Editors Note:

After closing six positions the prior week and having two more stopped out last week, we are about down to the level of positions I would like to hold. There are a couple more that could produce exits over the next week or two and the rest should be in good shape unless the market collapses. Many of our stocks are still making new highs.

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)

AABA - Altaba Company Profile


No specific news. Analysts claim the tax reform could spur Alibaba or Yahoo Japan to buy back some of the shares held by Altaba.

Original Trade Description: September 17th.

Altaba Inc. operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017. Altaba Inc. was founded in 1994 and is based in New York, New York. Company description from FinViz.com.

Altaba owns a 15% stake in Alibaba, currently worth about $70 billion. They hold a stake in Yahoo Japan currently worth $7.7 billion. They have $130 million in investments including Snap Inc. (SNAP). They have a $740 million stake in Excalibur, a unit of the new company that holds all the Yahoo patents that were not sold to Verizon. The company has $12 billion in cash. They recently announced a $5 billion stock buyback and the company has committed to returning nearly all the cash in the bank plus any thrown off by the investments, to the shareholders.

Owning Altaba is just like owning Alibaba only without the expensive options and a lot less volatility. We get the other parts for free.

We have tried to play Alibaba several times but the volatility kept knocking us out. Unless you want to buy a $30 Jan $180 call and just sit on it with no stop loss, AABA is the only way to play Alibaba.

Update 10/15/17: Alibaba said it was going to spend an additional $15 billion over the next three years on research. They already spend $3 billion and have more than 25,000 engineers on the payroll.

The new effort will create the Alibaba DAMO Academy, short for Discovery, Adventure, Momentum and Outlook. The academy will set up labs in China, USA, Russia, Israel and Singapore and fund collaborations with universities. They plan to explore AI, IoT, quantum computing, visual computing, machine learning and network security.

Update 11/3/17: Alibaba reported an outstanding quarter with a 61% rise in revenue. They raised guidance for 2018 for a 49-53% rise in revenue, up from prior guidance of 45-49%. Their cloud computing business revenue rose 99%. Earnings of $1.29 bear estimates for $1.04. Revenue of $8.29 billion beat estimates for $7.86 billion. Monthly active users rose 3.8% to 549 million. The current quarter is going to show explosive growth given the expanded Single Day promotion. Shares faded from the post earnings bounce but should pickup this week when the Singles Day headlines appear.

Update 12/10/17: Susquehanna said there were 6 reasons Alibaba shares should hit $220. They are the category killer in China with Taobao and Tmall claiming a 75% online market share. Alibaba has not monetized their advertising with 45% upside in ad revenue for 2018 and 30% in 2019. The company just bought the leading Southeast Asia e-commerce platform Lazada with expected growth of 78% in 2018. Alicloud already has a 40% market share in Asia and they are just getting started. Overall the analyst expects Alibaba to grow revenue by 40% with 40% margins.

Position 9/18/17:

Long Jan 2019 $70 call @ $8.20, see portfolio graphic for stop loss.

You could sell short the $90 call for $2.15 but that would limit your gain to $15. Alibaba shares are going to the moon, just like Amazon. They are growing faster than Amazon and have a bigger market with 4.5 billion consumers in Asia.

ABBV - AbbVie - Company Profile


No specific news. Shares holding at recent highs.

Original Trade Description: June 4th.

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. In the first quarter they reported earnings of $1.28, that rose 11.3% and beat estimates by 2 cents. Revenue of $6.5 billion rose 10.1% and that was higher than three of its biggest competitors Amgen, $2.8 billion, Biogen $5.5 billion and Celgene $3.0 billion.

Earnings are expected to continue growing with analyst estimates for 14% annual growth over the next five years. AbbVie guided for 13% to 15% in 2017. Despite the earnings growth the stock only trades at a PE of 11.

Shares dipped back in May when Coherus won a court battle invalidating one of AbbVie's patents on Humira, their biggest drug. However, AbbVie said it was not a problem because there were 61 other patents on the drug and they would fight it in the courts until 2020. The first trial is not even scheduled until 2019. Amgen won FDA approval for a biosimilar but AbbVie said it would not happen until 2020 at the earliest.

The company's confidence that there would not be a biosimilar drug until 2021-2022 matched analyst estimates. This is a steep uphill battle for anyone trying to copy this drug.

The company's other 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. Given all these cash flow giants in the pipeline, I am amazed the company only trades at a PE of 11.

I would not normally pick a stock that has had a $5 run over the last three weeks but ABBV is about to break out to a new high and that could kick it into high gear. People love to buy stocks when they first make a new high.

Update 6/23/17: The company received a favorable opinion on MAVIRET, a once daily He-C drug, from the European Medical Agency and the CHMP. This is an 8 week cure for Hep-C that will compete with Gilead's products.

Update 7/28/17: AbbVie reported earnings of $1.42 compared to estimates for $1.40. Revenue of $6.94 billion narrowly beat estimates for $6.93 billion. They guided for the full year for $5.44-$5.54. Shares declined because the sales of its Hep-C drug, Viekira Pak were $225 million and well below estimates for $257 million. This is a temporary setback because they have multiple drugs in the pipeline that are expected to generate more than $1 billion in sales annually. Shares declined $3 on the earnings.

Update 8/5/17: 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.

