is the 4th discovery in the Beryl region in the last three years and all wells will be tied back to the Beryl Alpha platform.

Apache and Enterprise Product Partners (EPD) signed an agreement to accept 205,000 bpd of NGL from Apache's Alpine High play. The 658-mile EPD pipeline is expected to be completed in Q2-2019 with an initial capacity of 550,000 bpd. Apache also has the option to acquire a 33% equity stake in the pipeline once it is completed. This is a great deal for Apache and allows them to export their NGLs from the Permian while others are still backlogged.

Apache partnered with investment firm Kayne Anderson to form a $3.5 billion Permian Basin pipeline firm. Apache will contribute $1 billion of assets and Kayne will contribute $900 million after a private placement offering. When the deal closes, Apache will own 71.1% of the company and it will be called Altus Midstream. There are three other companies that will participate in the private placement. Altus will operate Apache's assets in the Alpine High field and have options to buy Apache's stakes in five other planned pipeline projects from the Permian to the Gulf Coast. Apache will be able to shift about $170 in pipeline capex in Q4 to Altus and $250 million in 2019. The Altus results will be consolidated with Apache's.

Apache said it was selling its 35% operating interest in the Seagull development in the North Sea and 50% of the Isabella prospect to Neptune Energy for $1 billion. Apache intends to use the proceeds to pay down debt and invest in the Alpine High project.

On Halloween, Apache reported earnings of 63 cents that rose 29% and beat estimates for 43 cents. Revenues of $2.0 billion beat estimates of $1.9 billion. Apache declared a quarterly dividend of 25 cents payable Nov 21st to holders on Oct 22nd.

Q3 production averages 476,255 Boepd with 64% of that was liquids, a gain of 6% from the year ago quarter. Oil and NGL production averages 305,436 bpd. Production in the Permian rose from 201,832 to 222,259 Boepd. They received an average of $69.12 per barrel for oil and 2.56 per Mcf for gas.

They guided for US production to increase from 262,000 to 260,000 by the end of December.

Apache is sitting on a gold mine. Black goal. The Alpine High discovery is just now accelerating into production as the initial infrastructure has been completed. As the pipelines begin operation their production is going to soar. They have been drilling like crazy and the production will catch up once the pipelines open.

Oil prices are at nine-month lows and energy equities are nearly that bad. Apache has declined from $50 to $36 and has held there for the last two weeks despite the continued decline in crude.

There are multiple factors that pushed oil prices lower and they are all temporary. I believe oil prices are going to rebound and lift the sector. We are able to buy APA leaps cheaply because of the crude decline.

Update 3/3: Apache reported earnings of 31 cents that beat estimates for 24 cents. Production rose 33% to 235,936 Boepd in the Permian. Total production rose 10% to 482,298 Boepd. They ended the year with reserves of $1.23 billion Boe and replaced 135% of 2018 production with new discoveries. Update 4/14: Shares spiked on news that Chevron was buying Anadarko for $33 billion and that makes Apache's Permian holdings even more valuable. If they did not have the Egyptian assets, they would likely be in the running as another acquisition target. The Egyptian assets complicate any acquirer even though Apache has an obscene amount of acreage in Egypt that is still unexplored.

Position 11/12/18:
Long Jan 2020 $40 LEAP Call @ $5.05, see portfolio graphic for stop loss.

Position 12/31/18:
Long (2) Jan 2020 $40 LEAP Calls @ $1.27, see portfolio graphic for stop loss.

Average cost = $2.53 with 3 contracts.

CAT - Caterpillar Inc Company Profile


No specific news. Earnings this week.

Original Trade Description: February 11th.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. Its All Other operating segments provides parts distribution and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Company description from FinViz.com.

CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.

The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT.

CAT said sales for Q4 rose 35% on strong global demand for construction equipment. They reported earnings of $2.16 compared to estimates for $1.79. Revenue of $12.9 billion beat estimates for $11.9 billion. The company guided for 2018 earnings of $8.25-$9.16 and analysts were expecting $8.19. The CEO said demand remains strong thanks to rising oil prices, booming construction and a rapidly rising global economy. CAT reported before the open on Thursday and shares were volatile over the last two days. However, despite the volatility shares are only down about $2 from the pre-earnings close.

Given CAT's big rally over the last six months, it was no surprise to see the stock sell off sharply. However, shares found support at $142 and the 100-day average at $144.

Update 2/3/19: CAT reported earnings of $2.55 that missed estimates for $2.98. Revenue of $14.3 billion matching analyst estimates. They guided for 2019 earnings of $11.75-$12.75 and analysts were expecting $12.73. Despite the misses shares rallied on expectations for a trade deal with China.

Update 2/27: UBS cut CAT in a rare double rating downgrade from buy to sell saying the company's business will peak in 2019 and roll over in 2020 leading to year over year earnings declines in 2020 and 2021. The analyst assigned a $125 price target. The analyst said North American construction, China construction and oil and gas are approaching peak demand. I think the analysts is crazy given China's belt road initiative and the potential for a trade deal. That disagreement is what makes a market. Position 10/15/18:
Long Jun $160 call @ $6.45, see portfolio graphic for stop loss.

Position 2/12/18:
Dropped 12/9: Long Jan $160 call @ $14.48, expiring, -14.48 loss.
Closed 7/9: Short Jan $185 call @ $5.51, exit .68, +$4.83 gain.
Net loss $9.65.

CGC - Canopy Growth - Company Profile


Shares spiked after the company agreed to buy Acreage Holdings, the largest marijuana grower in the US for $3.4 billion. The deal has a very big qualification. It does not officially occur until the US legalizes marijuana or the NYSE/Nasdaq allows cannabis stocks in the US. The deal will then trigger with each Acreage share worth 0.5818 Canopy Growth shares. In addition Canopy is paying an up front fee now of $300 million in the form of a dividend to all Acreage Holdings shareholders at $2.55 per share.

Acreage will license the Canopy brands including Tweed and Tokyo Smoke. This allows Acreage to us its shares, which are now a lot more valuable, to make other acquisitions in the US. They are already considering one in Arizona and Pennsylvania. Acreage Holdings has cannabis related licenses across 20 states with 87 dispensaries and 22 cultivation and processing plants.

There is a 90-month sunset clause if the triggering events do not occur the deal can be cancelled.

This is a 2021 position.

Original Trade Description: Sept 23rd.

Canopy Growth Corporation, together with its subsidiaries, engages in growing, possession, and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules, and hemps. The company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs By Snoop, Bedrocan Canada, CraftGrow, and Foria brand names. It also offers its products through Tweed Main Street, a single online platform that enables registered patients to purchase medicinal cannabis from various producers across various brands. The company was formerly known as Tweed Marijuana Inc. and changed its name to Canopy Growth Corporation in September 2015. Canopy Growth Corporation is headquartered in Smiths Falls, Canada. Company description from FinViz.com.

The cannabis sector is on fire and nobody knows how to play it because of the volatility. There will be downs as the rules are drawn and additional countries go all in on recreational use. Canada has approved recreational use starting in October for the entire country. Numerous U.S. states have passed new laws approving the use. Multiple countries have been legal for years but dozens are considering it today.

Tilray (TLRY) has been getting all the news because of its wild swings on only 17.8 million shares outstanding. Tilray is actually the smallest of the big three marijuana producers.

The other two are Canopy Growth (CGC) and Aurora Cannabis (ACBFF). Aurora also traded 15 million shares on Friday but they have 950 million shares outstanding. Canopy traded 11 million against 228 million outstanding.

Aurora is expected to produce 570,000 kilos of weed in 2019 and Canopy is expected to produce more than 500,000 kilos. Tilray said it would only produce 76,000 kilos in 2018 and 150,000 in 2019.

All three of these companies are primarily in weed today but they are rapidly moving to the CBD oils, which have a more mainstream use. Coke is looking at making drinks with CBD oil. Constellation Brands (STZ) is looking at making drinks and edibles with THC, the active ingredient in marijuana. Constellation made a $4.1 billion investment in Canopy with the option to buy more. With big money and big marketing behind Constellation and Canopy I am picking them to be the long term winner.

Look how far the legalization of marijuana has come in just the last two years. Where will the business be two years from now? This is truly a "sky's the limit" potential. The tobacco companies have not yet entered the sector and the most likely entry would be the acquisition of one of these companies. There is eventually going to be a land rush as everyone interested tries to get a piece of this sector starting with the growers.