Update 9/10/17: The company declared a quarterly dividend of 64 cents payable Nov 15th to holders on Oct 13th. They have increased their dividend for 25 consecutive years.

The company also submitted two NDAs to the FDA for approval. AbbVie also released positive results on a new drug for eczema. The drug called upadacitinib, produced stronger results than the competitor drug from Regeneron (REGN).

Update 9/17/17: AbbVie's drug Humira is expected to sell more than $18 billion in 2017 after a $16.1 billion revenue in 2016. The FDA has 10 FDA approved indications giving it a massive patient base. This is just one of AbbVie's billion dollar blockbuster drugs.

Update 10/1/17: 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. Shares spiked $5 on the news.

Update 10/21/17: AbbVie entered into a new immuno-oncology research collaboration with biotech firm Harpoon Therapeutics. The partnership hopes to develop a T-cell treatment for cancer using Harpoon's tri-specific T-cell activating molecules. The prior week AbbVie partnered with Turnstone Biologics to gain access to their next-generation oncolytis viral immunotherapies. AbbVie is on the move and not afraid to go where no company has gone before.

Update 10/29/17: AbbVie (ABBV) reported earnings of $1.41 that beat estimates for $1.39. Revenue of $7.0 billion missed estimates for $7.04 billion. They guided for the full year for earnings of $5.53-$5.55, up from $5.44-$5.54, and increased their quarterly dividend by 11% from 64 cents to 71 cents. The company said sales of Humira, the world's largest selling drug, would bring in $21 billion in annual sales by 2020. That is up $3 billion from prior forecasts. Sales in 2016 were $16.08 billion. Sales of the arthritis drug in Q3 were $4.7 billion.

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, womens health and Hepatitis C.

Update 12/10/17: The company issued a press release on Saturday saying they had significant success with the drug Imbruvica in treating Mantel Cell Lymphoma. Half the patients in a trial survived more than 3 years and more than 25% did not have any disease progression.

Update 12/15/17: AbbVie and Roche Holdings released the results of the phase-3 MURANO trial on Venclexta plus Rituxan for the treatment of lukemia. The drug combination reduces the progression of the disease or death by 83% compared to Bendamustine plus Rutuxan. Venclexta has been granted 4 breakthrough therapy designations by the FDA.

Position 6/19/17:

Long Jan 2019 $75 call @ $4.70, see portfolio graphic for stop loss.

Previously closed 7/28/17: Short term: Long Jan 2018 $72.50 call @ $2.81, exit $2.63, -.18 loss.

AKAM - Akamai Technologies - Company Description


Shares dipped briefly below support on a note from Keybanc claiming they doubted the activist investor could force a sale.

Original Trade Description: November 5th

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution that consists of an integrated suite of Web delivery, acceleration, and optimization technologies; Dynamic Site Accelerator that helps in consistent Website performance; IP Application Accelerator to enable enterprises to deliver Internet Protocol-based applications; Global Traffic Management, a fault-tolerant solution; Image Manager that automatically optimizes online images; and Cloudlets, which provides self-serviceable controls and capabilities. It also provides cloud security solutions, including Kona Site Defender, Bot Manager, Fast Domain Name System, Prolexic Routed, and Client Reputation; enterprise solutions comprising Enterprise Application Access and Akamai Cloud Connect. In addition, the company offers media delivery solutions, such as adaptive delivery solutions, download delivery solutions, media delivery acceleration solutions, media services, media analytics, and NetStorage, a cloud storage solution. Further, it provides network operator solutions, including Aura Licensed CDN suite of solutions, Aura Managed CDN solutions, and Intelligent DNS Solutions; and professional services and solutions. Company description from FinViz.com

Akamai reported Q3 earnings of 62 cents that beat estimates for 59 cents. Revenue of $621.4 million beat estimates for $610 million. Web division revenue rose 14% to $328 million. Media division revenue fell -1% to $273 million. Enterprise and carrier division revenue rose 2% to $20 million. Performance and security solutions revenue rose 11% to $381 million. Cloud security solutions revenue rose 27% to $121 million. Services and support revenue rose 12% to $57 million. International revenue rose 18% to $213 million. Cash on hand was $1.4 billion. They repurchased $129 million shares of stock in the quarter.

Shares spiked $4 on the report but faded over the next week. That decline appears to have ended. Deutsche Bank reiterated a buy rating and raised their price target to $75. The analyst pointed to what would be monster traffic volumes from the Winter Olympics in Q1 and the World Cup Soccer in Q2.

In October, Akamai announced the acquisition of Nominum, a market leader in DNS and enterprise security solutions for carriers. Akamai also announced the launch of Bot Manager Premier, designed to help organizations manage the impact of bots across their entire digital environment, including websites, mobile applications and wed APIs.

The company guided for Q4 revenue of $638-$656 million with gross margins of 65% to 77%. Earnings are expected to be in the 60-65 cent range after a 4 cent impact from the acquisition of Nominum. They are forecasting 5% to 8% growth for the year with a 64% gross margin. There is nothing wrong with their business.

Akamai said the rapid advancement of video on demand was a strong factor in future earnings since they are the largest provider of content. Also seeing a rapid ramp was the cloud storage business. Akamai has a security hook in that growth and the redundancy of that storage.

Akamai collaborated with Google, Cloudfire, Flashpoint, RiskIQ and the RBI to squash a botnet named WireX that had infected 120,000 Android phones in early August. The bot was generating 20,000 page requests a second against a set of targeted servers in a DoS attack.