If you look at the chart it is going to scare you. The recent spike was the $4.1 billion investment by Constellation. I would not be surprised to see the stock pull back to the uptrend around $40 and if it does we will close the short call for a gain.

Because of the interest in the sector, Canopy has LEAPS out in 2021. That is very long-term and should get us past all the initial volatility. Ideally, I would like to eliminate that short call at some point in the future if we see a material decline in the sector.

Update 2/17: Canopy reported a loss of 38 cents compared to estimates for a loss of 11 cents. Revenue rose from $9.8 million to $83.1 million. They sold 10,102 kilos of marijuana. Analysts were expecting 12,782 kilos. The company said the loss stemmed from the cost associated with the buildout of multiple large grow facilities and the volume miss came from a shortage of product. They can sell all they can grow and they are rapidly increasing capacity.

Position: 9/24:
Long Jan 2021 $50 LEAP Call @ $20.30, see portfolio graphic for stop loss.

Previously closed 11/26/18: Short Jan 2021 $75 LEAP Call @ $14.80, exit $7.30, +7.50 gain.

CSCO - Cisco Systems - Company Profile


No specific news. Still making new highs.

Original Trade Description: Aug 26th

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking and other products related to the communications and information technology industry worldwide. The company offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice, and video applications. It also provides collaboration products comprising unified communications products, conferencing products, collaboration endpoints, and business messaging products; data center products, such as blade and rack servers, series, fabric interconnects, and management software solutions; wireless products consisting of wireless access points, WLAN controllers, cloud and appliances based services, and integrated software services. In addition, the company offers security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products. Further, the company offers a distributed file system for hyperconvergence that enables server-based storage systems; service provider video software and solutions; and technical support services and advanced services. It serves businesses of various sizes, public institutions, governments, and service providers. The company sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California. Company description from FinViz.com.

It appears that everyone is moving to the subscription model for software after the success of companies like Adobe in moving from a sales to a license subscription model. Microsoft Office, Autodesk, even BlackBerry is moving to a subscription model.

Cisco is moving to a subscription model on their highest capacity routers and switches. These devices cost from tens of thousands of dollar to hundreds of thousands. These are Cisco's highest capacity and smartest devices. However you need a masters in device programming to make them work correctly. With cyber security threats growing daily, enterprise users want to be able to stop the majority of the threats at the router level.

Cisco now sells multiyear software as a service (SaS) subscriptions for these top of the line devices. The CEO said the unbilled revenue for SaS subscriptions was their fastest growing revenue line item even though it is not on their books. If someone signs a 3-year service contract, Cisco can only recognize the revenue from the current quarter, and then defers revenue for the rest of the fiscal year. The revenue in future years is not disclosed. Deferred and unbilled revenue was up 28% for the quarter and she said unbilled portion was the largest component.

The reported earnings of 70 cents compared to estimates for 69 cents and earning only 48 cents in the year ago quarter. Revenue rose $700 million to $12.84 billion. Analysts expected $12.77 billion. For the current quarter they guided for 70-72 cents on revenue of $12.74-$12.99 billion. Analysts were expecting 69 cents and $12.58 billion.

I believe Cisco is on the verge of a breakout and a long awaited move higher. Cisco has been dead money all year after a surge in Q3/Q4 last year. This consolidation period may be about over.

Because of the 4.7 billion outstanding shares, the options are inexpensive and we can reach out to 2020 and capture all of the 2019 gains.

Update 3/17: The company reported earnings of 73 cents that beat estimates for 72 cents. Revenue of $12.45 billion beat estimates for $12.42 billion. They guided for the current quarter for earnings of 76-78 cents on revenue of $12.96-$13.21 billion, a 4-6% increase. Analysts were expecting 76 cents and $12.84 billion. They also raised their dividend 6% to 35 cents and added $15 billion to their stock repurchase program.

Position 8/27/18:
Long Jan 2020 $50 Call @ $3.25, see portfolio graphic for stop loss.

DELL - Dell Technologies - Company Description


No specific news. JP Morgan recommended a buy on Dell because the declining prices for chips would help increase margins for Dell. In Q1 Dell's market share rose 0.8% to 17.7%.

Original Trade Description: Jan 27th.

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, management, cloud, and networking, as well as security storage, mobility, and other end-user computing infrastructure software to businesses that provides a flexible digital foundation for the applications that empower businesses to serve their customers globally. 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. 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 was taken private several years ago and disappeared from the market. When they acquired VMWare they had a tracking stock representing their 80% interest in the company under the symbol DVMT. In December they bought back that tracking stock in a complex transaction and then changed the ticker to DELL. Today, this represents all of Dell.

Over the last month Citigroup and Goldman initiated coverage with a buy rating and average target price of $60. Now that Dell is back as an operating company with strong management, we should be seeing a lot of funds and institutional investors moving back into the stock.

Dell has 145,000 employees. It is not a small company and it is a leader in the PC/Server sector and of course VMWare is a major component of the cloud.

Since the new Dell shares have only been around a month, they are definitely not over-owned.

Earnings March 14th.

Update 2/10: Dell is considering selling its 85% ownership position in security firm SecureWorks (SCWX). Analysts believe the stake is worth $2 billion even though the market cap is only $254 million. Dell is trying to pay down its $50 billion in debt. Dell paid $612 million in 2011 and then floated the stock in 2016. Shares are up 64% since the IPO.

Update 3/3: Dell reported a loss of $287 million on revenue increase of 9% to $23.84 billion. They did NOT supply an earnings per share number with the release but in documents supplied later the earnings came out to about $1.86 per share. Analysts had expected $1.81 in adjusted earnings and a GAAP loss of $45 million on revenue of $23.83 million. Revenue in the infrastructure group rose 10% to $9.9 billion with servers and networking revenue rising 14% to $5.3 billion. They guided for full year earnings of $6.05-$6.70 and missed estimates for $6.81.

Position 1/28/19:
Long Jan 2020 $50 call @ $5.30, see portfolio graphic for stop loss.

DGX - Quest Diagnostics - Company Description


Shares collapsed in the Medicare for All crash in the biotech sector. We were stopped out at $87.65.

Original Trade Description: March 31st.

Quest Diagnostics Incorporated provides diagnostic testing, information, and services in the United States and internationally. The company develops and delivers diagnostic testing information and services, such as routine testing, non-routine and advanced clinical testing, anatomic pathology testing, and other diagnostic information services. It offers diagnostic information services primarily under the Quest Diagnostics brand, as well as under the AmeriPath, Dermpath Diagnostics, Athena Diagnostics, ExamOne, and Quanum brands to patients, clinicians, hospitals, integrated delivery networks, health plans, employers, and accountable care organizations through a network of laboratories, patient service centers, phlebotomists in physician offices, call centers and mobile paramedics, nurses, and other health and wellness professionals. The company also offers risk assessment services for the life insurance industry; and health information technology solutions for healthcare organizations and clinicians. Quest Diagnostics Incorporated was founded in 1967 and is headquartered in Secaucus, New Jersey. Company description from FinViz.com

Quest has been having some margin issues from a decline in the reimbursement ratios for some tests. However, the recent expanded agreements with UnitedHealthcare opens up their laboratory services to the group's 48 million members. This should give them additional revenue in future quarters. They also have some new tests that will be new revenue generators. Hopefully this will offset the lower reimbursement rate on older legacy tests. They expect a 10% drop in Medicare reimbursements. Quest no has exposure to about 90% of commercially insured patients in the USA.

The company reported earnings of $1.36 that matched estimates and was down 2 cents from the $1.38 in the year ago period. Revenue of $1.84 billion missed estimates by 2.4% because of the lower reimbursements.

They guided for the full year for adjusted earnings of $6.40.

DGX shares have formed a nice base over the last three months and appears ready to break over short-term resistance at $90. There is plenty of room to run if the stock can find some traction.

Position 4/1/19:
Closed 4/17: Long Jan $95 call @ $4.50, exit $3.33, -1.17 loss.

HD - Home Depot - Company Description


No specific news. Shares rebounded back to the 6-month high.

Original Trade Description: Oct 21st.

The Home Depot, Inc. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, lawn and garden products, and decor products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself and professional customers. The company also offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its do-it-for-me customers through third-party installers. In addition, it provides tool and equipment rental services. The company primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. It also sells its products through online. As of January 28, 2018, the company operated 2,284 stores, including 1,980 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 122 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia. Company description from FinViz.com.