Akamai announced it had set a new record for throughput delivered on September 12th with more than 60 terabytes per second (Tbps). That beat the old record of 47 Tbps set on August 29th. Akamai delivers more content on a daily basis than any other content provider. In January, they set a single event record of 8.7 Tbps streaming the Presidential Inauguration. The company has more than 200,000 servers spread across 130 countries to accomplish this record content delivery.

Akamai announced the Content Delivery Network (CDN) capabilities for enterprises are now available on the IBM cloud. The new offering is part of the IBM Cloud Content Delivery Network. Akamai currently provides CDN services on 1,700 networks in 131 countries. That now included IBM's footprint of 60 cloud centers across 19 countries. Akamai has more than 200,000 servers across 130 countries.

In October, Akamai announced the acquisition of Nominum, a market leader in DNS and enterprise security solutions for carriers. Akamai also announced the launch of Bot Manager Premier, designed to help organizations manage the impact of bots across their entire digital environment, including websites, mobile applications and wed APIs.

I am using a spread to reduce the cost of a nearly ATM long call.

Update 12/15: Elliott Management disclosed at 6.5% stake in Akamai saying the shares were significantly undervalued. Elliott said it would attempt to talk with the board, other shareholders and potential acquirers about strategic alternatives.

Position 11/6/17:

Long Jan 2019 $55 LEAP Call @ $6.97, see portfolio graphic for stop loss.
Short Jan $75 call @ $1.47, see portfolio graphic for stop loss.
Net debit $5.50.

ATVI - Activision Blizzard - Company Profile


The Overwatch Esports league play began on Wednesday. The 12 team league will compete while fan watch online. Each team represents a particular city and the franchise holder for each city paid $20 million to join. The season will last six months until June 16th. There will be post season matches and all star matches. The initial match on Wednesday has been viewed 4.4 million times on Twitch. The professional teams are competing for millions of dollars in price money and significant bragging rights.

Original Trade Description: July 16th.

Activision Blizzard, Inc. develops and publishes online, personal computer (PC), video game console, handheld, mobile, and tablet games. The company operates through two segments, Activision Publishing, Inc. and Blizzard Entertainment, Inc. The company develops, publishes, and sells interactive software products and content through retail channels or digital downloads; and downloadable content to a range of gamers. It also publishes subscription-based massively multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution, licensing arrangements, and direct digital purchases in the United States, Canada, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, China, and internationally. Company description from FinViz.com

Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.

Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.

Activision has been beating on earnings and given the success of their last two releases the Q2 earnings should also be a beat. The stock is poised to break out to a new high over $61. I am recommending the 2019 LEAPS ahead of earnings. For those that do not want to hold that long I am also going to list the January 2018 strikes as well.

Update 7/30/17: Blizzard announced that player signing for the professional Overwatch Gaming League will begin on August 1st. All players for the league will become members of the seven teams that have joined the league so far including, Boston, Los Angeles, Miami-Orlando, New York City, San Francisco, Seoul and Shanghai, or for teams that sign on before the player signing period closes Oct. 30. Each player is guaranteed a $50,000 salary or more, lodging and practive facilities, health insurance, a retirement savings plan and 50% of the team's winnings. Each team will have 6-12 players. The total bonuses in Season 1 will add up to $3.5 million with a minimum of $1 million to the winning team. The e-Sports craze is exploding and this will be a money maker for ATVI.

Update 8/5/17: ATVI reported earnings of 55 cents compared to estimates for 30 cents. Revenue of $1.42 billion beat estimates for $1.21 billion. They guided for earnings of 34 cents in the current quarter with full year earnings of $1.94 per share. Shares spiked to a new high close at $64 on Thursday but gave back $2 on Friday.

Update 9/24/17: Call of Duty: WWII is due out in November and retailers have already reported a huge wave of preorders after the beta testing was completed. Those that were allowed to download the beta version were very excited and the news is spreading. This takes Call of Duty back to its roots and should be a very successful game.

Update 10/15/17: NPD reported that sales of Destiny 2 were down 50% from sales of the original at this point in the release. That caused the stock to decline sharply on Monday to stop us out of the January position. However, this is not what is appears on the surface. Destiny 1 was sold mostly at retail in a CD package. Destiny 2 is being sold mostly online with a digital download so the comparison of boxed retail sales is apples to oranges. Secondly, Destiny 2 has not even launched on the PC yet. That will happen on Oct 24th. That is another entire wave of sales.

Activision issued a press release calling Destiny 2 the biggest console video game launch of the year with the PC launch still to come. They cited "franchise pre-orders records broken and record day-one performance on the Playstation Store and engagement at the highest ever in week one of a launch" it would appear Activision is not admitting to any sales decline.

Update 11/5/17: The company reported earnings of 47 cents that missed estimates for 50 cents. Record revenue of $1.62 billion missed estimates for $1.74 billion. They guided for the full year for $2.08 on revenue of $6.68 billion. Analysts were expecting $2.14 and $6.79 billion.

However, Activision had guided in August for earnings of 34 cents and revenue of $1.385 billion. Based on their guidance they had a blowout quarter. Activision Blizzard had 384 monthly active users (MAU) with a record 49 million online players. Subsidiary King Digital had 293 million MAU. Numerous engagement metrics were at record highs. For Q4 they guided for 36 cents and $1.7 billion in revenues.

Update 11/19/17: The new release of Call of Duty appears to be a blowout. Concurrent players on the PC platform after the first week of release was up +395% compared to the prior release of CoD Infinite Warfare and the highest levels since 2012. Retail sales in the UK showed a 57% increase compared to last year's game installment. The CEO said the opening weekend took in more than $500 million. The last WWII CoD Black Ops 3 game in 2015 took in $550 million.

Update 12/3/17: Electronic Arts (EA) caused an uproar on how they were charging for in game purchases and the entire sector crashed. EA immediately changed the process but it is hard to recover that negative sentiment over just a few days. Shares of ATVI fell $4 in the reaction as investors worried the problem would carry over in to ATVI games. There is very little danger of that because the processes are a lot different.

Update 12/15/17: Goldman upgraded ATVI from hold to buy saying the stock would get multiple earnings boosts from the game sequels currently in production. Call of Duty: WWII has already become the bestselling video game in 2017 after only being out for a few weeks.

Position 7/17/17:

Long Jan 2019 $65 call @ $8.20, see portfolio graphic for stop loss.
Short Jan 2019 $85 call @ $2.61, see portfolio graphic for stop loss.
Net debit $5.59.

Alternate position:
Closed 10/9/17: Long Jan 2018 $65 call @ $4.05, exit $2.80, -1.25 loss.

CAT - Caterpillar Inc Company Profile


No specific news. CAT continues to soar with another new high close on Friday. There will eventually be profit taking but I am leaving the stop loss wide in hopes of waiting it out.

Original Trade Description: October 8th.

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.

In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.

In January they guided for $36-$39 billion in revenue and $2.90 in earnings.

In April they guided for $38-$41 billion in revenue and $3.75 in earnings.

In July they guided for $42-$44 billion in revenue and $5 in earnings.

In April they guided for revenue from construction at flat to 5%.
In July they guided for 10% to 15% growth.

In April they guided for revenue from mining at 10% to 15%.
In July they guided for 20% to 25% growth.

In April they guided for energy revenue at flat to 5%.
In July they raised it to 5% to 10%.

At the September 12th investor day meeting the new CEO said they were targeting $55 billion in revenue in 2018 with margins of 14%-17% compared to 12% in 2017. That would take them back to 2014 levels before the bear market in commodity/energy began. That is 28% above 2017 levels. He was careful not to call it a target but said that level was achievable if the current rebound in mining, energy and construction continued.

In late September CAT reported a global increase in machine sales of 11% for August. Total sales in Asia and the Pacific surged 44%.

After the devastation in Houston, there were new estimates from analysts for 17% or higher revenue growth in construction equipment.

I believe revenue estimates will continue to rise because they are running out of year and their conservative guidance will have to become more accurate.

Update 10/29/17: Caterpillar (CAT) reported earnings of $1.95 that nearly quadrupled and blew past estimates for $1.22. That is the kind of earnings beat that should have spiked the stock $13 like MMM but given CAT's recent string of new highs over the last three months, a lot of excitement was already priced into the stock. Revenue rose 25% to $11.41 billion compared to estimates for $10.61 billion. Construction equipment revenue rose 37% with energy and transportation equipment revenue rising 12%. CAT raised guidance for the full year from $5.00 to $6.25 on revenue of $44 billion. Analysts were expecting $5.29 and $42.94 billion. This was a killer quarter for CAT and this confirms more than anything else that the global economy is beginning to surge.

Update 11/19/17: Caterpillar makes an Android phone that is indestructible. It has 44 days of standby time, 38 hours of talk time with a 5,000mAH battery. You can even charge other phones with the CAT phone and it comes with a cable to do exactly that. The price is $509. Article

Update 12/15/17: Caterpillar announced a 78-cent dividend payable Feb 20th to holders on Jan 22nd. The company said sales rose 26% for the 3-months ending in November. The last time they saw sales this high was in 2012. The 3-month gains were driven by a 43% rise in Asia Pacific, Europe, Asia and Middle East were up 32%, North America 12%. Latin America sales rose 48% in October but no number was given for November. Sales were strong across all divisions, resource, energy, construction, etc.

Position 10/9/17:

Long Jan 2019 $135 call @ $8.63, no initial stop loss.
Short Jan 2019 $155 call @ $3.13, no initial stop loss.
Net debit $5.50.

COST - Costco Company Profile


Costco dipped below support with the market decline at Wednesday's open. We had a tight stop since retailers normally weaken after the holidays and we were stopped out. On Thursday Walmart announced it was closing 63 Sam's Club stores and that will be a big benefit to Costco and shares rallied again. I will look to reenter Costco on any material dip in February.

Original Trade Description: September 24th.

Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com.

We all know the story. Amazon bought Whole Foods and Costco shares lost over $30. Fast forward three months and Costco reported strong earnings but analysts still believed Whole Foods was going to kill them. Shares fell $13.

Let me put this in caps. IGNORE WHOLE FOODS. They are an entirely different business model and even with Amazon behind them, they are no threat to Costco. Costco operates 741 retail warehouses, each 4 times bigger than a Whole Foods store. Whole Foods only has 346 stores. At Costco you can buy food, diamond rings, cameras, large screen TVs, clothing, drugs, discount eye glasses, GE appliances, cruises to anywhere in the world and caskets among thousands of other items. Whole Foods has food.