Home Depot shares have been crushed by the six consecutive months of declining home sales. The rising mortgage rates are also taking a toll. Analysts are worried the remodel boom will stall. This is simply not the case. When homeowners want to move they do buy materials from HD to fix up the house before they sell. However, when they decide they can no longer afford to sell because home prices and interest rates are too high to justify a move they still fix up their homes because they are going to stay there for a while. I cannot quantify the numbers attributable to both scenarios but they are probably not far off. We saw this in the last housing downturn when those not moving decided to remodel instead because it was cheaper.

Analysts should not be worried about Home Depot earnings. The entire Southeast was hit by multiple hurricanes and that means many months of repairs that are far more costly than what homeowners would be spending just to fix up homes prior to selling. There is massive destruction and damage across multiple states and will require millions of pieces of sheetrock, shingles, siding, home appliances, 2x4s, tools, etc. Hurricane Sandy added between $300-$500 million to Home Depot revenue in the short term and we have two different hurricanes in the same area today. This will add to earnings for quarters to come.

Update 2/27: The company reported earnings of $1.52 that missed estimates for $2.16. Revenue rose 10.9% to $26.5 billion and missed estimates for $26.578 billion. Same store sales rose 3.7% and missed estimates for 4.3%. The company took a charge of 16 cents that impacted results but said the overall weakness was strictly weather related. The wet/cold weather caused homeowners to put off outside projects. There was also a $400 million windfall from the 2017 quarter because of hurricanes making Q4-2018 comps nearly impossible to hit.

The company increased their dividend 32% to $1.36 and announced a new $15 stock buyback. Given those two items, HD is still a buy at this level because they would not be going out on that cash return limb if they were not confident about 2019. Since 2011 they have bought back 30% of their stock and increased earnings by 330%.

Position 10/22/18:
Long Jan 2020 $190 LEAP Call @ $14.76, see portfolio graphic for stop loss.
Short Jan 2020 $220 LEAP Call @ $5.54, see portfolio graphic for stop loss.
Net debit $9.22.

Position 10/29/18:
Long Jan 2020 $190 LEAP Call @ $11.70, see portfolio graphic for stop loss.
Short Jan 2020 $220 LEAP Call @ $4.27, see portfolio graphic for stop loss.

Average costs:
$190 Call = $13.25
$220 Call = $ 4.90
Net debit = $8.35

IBM - IBM Inc - Company Description


IBM disappointed again but the earnings were not bad. They reported $2.25 and analysts expected $2.22. Revenue of $18.18 billion declined -4.7% and missed estimates for $18.46 billion. The cloud segment saw revenue decline -1.5% to $5.04 billion but easily beat estimates for $4.18 billion. This was not a bad report. The company said sales of its mainframe computers had slowed but other segments were growing.

Original Trade Description: Nov 4th.

International Business Machines Corporation operates as an integrated technology and services company worldwide. Its Cognitive Solutions segment offers Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. This segment also offers data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and solutions tailored by industry; and transaction processing software that runs mission-critical systems in banking, airlines, and retail industries. The company's Global Business Services segment offers business consulting services; delivers system integration, application management, maintenance, and support services for packaged software applications; and finance, procurement, talent and engagement, and industry-specific business process outsourcing services. Its Technology Services & Cloud Platforms segment provides cloud, project-based, outsourcing, and other managed services for enterprise IT infrastructure environments. This segment also offers technical support, and software and solution support; and integration software solutions. The company's Systems segment offers servers for businesses, cloud service providers, and scientific computing organizations; data storage products and solutions; and z/OS, an enterprise operating system. Its Global Financing segment provides lease, installment payment plans, and loan financing services; short-term working capital financing to suppliers, distributors, and resellers; and remanufacturing and remarketing services. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. International Business Machines Corporation was founded in 1911 and is headquartered in Armonk, New York. Company description from FinViz.com.

IBM announced last week they were acquiring Red Hat (RHT) for $34 billion. Shares were crushed and fell to $115 and a 9-year low. "They paid too much," "what were they thinking?" They were thinking about changing the playing field for cloud computing.

Some analysts praised the deal saying "this is as transformative as it gets." Some analysts warned that IBM could be forced to take on billions in new debt just as interest rates were rising. IBM generates about $12 billion in free cash flow per year and Red Hat also kicks off a lot of cash. IBM alone could fund this deal using only free cash flow in three years. The IBM said the deal would be accretive in year one and would boost free cash flow and margins in year one. IBM also has $15 billion in cash on its balance sheet.

IBM has been penalized for constantly falling revenue for years. The prior IBM business model was producing profits but the decline in hardware costs and move away from single clouds to multiple clouds per enterprise meant a constantly shrinking services base.

To solve this problem they acquired the largest hybrid cloud provider on the planet. Not only that Red Hat dominates the open source software component of the cloud. Red Hat grows revenue each quarter at double digit rates with 85% gross margins and 20% plus operating margins. IBM has flat revenue and 50% gross margins and 20% operating margins. IBM is acquiring a revenue generating machine and they do it at high margins.

More than 90% of Fortune 500 companies are Red Hat users with more than 100,000 Red Hat customers in total. The opportunity to cross sell products in the future is unbelievable. This is a marketing bonanza.

In cloud alone this will boost IBMs regular cloud business. The combination of IBM and Red Hat will eventually take market share from Amazon, Google and Microsoft. With IBM shares trading at a PE of 8 this is a this is an outright bargain. It may take several months for the reality to overcome the acquisition shock but once investors realize IBM is going to be a major power player in the cloud the stock will rise and $150 could be just a pause point.

Update 4/1: Red Hat (RHT) reported a 15% increase in revenue and subscriptions to $3.4 billion. The total number of customers with active subscriptions over $5 million a year rose 33% in fiscal 2019. They signed 17% more deals worth $1 million or more. They have an order backlog of $4.1 billion, up 22%. IBM is acquiring Red Hat in the coming weeks.

Update 4/7: Analysts are waking up to the potential for IBM World Wire to change the global banking system forever. World Wire can transmit any currency to any place in the world and into any other currency in near real time. Dollars to yuan, pesos to euros or yen to rand, instantly anywhere in the world. This is going to be a powerful force for IBM in the coming months as the number of global transactions increase daily.

Position 11/5/18:
Long Jan 2020 $125 LEAP Call @ $6.85, see portfolio graphic for stop loss.
Long Jan 2021 $125 LEAP Call @ $10.80, see portfolio graphic for stop loss.
IBM shares could be $200 by the time this call expires.

INTC - Intel - Company Description


Intel said it was exiting the 5G modem race after Apple decided to settle with Qualcomm and use their chips. Intel shares rallied on the news because this was a low margin product sucking up resources. Intel needs to remain in the CPU business and catch up with AMD.

Original Trade Description: Nov 18th.

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.

Intel has bucked the trend in the chip sector by beating on earnings and giving decent guidance. Shares have resisted any material decline in November and appear to be poised to break through resistance at $49.

On Thursday 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.

Update 1/27: Intel was the opposite of IBM. The company reported 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.

Update 4/7: Wells Fargo downgraded Intel from outperform to market perform and Nomura initiated coverage with a buy rating. Wells thinks AMD is acquiring market share from Intel since they are already building 7 nanometer chips and Intel has not even got their 10 nanometer chips to market.

Position 11/19/18:
Long Jan 2020 $55 LEAP Call @ $3.85, see portfolio graphic for stop loss.

MRK - Merck & Co - Company Description


No specific news. Shares continued to decline with the sector on Medicare for All worries. I considered closing it but now at support I tightened the stop instead.