Costco reported earnings of $2.08 that beat estimates for $2.02. Revenue of $42.3 billion beat estimates for $41.55 billion. Those numbers were up from $1.77 and $36.56 billion in the year ago quarter. US same store sales were up 6.5% and online sales were up 30%. There was NO weakness from the Whole Foods acquisition.

Paid memberships rose 274,000 to 18.5 million. That equates to an addition of 16,000 per week. Business members had a 94% renewal rate and Gold Star members an 89.3% renewal rate. They ended the quarter with $5.78 billion in cash, up more than $1 billion from the year ago quarter.

Costco rolled out a free two-day delivery service for orders over $75 with same day delivery at 376 stores through Instacart.

Shares were knocked for a loss despite the strong results because analysts are still only looking at the surface comparisons between Whole Foods and Costco. The decline stopped at $155 and did not even come close to strong support at $155. The weakness lasted five days.

On Friday, JP Morgan released the results of a recent survey showing Costco grocery prices were a whopping 58% cheaper than Whole Foods. JP Morgan said Whole Foods and Costco actually have very little in common other than a few grocery items and Costco wins hands down.

That report lifted Costco shares by $2.63 on Friday but the stock has a long way to go to recover lost ground.

In another recent survey by BMO Capital, they found that Costco consistently had lower prices and faster shipping than Amazon. They surveyed 16 categories and Costco was an average of 7% cheaper than Amazon. Shipping took an average of 4.5 days from Costco compared to 5.5 days from Amazon. Wal-Mart and Jet.com had prices that were 18% higher than Amazon and average shipping was 9.8 days.

Costco also has its own private label brand in the Kirkland label. Last year Kirkland was the largest selling grocery brand on Amazon. Yes, on Amazon.

We exited the existing January position last Monday and I wrote at the time I wanted to reinstate it with a longer dated option. I am using June options because the 2019 LEAPS are ridiculously expensive.

Update 10/23: Oppenheimer reiterated an outperform rating and $185 price target. The analysts said management was pleased with direction and marketing was succeeding. The credit card transition was well behind them and new stores were opening in unserved markets. The free 2-day delivery service had just begun and was not in the stock price. IT investments over recent years were paying off and future costs would be less. Advertising was focusing not only on cost savings but on the advantages of membership, which are substantial.

Update 11/5: Costco reported a 10.1% increase in sales for October to $10.02 billion. For the first 8 weeks of their fiscal 2018 sales have risen 11.3% to $19.87 billion. Same store sales for that 8-week period was +8.1% in the USA, +9.0% in Canada, +9.3% international. Companywide comps sales were +8.3% with a 32.2% in ecommerce sales. I can't wait to see the Whole Foods comp sales numbers but I doubt Amazon will break them out. There is ZERO impact on Costco from the Whole Foods/Amazon acquisition.

Update 12/3: On Wednesday Costco reported November sales rose 13.2% to $11.26 billion, up from $9.95 billion in the year ago month. This was a blowout report. For the 12 weeks in the first fiscal quarter ending Nov 26th, sales rose 13.3% to $31.13 billion and that was with one day less than last year because of where Thanksgiving fell on the calendar. Online E-commerce sales rose 39% for the month and 43.6% for the quarter. Shares exploded higher with a $12 gain over the last 3 days.

Update 12/15: Costco posted a $6 gain after beating on earnings by 2 cents. Revenue rose 13.3% to $31.12 billion. Expectations were high because of their recent release of blowout sales numbers for November. Same store sales rose 10.5% and e-commerce sales rose 43.5%. Membership renewals were 90%, which is in line with the historical average, so no drop offs. Member households rose from 49.4 million to 49.9 million and cardholders rose from 90.3 million to 91.5 million. They plan to add 20-25 stores in 2018. I challenge anyone to show me the impact of the Amazon/Whole Foods acquisition. I have pointed out many times the two stores are not related.

Update 1/7: Costco reported 14.3% year over year sales growth for December to $14.94 billion. Same store sales rose 22.5% in North America and 17.0% internationally. So tell me again how Amazon and Whole foods are hurting Costco?

Position 10/16/17:

Closed 1/10: Long Jun $165 call @ $7.47, exit $22.83, +$15.36 gain.
Closed 1/10: Short Jun $185 call @ $1.96, exit $10.00, -8.04 loss.
Net gain $7.32.

DIA - Dow ETF - ETF Description


The Dow has gained 1,083 points in 2018 and only one hurdle remains. I am retaining this position until we see if Congress is going to shutdown the government on the 19th. If they kick the can down the road or pass the funding, I will close the position.

Original Trade Description: December 10th

The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average.

We have a lot of uncaptured gains in our portfolio. The tax reform bill should be approved next week and the market "should" continue to be positive throughout the week. There is always the potential for a sell the news event but I am betting the market will remain positive for the rest of the year.

We also have the government funding problem on January 19th that could cause a government shutdown but that dip would probably be bought.

I am recommending we enter a long put position if the Dow trades at 24,800. Since many traders try to anticipate sell the news events at big round numbers, I want to enter the position a little early. This will help get us into the position even if the Dow does not reach 25,000.

Position 12/18/17 with a DIA trade at 248:

Long March $240 put @ 2.76, no initial stop loss.
Short March $230 put @ $1.30, no initial stop loss.
Estimated net debit $1.46.