Original Trade Description: November 12th

Merck & Co., Inc. provides healthcare solutions worldwide. It operates in four segments: Pharmaceutical, Animal Health, Healthcare Services, and Alliances segments. The company offers therapeutic agents to treat cardiovascular, type 2 diabetes, asthma, nasal allergy symptoms, allergic rhinitis, chronic hepatitis C virus, HIV-1 infection, fungal and intra-abdominal infections, hypertension, arthritis and pain, inflammatory, osteoporosis, and fertility diseases. It also offers neuromuscular blocking agents; anti-bacterial products; cholesterol modifying medicines; and vaginal contraceptive products. In addition, the company offers products to prevent chemotherapy-induced and post-operative nausea and vomiting; treat brain tumors, and melanoma and metastatic non-small-cell lung cancer; prevent diseases caused by human papillomavirus; and vaccines for measles, mumps, rubella, varicella, chickenpox, shingles, rotavirus gastroenteritis, and pneumococcal diseases. Further, it offers antibiotic and anti-inflammatory drugs to treat infectious and respiratory diseases, fertility disorders, and pneumonia in cattle, horses, and swine; vaccines for poultry; parasiticide for sea lice in salmon; and antibiotics and vaccines for fishes. Additionally, the company offers companion animal products, such as ointments; diabetes mellitus treatment for dogs and cats; anthelmintic products; fluralaner products to treat fleas and ticks in dogs; and products for protection against bites from fleas, ticks, mosquitoes, and sandflies. It has collaborations with Aduro Biotech, Inc.; Premier Inc.; Cancer Research Technology; Corning; Pfizer Inc.; AstraZeneca PLC.; and SELLAS Life Sciences Group Ltd. The company serves drug wholesalers and retailers, hospitals, government agencies and entities, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers. Merck & Co., Inc. was founded in 1891 and is headquartered in Kenilworth, New Jersey. Company description from FinViz.com

Merck reported earnings of $1.11 compares to the $1.03 that analysts expected. Revenue of $10.33 billion beat estimates. The company guided for full year earnings of $1,.78-$1.84 up from $1.60-$1.72. Revenue guidance rose from $39.4-$40.4 billion to $40.0-$40.5 billion.

Shares were crushed after the company said it had pulled its European application for the cancer drug Keytruda. Sales of the drug nearly tripled to $1.05 billion where it has already been approved and are expected to continue to grow to $5 billion over the next two years.

The reason they pulled the European application was to modify a phase III trial to focus on "overall survival" or OS rather than short-term "progression free survival" or PFS. This pushed the trial end date out to early 2019. Overall survival is the holy grail of any cancer drug. It is one thing for cancer to grow slower and let the patient live a longer life but gaining another 6-12 months of life is a fleeting goal. Living out your normal life span is the target all drugs shoot for. By modifying the trial to focus on longer term benefits, the eventual drug approval will be worth more. If the short term drug is worth $10,000 per treatment, a drug that give you upir life back is worth 10 times or even a 100 times that amount.

Merck will refile the application when they have the new data but this is one drug with $3 billion a year in sales compared to their current $40 billion in overall volume. If they get the OS data they want, Keytruda could grow to $10 billion a year by 2022.

I believe this drop is a buying opportunity because the LEAP premiums are miniscule for a company with a $150 billion market cap and $40 billion in annual sales.

Update 3/10: Merck announced a tender offer for the shares of Immune Design (IMDZ) for $5.85 each. Merck had previously announced its plans to acquire the company. Shares were $1 45 when Merck made the announcement in late February.

Position 11/13/17:

Long Jan 2020 $60 LEAP Call @ $3.90, see portfolio graphic for stop loss.

Closed 12/17: Long Jan 2019 $60 LEAP Call @ $2.38, exit $17.02, +14.64 gain.

MSFT - Microsoft - Company Description


Wedbush raised the target price for Microsoft from $140 to $150 based on the strength of their cloud business. The analyst said Microsoft had succeeded in converting nearly all of its software business to a subscription model. Earnings are this week.

Original Trade Description: Feb 27th.

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 for businesses, 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 on Microsoft products. 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.; 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 has been slowly checking all the boxes to compete with Google, Facebook, Apple, Android, etc. Since they own the enterprise space with Windows, they have elected to spend their development dollars on cutting edge products that will eventually have consumer applications as well.

One in particular is their Augmented Reality (AR) software and applications. The VR craze has suffered from multiple false starts due to high cost of the headsets and lack of programs that run on the equipment.

Microsoft is trying to build the software and then let the consumer devices grow into it instead of the other way around, which has not yet been successful.

They recently released the HoloLens 2, a new version of a 3-year old "mixed reality" headset, which costs $3,500. Clearly not your consumer headset. It comes with eye-tracking, can be worn over prescription glasses, has iris matching so different people can wear the headset and it remembers who you are and your preferences.

In the Microsoft demo, a participant puts on the headset and is then led through a building process for an ATV. The headset shows you the tool to use, the part to pickup, the method of installation, etc, using pictures, text, arrows pointing to the part, tool, screw hole, etc. Participants said it was like magic because the HoloLens could almost read their mind from the movement of their eyes. Were they confused, did they miss a part or step, need a better explanation, need to go back a step to better understand the job, etc. The device tacks your eyes and hands with 25 points of articulation per hand.

By building the application for enterprise customers, there are thousands of applications where workers need to be guided through a process whether it is medical, manufacturing, teaching, etc. This is the equivalent of putting a video instruction guide in the user's head rather than on a smartphone, tablet or TV. The process is smart and interacts with the environment and users and not just a video. It is like having a trainer or coach sitting right beside you but not calling you stupid when you make a mistake. One reviewer said it was like Google Maps in your mind. Step by step instructions based on what was in front of you and what tools were in your hands.

This is going to be a huge application for Microsoft. When consumer headsets finally reach a cost threshold that normal people can afford the application will be even smarter. Imagine needing to do a brake job on your car. You go to Advanced Auto Parts and rent the headset and brake program for a 2014 Tahoe or whatever car you have. You put the headset on and install your brakes just like your mechanic was sitting next to you.

Better explanation HERE

Obviously, this is not the only item on the Microsoft menu for the future. The current CEO has given the company direction for the future and they have dozens if not hundreds of applications and gadgets that will benefit from their research and planning. Add in the never-ending Windows cash cow, Azure Cloud and more cash streams than I can count and Microsoft is going to be king of the mountain once again.

For us today, the key is Microsoft shares at $112. This is resistance dating back to August. A break over this level could quickly retest the high at $115.61 and once over that level the sky is the limit. Microsoft has been reborn and after four months of consolidation it could be ready to run.

Update 3/10: Microsoft said an Iranian hacker group called, Holmium, had attacked more than 200 US companies in the past two years, stealing data and deleting data from the company's servers. Microsoft tracked attacks on computers of 2,200 workers to gain access to the internal networks.

Microsoft also filed suit against Foxconn parent Hon Hai for failing to pay patent-licensing payments. The agreement was signed in 2013 and Hon Hai is supposed to produce semiannual reports and payments on certain unspecified royalties on Android and Chrome OS devices. Foxconn agreed to be audited by Deloite in 2017 but never supplied any documentation for the audit.

Microsoft is also preparing to release the Xbox One S All Digital Edition console. There will be no CDs, all games will be downloaded from Microsoft and that is a nightmare for Gamestop. Their entire business depends on the ability to resell Xbox game CDs.

Update 3/17: Microsoft announced the combination of its cloud business and elements of its gaming business to attract developers. The company is rolling out "Microsoft Game Stack" which is a group of services that allows developers to host multiplayer games and match player skill levels. The service will work for titles played on any device including those with operating systems from Apple and Google.

Position 2/28/19:
Long Jan $120 Call @ $6.60, see portfolio graphic for stop loss.

NAV - Navistar - Company Description


No specific news. New 6-week high close.

Original Trade Description: March 10th.

Navistar International Corporation, through its subsidiaries, manufactures and sells commercial and military trucks, diesel engines, school and commercial buses, and service parts for trucks and diesel engines worldwide. The company operates through four segments: Truck, Parts, Global Operations, and Financial Services. It manufactures and distributes Class 4 through 8 trucks and buses in the common carrier, private carrier, government, leasing, construction, energy/petroleum, military vehicle, and student and commercial transportation markets under the International and IC brands; and designs, engineers, and produces sheet metal components, including truck cabs and engines. The company also provides customers with proprietary products needed to support the International commercial and military truck, IC bus, and engine lines, as well as other product lines; and a selection of other standard truck, trailer, and engine aftermarket parts. In addition, it manufactures and distributes mid-range diesel engines, as well as provides customers with additional engine offerings in the agriculture, marine, genset, and light truck markets; sells engines to original equipment manufacturers (OEM) for various on-and-off-road applications; and offers contract manufacturing services under the MWM brand to OEMs for the assembly of their engines. Further, the company provides retail, wholesale, and lease financing of products of its trucks and parts, as well as financing for wholesale and retail accounts receivable. It markets its commercial products through an independent dealer network, as well as through distribution and service network retail outlets; and its reconditioned used trucks to owner-operators and fleet buyers through its network of used truck dealers. As of October 31, 2018, it had approximately 727 outlets in the United States and Canada, and 89 outlets in Mexico. Navistar International Corporation was founded in 1902 and is headquartered in Lisle, Illinois. Company description from FinViz.com.

Navistar (NAV) reported earnings of 11 cents that missed estimates for 15 cents but that was considerably better than the 74-cent loss in the year ago quarter. Revenue of $2.4 billion rose a whopping 28% and beat estimates for $2.2 billion. The company blamed the earnings miss on one-time pension expenses. Orders rose 26% year over year in Q4 compared to a 35% decline for the rest of the industry. They currently have orders for 53,700 trucks and busses. They produced 71,400 in 2018. That is a lot of big rigs! They raised revenue guidance for 2019 to $11 billion with $875 million in Ebitda. They expect to have a 19% market share.

I said in the Option Investor commentary this weekend that I would recommend the stock when it found a bottom. With options so cheap and initial support at $32.50, I am going to recommend a long-term position today. If you are concerned about a continued decline you can add the April $30 put as insurance.

Position 3/11/19:
Long Jan $40 Call @ $3.40, see portfolio graphic for stop loss.

Previously closed 4/12: Long April $30 Put @ .35, exit .18, -.17 loss.

PAYX - PayChex Inc - Company Description


No specific news. Shares still making new highs.

Original Trade Description: Jan 27th.

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.

The company reported earnings of 65 cents that rose 20.4% and beat estimates for 63 cents. Revenue of $858.9 million rose 7% and beat estimates for $855 million. Free cash flow from operations was $223.5 million. They paid $201.3 million in dividends in the quarter. The annual dividend is $2.24 or a 3.12% yield.

For 2019 the company guided for 18% to 20% revenue growth in PEO and insurance services and 4% growth in management solutions. Interest on funds held for clients is expected to rise by 20-25%. Earnings are expected to rise 11-12%.

During the quarter they announced a deal to acquire Florida based Oasis Outsourcing for $1.2 billion in cash. That is expected to bolster the company's PEO strategy an expand PEO sales and the client base. PEO stands for professional employer organization. This is where they provide all types of HR solutions to small businesses.

Earnings March 20th.

Shares have moved up steadily from the December low and broke above December 3rd resistance high on Friday. The next target is $75 and the October high. With strong earnings, guidance and dividend, shares should continue to be in favor.

Update 4/1: Shares closed at a new high after earnings. The company reported 89 cents that beat estimates for 88 cents. Revenue of $1.07 billion rose 14% and beat estimates for $1.04 billion. For 2019 they guided for a revenue increase of 6-7% and earnings increase of 11-12%. Analysts were expecting 9.9% and 11.8%. Shares rose anyway.

Position 2/11/19:
Long Jan $80 Call @ $2.90, see portfolio graphic for stop loss.

PYPL - Paypal - Company Description


No specific news. Earnings this week.

Original Trade Description: Jan 20th.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. Its payment solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and Paydiant products. The company's platform allows consumers to shop by sending payments, withdraw funds to their bank accounts, and hold balances in their PayPal accounts in various currencies. It also offers gateway services that enable merchants to accept payments online with credit or debit cards. The company has a strategic partnership with American Express Company to improve the digital payments experience for the United States American Express Card members paying with PayPal and Venmo. PayPal Holdings, Inc. was founded in 1998 and is headquartered in San Jose, California. Company description from FinViz.com.

Earnings February 19th.

Morgan Stanley said Paypal is crushing digital payment competitors in the e-commerce space and extending its lead. The analyst said Paypal is now accepted at 82% of the top 500 US internet retailers compared to only 12% for Amazon Pay. Only 4 accepted Bitcoin. Paypal added another 8 retailers in Q4. Their total payment volume continues to grow at a rate faster than the growth of ecommerce.

Paypal has offered $500 in instant credit to any federal employee impacted by the shutdown. The offer was a $25 million pledge by Paypal to help workers experiencing a hardship. There is no interest and the offer is good until the government reopens.

It is these kinds of marketing opportunities where Paypal excels and this is why their brand is growing. They offer convince of not having to input your payment details in every website you visit. The entire process is super simple, and your privacy is not at risk. I personally purchased 4 items at different websites over the last two weeks on Paypal because of the easier transaction.

The stock had a rough three months from October through December but is now on the verge of breaking out to a new high.

Update 2/3/19: Paypal reported earnings of 69 cents that beat estimates for 67 cents. Revenue rose from $3.69 billion to $4.23 billion and matched estimates. Total payment volume rose from $131 billion to $164 billion. They guided for Q1 for earnings of 66-68 cents and revenue of $4.08-$4.13 billion. Analysts were expecting 68 cents and $4.16 billion. They reaffirmed the full year forecast for $2.84-$2.91 and $17.85-$18.1 billion. They added 13.8 million accounts to end the quarter with 267 million users. This was the strongest growth in their history. The average active account did 36.9 payments on a trailing 12-month period. Venmo, their peer-to-peer product saw payments processed rise from $10 billion to $19 billion.

Update 3/17: Bank of America reiterated a buy rating and raised the price target from $102 to $116. Shares spiked to a new high. The company also said it was investing $750 million into Latin American merchant MercadoLibre (MELI) in hopes of spreading the Paypal payment system throughout Latin America.

Position 1/21/19:
Long Jan 2020 $100 call @ $7.90, see portfolio graphic for stop loss.
Optional: Short Jan 2020 $75 put @ $4.09, see portfolio graphic for stop loss.
Net debit $3.81.

QCOM - Qualcomm - Company Profile


Winner, winner, chicken dinner! Qualcomm won the patent war and Apple agreed to settle with a large lump sum payment and cessation of all US and international suits. They also signed a six-year chip supply agreement. Qualcomm said this would be worth about $2 a year in annual earnings.

Stifel upgraded from hold to buy with $100 price target.
JP Morgan upgraded from neutral to overweight and $88 target.

Original Trade Description: July 29th

QUALCOMM Incorporated designs, develops, manufactures, and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access, and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of wireless products comprising products implementing CDMA2000, wideband CDMA, CDMA time division duplex, and/or long term evolution standards and their derivatives. The QSI segment invests in early-stage companies in various industries, including automotive, Internet of things, mobile, data center, and healthcare for supporting the design and introduction of new products and services for voice and data communications, and new industry segments. The company also provides products and services for mobile health; products designed for the implementation of small cells; development, and other services and related products to the United States government agencies and their contractors; and software products, and content and push-to-talk enablement services to wireless operators. In addition, it licenses chipset technology, and products and services for use in data centers. QUALCOMM Incorporated was founded in 1985 and is headquartered in San Diego, California. Company description from FinViz.com.

The last 12 months have been turbulent for Qualcomm. First, they tried to acquire NXP Semiconductor (NXPI). They received approvals from 7 of the 8 countries that needed to approve the transaction. While they were waiting on China's approval, Broadcom (AVGO) made a hostile offer to acquire Qualcomm for $121 billion. Qualcomm would be forced to drop the bid for NXPI if they accepted the Broadcom bid. Qualcomm fought Broadcom and finally got the government to veto the deal under a national security rationale.

Broadcom quickly made a big show of becoming a U.S. company by changing its domicile to the U.S. That was not enough to convince CFIUS they were not a threat. Eventually Broadcom dropped its bid.

Qualcomm tried to continue its acquisition of NXPI but China refused to approve the acquisition and Qualcomm was forced to abandon the acquisition attempt and pay a $2 billion breakup fee.

While Qualcomm and NXPI would have been stronger together, Qualcomm is not sitting still. They are rapidly moving forward on 5G communications, automotive chips, internet connectivity, Internet of Things, network processing, etc.

The company just announced a $30 billion stock buyback. That is one-third of the company using the funds they had set aside for the NXPI acquisition.

The next challenge for Qualcomm is settling the patent dispute with Apple. The phone company has protested the way Qualcomm collects royalties on its products. Instead of only charging a royalty on the specific parts in the phone, Qualcomm has always charged a royalty on the entire cost of the phone. In the beginning, companies did not balk because without Qualcomm's parts the phone would not have been possible. After paying royalties to Qualcomm for years, Apple decided they were paying too much money to Qualcomm and sued them to change the patent. Since Apple and every other phone manufacturer had been paying Qualcomm under this structure for years, Apple does not have a very good chance of winning. They do have a lot of money and the best lawyers in the world but the law is the law and signed agreements are tough to fight.