ECA - Encana Corp - Company Profile


The company reported that production rose 31% in Q4 and exceeded their 20% growth targets. They did this within their $1.8 billion capex budget. For 2018 the budget remains roughly the same with 70% targeted for the Permian and Montney. Encana produced 80,000 Boepd from the Permian in Q4. They are targeting 25-35% companywide production growth in 2018. They are expecting significant liquids growth from the Montney as they complete the two remaining processing hubs for natural gas. The company will issue 2018 guidance when they report earnings on Feb 15th.

We have a Jan 2018 call that will expire next Friday. I am recommending we close it at the open on Tuesday. It is $2 in the money.

Original Trade Description: May 21st.

Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids in Canada and the United States. The company owns interests in various assets, such as the Montney in northern British Columbia and northwest Alberta; Duvernay in west central Alberta; and other upstream operations, including Wheatland in southern Alberta, Horn River in northeast British Columbia, and Deep Panuke located offshore Nova Scotia. It also holds interests in assets that comprise the Eagle Ford in south Texas; Permian in west Texas; San Juan in northwest New Mexico; Piceance in northwest Colorado; and Tuscaloosa Marine Shale in east Louisiana and west Mississippi. Company description from FinViz.com.

Encana reported earnings of 11 cents that beat estimates for 4 cents. Revenue of $1.297 billion also beat estimates for $789 million. Production declined 18% due to low prices and depletion. This was an excellent report from a beaten down energy stock.

Production averaged 237,100 Boepd. Drilling and completion costs declined by 30%. They reduced long-term debt by $1.1 billion and net debt by 50%. They replaced 326% of production.

They currently have more than 10,000 premium drilling locations and expect to grow that number in 2017. Since December 31st, they have added more than 50 premium locations in the Eagle Ford alone. They ended 2016 with a whopping $5.3 billion in liquidity and cash of nearly $1 billion. They expect to spend $1.6 to $1.8 billion on capex in 2017 and grow liquids production by 35%. Capex willbe funded by cash on hand. Proved reserves were 920 million barrels and 3P reserves were 2.372 billion barrels.

With the cash, production rates, reserves and drilling inventory listed above they are definitely an acquisition candidate with only a $10 billion market cap. Half their market cap is cash on hand.

JP Morgan initiated coverage with an overweight rating and $16 price target.

I am recommending two positions for Encana. I am recommending a January $12 call for $1.40 and a January 2019 $15 call, also $1.40. The short-term position is to capture the expected summer rebound in oil prices. The long-term position is acquisition insurance. It will capture any normal rise in price but also any acquisition announcement.

Oil prices typically peak in August and then decline into fall. If OPEC announces this week an extended production cut scenario through March 2018 as expected, prices could continue to rise into winter as global inventories decline.

Update 6/12/17:

Encana sold its Permian Basin produced water infrastructure to H2O Midstream. No price was given. This included over 100 miles of interconnected pipeline and 80,000 bpd capacity. H2O plans to double the pipeline to 200 miles and capacity to 140,000 bpd plus adding storage for 2 million barrels of produced water. The produced water can be reused in new fracing projects and reduces the cost of new wells.

Update 7/21/17: Encana reported earnings of 18 cents that beat estimates for 4 cents. Revenue of $1.083 billion beat estimates for $773 million. Production averaged 246,500 Boepd, a 9,200 boepd rise. Condensate rose 14% to 124,900 bpd. The margin per barrel rose 25% to $12.10. Recent wells with the newest fracking technology have been coming with production 20% higher than expected. The company has more than 11,000 "premium" drilling locations and thousands of non-core locations.

Update 10/21/17: At the investor day last week, Encana said they were targeting 25% compound annual growth in non-GAAP cash flow over the next five years and $1.5 billion in non-GAAP free cash flow. They are going to do this without any rise in commodity prices. They stressed their 23,000 potential drilling sites with 11,000 offering premiums returns of more than 35%. That included 3,450 in the Permian, 220 in the Eagle Ford, 500 in the Duvernay and 6,900 in the Montney. Most people have not heard of the Montney but that play has over 1,000 feet of pay with six zones of stacked production. Link to presentation slides

Update 11/12/17: Encana reported earnings of 2 cents that missed estimates for 5 cents. Revenue of $861 million beat estimates for $826.8 million. Production of 284,000 Boepd declined from 338,000 in the year ago quarter. The majority of the decline was a 29% drop in natural gas production. The decline came from hurricane impacts and third party curtailments of gas in western Canada. The company said it was firmly on track to hit its full year targets. Shares are holding at 8-month highs after earnings.

Position 5/22/17:

Long Jan 2018 $12 call @ $1.50, see portfolio graphic for stop loss.
Long Jan 2019 $15 call @ $1.40, see portfolio graphic for stop loss.

Position 8/28/17:
Long (2) Jan 2019 $15 calls @ .50.
Adjusted 2019 position (3 contracts) @ 80 cents each.

Position 10/30/17:
Long (3) Jan 2019 $15 calls @ $1.10.
Adjusted 2019 position (6 contracts) @ .95 each.

FLIR - FLIR Systems - Company Description


We were bit on the entry on Monday. FLIR gapped open about $2 and the option was $2.50 when I recommended the position and the gap caused a fill at $3.40. Shares are still rising and hopefully we will continue to see new highs. The gap higher was on the release of a HD thermal camera for self-driving cars.