This suit is expected to be settled later this year. Investors should be looking at Qualcomm as an outstanding investment now that the clouds have cleared.

With a 4% dividend and buying back 33% of the stock, there is no reason for Qualcomm shares not to rise in the coming months. The stock should also be somewhat immune to market movement over the coming weeks thanks to the monster buyback.

Update 3/10: Apple said it was hiring 1,200 engineers in San Diego to compete with Qualcomm. That is Qualcomm's home turf and Apple is hoping to hire ex Qualcomm engineers and maybe even hire away some existing engineers. Apple wants to create its own networking group so it will not be dependent on Qualcomm or Intel for modems. They are hiring 200 by year end and another 1,000 by 2021.

Update 3/18: In one court trial Apple was found to have violated three Qualcomm patents and told to pay $1.41 per device to Qualcomm. That only amounts to $31 million but it is now a proven patent that can be used in the other cases. Qualcomm was tole to pay $1 billion in rebates to Apple despite Apple owing Qualcomm multiple billions in royalty payments. Qualcomm had withheld the rebates because Apple withheld the royalties.

Update 4/7: Qualcomm continues to be a leader in 5G technology with multiple manufacturers signing new deals. Apple is the holdout and Apple is the only large manufacturer without 5G prototypes or forecasts. They are not likely to have a 5G phone until late 2020 if they continue to wait on Intel. This means Apple will be handicapped in the Q4 phone race in 2019. I would not be surprised to see a sudden announcement of a deal between Apple and Qualcomm in the coming months that puts their battles behind them.

Update 4/15: The four-week trial between Apple and Qualcomm begins on Monday and the outcome is worth up to $30 billion for Qualcomm. Apple and four of its suppliers are suing Qualcomm saying its royalties are too high. Apple told the suppliers to stop paying the royalties in 2017 and filed suit against Qualcomm. Both parties have won some points in the preliminary rounds, but this is for all the marbles. Qualcomm is seeking $7 billion in overdue payments from Apple and its suppliers and billions of dollars in damages. While the trial may take four-weeks the decision could be months away because of the complexity of the case. Apple has not announced a supplier for a 5G modem for its 2020 iPhones and Intel is not expected to have a working version until early 2020. It normally takes 10-12 months for manufactures to produce a phone after the choices are made. This means Apple is facing the possibility of not having a 5G phone in 2020 unless it goes with Qualcomm. This further complicates Apple's dilemma.

Position 7/30/18:
Long Jan 2020 $70 call @ $5.00, see portfolio graphic for stop loss.

Position 12/31/18:
Closed 2/5: Long Feb $52.50 put @ $1.39, exit $2.28, +.89 gain.

SPY - S&P SPDR ETF - ETF Profile


The S&P has posted a long string of gains and is only 25 points from a new high.

This is a VERY long-term play on the market with a 2020 LEAP.

Original Trade Description: Sept 30th.

The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol SPY. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world.

The SPY has pulled back to the 30-day average and actually a steeper decline than the S&P-500. The SPY is near support at the 30-day average.

I believe the market is going to move higher during the Q3 earnings cycle. Even if we do not see a Q3 earnings rally the long-term outlook is positive.

The 12 months after mid-term elections have seen the S&P gain an average of 15% for the last 18 midterms. That is 72 years and the S&P has gone up every time. There are almost no trends in the market that repeat 100% of the time. By recommending this position I have probably jinxed the coming year.

However, with the economy growing at more than 4% GDP, unemployment at record lows and Q3 earnings expected to show 20% growth or better, this should be a good opportunity for the trend to repeat.

If we do get a 15% rally over the next 12 months that would be 45 SPY points. The options are expensive for obvious reasons. I do not want to make it a spread and give up a significant portion of our eventual gains. I am going to recommend an offsetting short put to defray the cost of the call. If you cannot write cash secured puts then you should turn it into a spread by selling the call of your choice.

Position 10/1/18:
Long Jan 2020 $300 Call @ $16.80, see portfolio graphic for stop loss.
Short Jan 2020 $270 Put @ $10.61, see portfolio graphic for stop loss.
Net debit $6.19.

Position 12/24/18:
Long Jan 2020 $300 Call @ $2.05, see portfolio graphic for stop loss.
Average cost of the call position = $9.43.

STZ - Constellation Brands - Company Description


Shares spiked on the Canopy acquisition of Acreage Holdings. Constellation owns stock and warrants for 50% of Canopy.

Original Trade Description: Jan 6th.

Constellation Brands, Inc., together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company sells wine across various categories, including table wine, sparkling wine, and dessert wine. It provides beer primarily under the Corona Extra, Corona Light, Modelo Especial, Modelo Negra, Modelo Chelada, Pacifico, and Victoria brands, as well as Funky Buddha, Obregon Brewery, and Ballast Point brands. The company offers wine under the 7 Moons, Black Box, Clos du Bois, Estancia, Mount Veeder, The Dreaming Tree, Franciscan Estate, Nobilo, The Prisoner, Kim Crawford, Ravage, The Velvet Devil, Kung Fu Girl, Mark West, Meiomi, Robert Mondavi, Ruffino, and Simi brands, as well as Schrader Cellars and Charles Smith brands; and spirits under the Casa Noble, High West, SVEDKA Vodka, Black Velvet Canadian Whisky, Casa Noble Tequila, and High West Whiskey brands. It provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies. The company was founded in 1945 and is headquartered in Victor, New York. Company description from FinViz.com.

Constellation took a $4.1 billion stake in marijuana company Canopy Growth. Their plan is to market THC infused drinks, snacks, etc, wherever marijuana is legal. That includes all of Canada, multiple US states and more than likely the entire US by the end of this decade. There are multiple countries other than Canada where the plant is legal.

This has significant implications where medical marijuana is legal. Patients who would rather not smoke a joint can drink a beer or other THC infused beverage with the same results. Constellation took a major hit on the announcement because many funds cannot invest in "sin" stocks. Shares fell to a low of $160 in late December with the market crash but are starting to rebound now.

Constellation is a buy just on its regular beverages at this level and the THC drinks are going to add to that valuation in the next couple years.

Earnings are January 9th, so we could get a quick pop on this position. I would wait to sell the put until after the earnings just in case they disappoint.

Update 1/11: That was disappointing! We entered the STZ position on Monday and the stock gapped $20 lower at the open on Wednesday after disappointing on earnings. Obviously, this stopped us out for a loss.

The company reported earnings of $2.37 that beat estimates for $2.06. Sales rose 9% to $1.97 billion and beat estimates for $1.91 billion. Beer sales rose 16% to $1.21 billion to beat estimates for $1.16 billion. Wine and spirit sales rose 0.4% to $762.8 million and beat estimates for $747.8 million.

For 2019 the company cut guidance from $9.60-$9.75 to $9.20-$9.30. Analysts were expecting $9.43. They said beer sales would still rise 9% to 11% but wine and spirit sales were expected to decline in the low single digit range compared to prior guidance for 2% to 4% growth.

Shares were crushed on the guidance. The weaker earnings were due not only to weaker wine sales but acquisition expenses and costs related to product development related to the Canopy Growth investment. The $4.1 billion investment was backed with debt and Constellation said they could see a 25-cent impact from this investment. Canopy reported weaker than expected earnings for Q3 and that caused a $164 million decrease in the fair value of the Constellation investment.

I believe this is all temporary. Constellation still has a great business and beer sales are booming. The company said it was going to reduce their low margin wine business with products under $11 and concentrate on higher dollar wines with higher margins.

Once they begin marketing cannabis infused products, the sales are going to explode. Getting those products through research and development is going to take months but investors should be able to anticipate the profits.

The CEO said Canopy was expected to produce $1 billion in revenue over the next 18 months and that was 56% more than analysts expected. As Canopy begins to report these numbers, Constellation will benefit.

I am recommending we reload this position since the bad news has already been discounted.

Update 2/27: Constellation guided for a 10-cent hit to earnings because of its investment in Canopy Growth and shares imploded on the 21st. The guidance came during a conference presentation. They said the Canopy earnings would grow by 10% annually over the next three years but this quarter would see a hit to earnings. They also said they were going to sell some inexpensive wine brands and concentrate on high end products. Shares fell $12 on the news. This should be temporary.

Update 4/7: Constellation Brands reported earnings of $1.84 that beat estimates for $1.72. Revenue of $1.797 billion beat estimates for $1.732 billion. They guided for the full year for earnings of $8.50-$8.80 excluding any impact from their holdings in Canopy Growth (CGC). Analysts were expecting $9.36 but that included Canopy earnings. Beer sales rose 11.6% to $5.202 billion. Wine and spirit sales declined -0.2% to $2.914 billion.

The company said it was going to sell about 30 wine brands to Gallo for $1.7 billion. The average selling price for a bottle of the brands being sold was $11. Shares were up sharply on expectations for the Canopy business. The company has 35 patents and 195 patent applications. They plan to launch cannabis beverages in Canada this year. Constellation expects continued losses in its Canopy investment in 2019 but a run rate of $1 billion next year and significant profits in 2020. Shares spiked sharply from $178 to $193.

Position 1/14/19:
Long Jan 2020 $170 Call @ $13.40, see portfolio graphic for stop loss.
Short Jan 2020 $130 Put @ $6.72, see portfolio graphic for stop loss.
Net debit $6.78.

Position 1/7/19:
Closed 1/9: Long Jan 2020 $180 call @ $14.40, exit $8.40, -6.00 loss.
Closed 1/9: Short Jan 2020 $140 Put @ $7.05, exit 10.00, -2.95 loss.

SWK - Stanley Black & Decker - Company Description


Stanley announced a dividend of 66 cents payable June 18th to holders on June 4th.

Original Trade Description: Feb 3rd.

Stanley Black & Decker, Inc. provides tools and storage, engineered fastening and infrastructure, and security solutions worldwide. The company's Tools & Storage segment offers professional products, including corded and cordless electric power tools and equipment, drills, impact wrenches and drivers, grinders, saws, routers, and sanders, as well as pneumatic tools and fasteners, including nail guns, nails, staplers and staples, and concrete and masonry anchors; and consumer products, such as lawn and garden products comprising hedge and string trimmers, lawn mowers, and edgers and related accessories, as well as home products, such as hand-held vacuums, paint tools, and cleaning appliances. It also offers hand tools, including planes, hammers, demolition tools, clamps, vises, knives, chisels, and industrial and automotive tools, as well as measuring, leveling, and layout tools; power tool accessories; and storage products. The company's Industrial segment sells engineered fastening products and systems, which include blind rivets and tools, blind inserts and tools, drawn arc weld studs and systems, engineered plastic and mechanical fasteners, self-piercing riveting systems, precision nut running systems, micro fasteners, and high-strength structural fasteners; sells and rents custom pipe handling, joint welding, and coating equipment; provides pipeline inspection services; and sells hydraulic tools and accessories. Its Security segment provides alarm and fire alarm monitoring, video surveillance, systems integration, and system maintenance solutions; sells healthcare solutions, which include asset tracking, wander and fall management, and emergency call products, as well as infant, pediatric, and patient protection products; and sells automatic doors. The company was formerly known as The Stanley Works and changed its name to Stanley Black & Decker, Inc. in March 2010. The company was founded in 1843 and is headquartered in New Britain, Connecticut. Company description from FinViz.com.

Earnings were not kind to Stanley Black & Decker (SWK). On Tuesday the company reported earnings of $2.11 that edged out estimates by a penny. Revenue of $3.63 billion barely edged out estimates for $3.62 billion. The problem came in the guidance. The company predicted earnings for fiscal 2019 of $8.45-$8.65 and analysts were expecting $8.79. The company is in the middle of a large $250 million restructuring program that is impacting costs in the short term.

Analysts were quick to moan about the falling housing market and how it was impacting this sector. However, about 90% of home improvement sales come from consumers not selling their homes. Investors were quick to dump Home Depot thinking weakness at SWK meant weakness at Home Depot since they are their biggest customer.

Investors need to focus. Revenue hit the target, restructuring costs are impacting earnings, Home Depot has not reported any sales declines. Unfortunately, SWK shares fell $21 on the news.

Update 2/15: SWK announced a quarterly dividend of 66 cents payable March 19th to holders on March 5th.

Update 2/27: Shares declined after they filed their 10K showing lower earnings than previously reported thanks to a $50.8 million charge to Q4 results from the bankruptcy of IPS Worldwide LLC. Earnings were reduced from $4.26 to $3.99. These were GAAP earnings and the adjusted earnings did not change. This was a one-time event.

Update 3/10: Stanley sued Sears for trademark infringement over the Craftsman brand. Sears is advertising a new Craftsman Ultimate brand saying Sears is the home of Craftsman and the only place to see the full assortment of products. Sears sold the Craftsman brand to Stanley in 2017 for $900 million.

Position 2/4/19:
Long Jan $140 Call @ $8.89, see portfolio graphic for stop loss.
Short Jan $110 Put @ $6.77, see portfolio graphic for stop loss.
Net debit $2.12.

TGT - Target - Company Description


No specific news. New 5-month high close.

Original Trade Description: Nov 25th.

Target Corporation operates as a general merchandise retailer in the United States. The company offers beauty and household essentials, including beauty products, personal and baby care products, cleaning products, paper products, and pet supplies; food and beverage products, such as dry grocery, dairy, frozen food, beverage, candy, snacks, deli, bakery, meat, and produce products; and apparel for women, men, boys, girls, toddlers, infants, and newborns, as well as intimate apparel, jewelry, accessories, and shoes. It also provides home furnishings and decor comprising furniture, lighting, kitchenware, small appliances, home decor, bed and bath products, home improvement products, and automotive products, as well as seasonal merchandise comprising patio furniture and holiday decor; and music, movies, books, computer software, sporting goods, and toys, as well as electronics that include video game hardware and software. In addition, the company offers in-store amenities, which comprise Target Cafe, Target Optical, Starbucks, and other food service offerings. It sells its products through its stores; and digital channels, including Target.com. As of March 8, 2018, the company operated 1,826 stores. Target Corporation was founded in 1902 and is headquartered in Minneapolis, Minnesota. Company description from FinViz.com.

Bloody cleanup isle 5! Target shares were beaten severely when they missed estimates by 2 cents on their Q3 earnings. The company reported earnings of $1.09 that missed estimates for $1.11. Revenue rose to $17.59 billion but that missed estimates of $17.81 billion. Same store sales rose 5.1%, a 3.2% improvement but missed the 5.5% consensus. Digital sales rose a whopping 49% and now contribute 2% to overall revenue.

They guided for the full year for earnings of $5.30-$5.50 and analysts were expecting $5.42. They guided for 5.0% same store sales. Analysts picked on them for a 17% rise in inventory. Target said with the demise of Toys-R-Us they had stocked up heavily on toys and planned on a big holiday. They want to grab as much of the market share from Toys-R-Us as possible and will be advertising heavily. That will draw more people into the stores and lead to more sales of other merchandise as well. They pointed out that 2018 had the maximum number of sales days on the calendar between Thanksgiving and Christmas.

The guidance was the same as they issued at the end of Q2. They did not back off. The 5.0% same store sales was higher than the 4.4% the street was expecting.

Target has also beefed up their more than a dozen private label brands that have a larger profit margin and that will help in the December quarter. Keybanc estimates the Toys-R-Us exit, Sears bankruptcy and other store closings has put $17 billion in retail market share up for grabs in areas where Target is expected to compete well and add multiple percentage points to their growth. Keybanc maintained their $100 price target. Target shares have fallen to $67 post earnings and are now trading at a PE of 13 compared to 18 for Walmart. That means Target is on sale at the right price.

Update 3/10: Target reported earnings of $1.53 that edged estimates for $1.52. Revenue of $22.98 billion narrowly beat estimates for $22.92 billion. Same store sales rose 5.3% and online sales rose 31%. The CEO said traffic and same store sales was the strongest in over a decade. They guided for Q1 earnings of $1.32-$1.52 and bracketing estimates for $1.43. Shares spiked $4 on the news.

Position 11/26/18:
Long Jan 2020 $75 call @ $5.60, see portfolio graphic for stop loss.

UNH - UnitedHealth - Company Description


Bank of America reiterated a buy rating with a $290 price target. Earnings for 2019 are expected to be $14.70.