Original Trade Description: January 7th

FLIR Systems, Inc. develops, designs, manufactures, and markets thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and threat-detection solutions worldwide. The company operates in six segments: Surveillance, Instruments, Security, OEM and Emerging Markets, Maritime, and Detection. The Surveillance segment provides enhanced imaging and recognition solutions for various military, law enforcement, public safety, and other government customers for the protection of borders, troops, and public welfare. This segment also develops hand-held and weapon-mounted thermal imaging systems for use by consumers. The Instruments segment offer devices that image, measure, and assess thermal energy, gases, electricity, and other environmental elements for industrial, commercial, and scientific applications. The Security segment develops and manufactures cameras and video recording systems for use in commercial, critical infrastructure, and home monitoring applications. The OEM and Emerging Markets segment provides thermal and visible-spectrum imaging camera cores and components that are utilized by third parties to create thermal, industrial, and other types of imaging systems. The segment also develops and manufactures intelligent traffic systems; imaging solutions for the smartphone and mobile devices market; and thermal imaging solutions for commercial-use unmanned aerial systems. The Maritime segment develops and manufactures electronics and imaging instruments for the recreational and commercial maritime market under the FLIR and Raymarine brands. The Detection segment offers sensors, instruments, and integrated platform solutions for the detection, identification, and suppression of chemical, biological, radiological, nuclear, and explosives threats for military force protection, homeland security, first responders, and commercial applications. The company was founded in 1978 and is headquartered in Wilsonville, Oregon. Company description from FinViz.com.

The short description is that FLIR makes night vision equipment for the military. They are the primary provider of these high tech night vision systems and they are very expensive. With the military budget being greatly expanded in 2018 and probably 2019, FLIR is going to be getting a lot more contracts for new equipment and for replacement equipment and parts.

For Q3, FLIR reported earnings of 52 cents that beat estimates for 48 cents. Revenue of $464.7 million rose 14.7% and easily beat estimates for $446 million. The surveillance segment revenues rose 7.6%, instruments rose 10.5% and OEM and emerging markets revenues rose 39.1%. Detection systems revenues rose 18.9%. The security segment sa revenues rise 16.5%. The marine segment was the slacker with only a 4.2% increase. Order backlogs rose 10.1% to $709 million.

The company guided for full year earnings of $1.83-$1.88 up from $1.81-$1.91 with revenue of $1.78-$1.83 billion.

Shares rallied last week to close at a new high at $48.25 and just over two-month resistance at $47.90. If this breakout continues, it should produce some short covering given the long period of consolidation after the spike from Q3 earnings in October.

They do not have LEAPS but we can buy the July calls very reasonably.

Position 1/8/18:
Long July $50 call @ $3.40, see portfolio graphic for stop loss.

GSAT - GlobalStar - Company Profile


No specific news. This stock is not likely to produce weekly news. I will only post an update if something important happens. This is a 2019 LEAP. No rush.

GSAT shares declined on the secondary offering. Our option is only worth 20 cents and we have more than a year until expiration. While this is disappointing to see the decline, a lot can happen in a year and it is not worth selling for 20 cents.

Original Trade Description: May 28th.

Globalstar, Inc. provides mobile voice and data communications services through satellite worldwide. The company offers duplex two-way voice and data products, including mobile voice and data satellite communications services and equipment for remote business continuity, recreational, emergency response, and other applications; fixed voice and data satellite communications services and equipment in rural villages, ships, industrial and commercial sites, and residential sites; and satellite data modem services comprising asynchronous and packet data services. It also provides SPOT products, such as SPOT satellite GPS messenger for personal tracking, emergency location, and messaging solutions; SPOT Global phone; and SPOT Trace, an anti-theft and asset tracking device. In addition, the company offers commercial Simplex one-way transmission products to track cargo containers and rail cars, to monitor utility meters, to monitor oil and gas assets, and other applications. Further, it provides engineering services, such as hardware and software designs to develop specific applications; and installation of gateways and antennas. The company primarily serves recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining, and forestry; construction; utilities; and transportation markets. Globalstar, Inc. distributes its products directly, as well as through independent agents, dealers and resellers, independent gateway operators, and its sales force and e-commerce Website. As of December 31, 2016, it served approximately 689,000 subscribers. The company was founded in 2003 and is headquartered in Covington, Louisiana. Company description from FinViz.com.

This is a buy and forget position. Globalstar has a lot of thing currently in the works and is likely to be acquired over the next 18 months. With the 2019 LEAP at $1, we could be well rewarded if we just buy a few contracts and forget them.

You probably saw the bidding war over Straight Path Communications. Verizon won the war with a $3.1 billion bid. Verizon was not buying STRP for its business value. Verizon was buying bandwidth and spectrum. That is the licenses and frequencies that allow a company to transmit conversations and data through the air.

Globalstar has a lot more to offer than Straight Path. Globalstar is a satellite operator and won approval from the FCC in December to use its spectrum for terrestrial wireless. That approval means Globalstar's spectrum would be available to an acquirer for immediate use. Globalstar has spectrum that is perfect for small cell networks where population density is too thin to support a group of major cell towers.

Globalstar has targeted 100 countries in which it will see approval for wireless service. The company said, "At the end of Q1 we have filed for terrestrial authority in countries covering more than 375 million people. If you include the USA the total population covered would be about 700 million.