Original Trade Description: April 14th.

UnitedHealth Group Incorporated operates as a diversified health care company in the United States. It operates through four segments: UnitedHealthcare, OptumHealth, OptumInsight, and OptumRx. The UnitedHealthcare segment offers consumer-oriented health benefit plans and services for national employers, public sector employers, mid-sized employers, small businesses, and individuals; health and well-being services to individuals age 50 and older, addressing their needs for preventive and acute health care services, as well as services dealing with chronic disease and other specialized issues for older individuals; and Medicaid plans, Children's Health Insurance Program, and health care programs; and health and dental benefits. The OptumHealth segment provides access to networks of care provider specialists, health management services, care delivery, consumer engagement, and financial services. This segment serves individuals through programs offered by employers, payers, government entities, and directly with the care delivery systems. The OptumInsight segment offers software and information products, advisory consulting arrangements, and services outsourcing contracts to hospital systems, physicians, health plans, governments, life sciences companies, and other organizations. The OptumRx segment provides pharmacy care services and programs, including retail network contracting, home delivery, specialty and compounding pharmacy, and purchasing and clinical, as well as develops programs in areas, such as step therapy, formulary management, drug adherence, and disease/drug therapy management. UnitedHealth Group Incorporated was founded in 1974 and is based in Minnetonka, Minnesota. Company description from FinViz.com.

UnitedHealth, Anthem, etc were all crushed last week when Bernie Sanders resurrected his Medicare for All proposal. In theory this would end corporate and private health insurance and significantly reduce government reimbursements. Traders ran to the exits. UNH fell $30, ANTM fell $40.

This is completely unrealistic. First, Sanders has little or no chance of being elected. Second, even if he was elected the House and Senate would have to have strong democratic socialist majorities, not just a democrat majority. There are plenty of democrats that can do basic math and this proposal in its pure form would cost about $3.3 trillion and do irreparable harm to the healthcare sector as it currently functions. Three, assuming the first two items came to pass it would be at least 2022 before any changes could occur or nearly four years from now.

That means the panic from last week was completely unreasonable. The decline was also blamed on potential changes to Obamacare now that a court has ruled it to be unconstitutional. President Trump has said he did not want to deal with it until after the election and that puts any changes to that program at least two years into the future and would require a republican majority in the House.

Clearly, there is no immediate danger to UnitedHealth and this is a buying opportunity.

There is one danger. Earnings are Tuesday. While I seriously doubt they are going to post a big miss, even if they did would it mean a further decline after a $30 drop over the last two days? What if they beat? That could cause some significant short covering.

Position 4/15/19:
Long Jan $250 Call @ $10.39, see portfolio graphic for stop loss.
Short Jan $290 Call @ $2.50, see portfolio graphic for stop loss.
Net debit $7.89.

VIPS - Vipshop Holdings - Company Description


No specific news and no material movement.

Original Trade Description: April 7th.

Vipshop Holdings Limited operates as an online discount retailer for various brands in the People's Republic of China. It operates in two segments, Vip.com and Internet Finance Business. The company offers women's apparel, such as casual wear, jeans, dresses, outerwear, swimsuits, lingerie, pajamas, and maternity clothes; men's apparel comprising casual and smart-casual T-shirts, polo shirts, jackets, pants, and underwear; women and men shoes for casual and formal occasions; and accessories that include belts, jewelry, watches, and glasses for women and men. It also provides handbags, which comprise purses, satchels, duffel bags, and wallets; apparel, gears and accessories, furnishings and decor, toys, and games for boys, girls, infants, and toddlers; sports apparel, sports gear, and footwear for tennis, badminton, soccer, and swimming; and consumer electronic products, including computers, mobile handsets, digital cameras, and home appliances. In addition, the company offers skin care and cosmetic products, such as cleansers, lotions, face and body creams, face masks, sunscreen, foundations, lipsticks, eye shadows, and nail polish; and home furnishings comprising bedding and bath products, home decors, dining and tabletop items, and small household appliances. Further, it provides designer apparel, footwear, and accessories; and snacks and health supplements, and occasion-based gifts. Additionally, the company offers Internet finance services, which comprise consumer and supplier financing, and wealth management services. It provides its branded products through its vipshop.com, vip.com, and lefeng.com online platforms, as well as through its cellular phone application. Additionally, the company offers warehousing, logistics, procurement, research and development, consulting, and software development and information technology support services. Vipshop Holdings Limited was founded in 2008 and is headquartered in Guangzhou, the People's Republic of China. Company description from FinViz.com.

Earnings May 22nd.

In late February, the company reported earnings of 19 cents that beat estimates for 18 cents. However, revenue of $3.80 billion missed estimates for $3.96 billion. The 8.1% rise in revenue was down from a 16.4% rise in the prior quarter. The CEO said the weak quarter was the result of the company shifting some low margin categories from the "first-party business" and into the "marketplace platform." He said the move would result in a positive improvement in earnings beginning next quarter. For the current quarter they were only targeting 1-5% revenue growth and analysts were expecting 11.6%. The CEO cautioned that revenue growth was not the metric to worry about. The company is now focused on increasing profits rather than increasing revenue at any cost.

Zacks reiterated a buy rating saying earnings estimates had risen 5.9% over the last 60 days which includes the post earnings commentary. VIPS only has a 9.7 PE compared to 29.4 for the rest of the industry.

After the Zacks comments on the 25th the stock began escalating sharply and closed at an 8-month high on Friday. The stock is now over the 50, 100 and 200 day averages.

Position 4/8/19:
Long Jan $10 Call @ $1.15, see portfolio graphic for stop loss.

XBI - S&P Biotech ETF - ETF Description


The XBI continued to decline to support at $85. I started to recommend we close it but it is already so oversold that we should see a bounce soon.

Original Trade Description: Feb 17th.

The SPDR S&P Biotech ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Biotechnology Select Industry Index. The S&P Biotechnology Select Industry represents the biotechnology segment of the S&P Total Market Index (S&P TMI). The S&P TMI is designed to track the broad U.S. equity market. The biotechnology segment of the S&P TMI comprises the Biotechnology sub-industry. The Index is modified equal weighted. The ETF seeks to track a modified equal weighted index which provides the potential for unconcentrated industry exposure across large, mid and small cap stocks. The ETF allows investors to take strategic or tactical positions at a more targeted level than traditional sector-based investing. ETF description from S&P.

The biotech sector was crushed in Q4 and has rebounded strongly since Christmas. However, the sector is still down about 15% from the August highs. More than $600 million flowed out of the IBB/XBI ETFs in Q4. This means fund managers are still underweight biotech even after the January rebound. Barron's believes these funds will be forced to chase prices in the weeks ahead to rebuild their biotech positions.

Jefferies said the decline in Q4 was the largest outflows from the actively managed funds in 15 years. Should the XBI continue to rise, Jefferies expects strong fund flows back into the sector with managers very underweight the sector.

The XBI closed at a 4-month high on Friday after struggling for a month to move over the $85 level. This could be the breakout that allows a rebound to the $101 high or beyond.

Options are expensive so I am making this a combination position.

Update 3/10: XBI crashed on Tuesday after closing at a new 5-month high the prior week. The decline came on uncertainty surrounding the resignation of FDA Commissioner Scott Gottlieb. That put a cloud over pending changes to future FDA policy.

Update 4/15: Last wee the XBI was targeting a new high. This week the Bernie Sanders proposal for Medicare for All crushed the biotech sector on the idea that drug reimbursements would decline dramatically. IF Sanders was elected and IF such a formal proposal actually passed the House and Senate it would be five years from today before it had any impact on drug companies. This is a buying opportunity.

Position 2/18/19:
Long January $90 call @ $8.00, see portfolio graphic for stop loss.
Optional: Short Jan $75 put @ $4.10, see portfolio graphic for stop loss.
Net debit $3.90.

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Cautious Market

by Jim Brown

Click here to email Jim Brown
Editors Note:

Buying interest has been minimal as we near the prior highs. There is no conviction on the part of investors and momentum has faded.

We have 24 current positions and that is about the most we can carry. There will not be any watch list positions until further notice. I prefer to add the normal weekly play based on conditions that week.

New Watch List Entry:

      No New Watch List Entries

Stocks Dropped from Watch List:

      No Watch List Drops

Active Watch List Play Descriptions:

      No Active Watch List Plays