Analysts believe companies like Facebook, Amazon, Netflix and Google could see this capability as very valuable. The ability to communicate wirelessly with people not already reached with broadband opens up entirely new markets. Google has already tried to reach the masses with Google Fiber but the cost was too expensive and they had to scale back that initiative. Facebook is experimenting with solar powered planes and airships to beam wireless internet to millions of potential customers.

If anyone makes a run at Globalstar, it could turn into another bidding war. If nobody tries to acquire them by the end of 2017 they will have even more assets in the form of operating authority in numerous other countries. The company is an interesting lottery ticket play where we can invest very little but likely be rewarded even if an acquisition does not appear.

Earnings August 3rd but in this position we really do not care what the quarterly reports say. This is a buy and forget position. The chart over the last ten years is ugly. As a satellite company they have failed in generating any material interest. It is the recent approval to use their spectrum for wireless that holds promise for the future.

Update 10/1/17: GlobalStar and IPmotion Inc. announced the formation of GlobalStar Japan and the launch of commercial mobile satellite service at a press event today in Tokyo. Globalstar Japan will offer a suite of mobile satellite products and services with voice, data, asset monitoring, tracking and emergency S.O.S. capabilities for the consumer, enterprise and government markets.

Update 10/8/17: GlobalStar announced a secondary offering of $125 million in shares to satisfy lender requirements for capital levels. 80% of the proceeds will be deposited with the lenders and will be interest bearing until the funds are used to pay P&I due under existing loan agreements in December 2017 and June 2018. The shares were priced at $1.65 and will close on Oct 11th.

Update 11/5/15: The company reported earnings of 4 cents on revenue of $30.5 million. They completed their capital raise of $115 million in the quarter. Interestingly, the CEO James Monroe is also the majority owner of Thermo Capital Partners. Thermo took down 40% of the $115 million capital raise. That means the CEO is very focused on the future and was willing to put more than $45 million of his own money into Globalstar. Monroe/Thermo invested $33 million in a prior raise in 2017 and $700 million since 2004. GSAT has a $2 billion market cap and the CEO owns roughly 33%.

Update 12/17/17: FL Investment Holdings, a company controlled by the CEO of Globalstar, filed last week to sell 38 million shares or approximately 4% of their holdings in GSAT. They said they were selling for tax planning purposes. Morgan Stanley will be the agent and shares will be sold at market prices. The offering was expected to close and settle on Dec 12th.

Globalstar is not selling any shares and will not receive any proceeds from the offering.

Position 5/30/17:

Long Jan 2019 $2.50 call @ $1.00, see portfolio graphic for stop loss.

IBM - IBM - Company Description


IBM received a record 9,043 patents in 2017 and leading the industry for the 25th consecutive year. They now have more than 100,000 active patents. More than 8,500 IBM researchers, engineers, scientists and designers in 47 US states and 47 countries contributed to the 2017 surge. These included more than 1,900 cloud patents, 1,400 AI patents and 1,200 cybersecurity patents. There were even patents on blockchain technology. Earnings are Thursday.

Original Trade Description: October 27th

International Business Machines Corporation provides information technology (IT) products and services worldwide. Its Cognitive Solutions segment includes Watson, a cognitive computing platform that interacts in natural language, processes big data, and learns from interactions with people and computers. The company's Cognitive Solutions 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 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 for z systems. Its Global Financing segment provides lease, installment payment plans, and loan financing services; short-term inventory and accounts receivable financing to suppliers, distributors, and remarketers; and remanufacturing and remarketing services. It has a strategic collaboration with ABB Ltd to develop industrial artificial intelligence solutions. The company was formerly known as Computing-Tabulating-Recording Co. and changed its name to International Business Machines Corporation in 1924. The company was founded in 1910 and is headquartered in Armonk, New York. Company description from FinViz.com.

IBM surprised investors with positive revenue growth when they reported earnings. Revenues had declined for 20 quarters. They had been beating on earnings for the last 12 quarters but revenue continued to slide. Earnings of $3.30 beat estimates for $2.84. Revenue of $19.15 billion beat estimates for $18.61 billion. They reiterated their full year guidance of $11.95 per share.

Morgan Stanley said the earnings were a clear inflection point for IBM and the multiyear restructuring was finally beginning to produce results. IBM said they had a new mainframe server and orders were strong.

Shares hit $162.50 for the biggest one-day gain since 2008. They have faded back to $153 and I am recommending we enter a position with a trade at $150.

Update 11/12/17: IBM announced the availability of a 20-qubit quantum computing machine available as a cloud service. Previously they had offered a 5-qubit machine for free in an effort to stimulate companies to develop programs to run on a quantum computer. A regular computer operates with a 2 state processor that utilizes bits set to 1 or zero to indicate certain conditions, letters numbers, etc. A quantum computer has an unlimited number of states. That is like saying the 1 bit of information in a normal computer can now represent any number from 0 to 1000 or even 10,000. The possibilities are endless but no commercial programming currently exists for quantum computers. IBM expects to produce a 100-qubit machine in the not to distant future. HAL are you listening? Skynet are you paying attention?

Update 11/19/17: Warren Buffett sold most of his position in IBM in Q3. Berkshire sold 17 million shares to lower his stake by roughly one third to 37 million shares. At one point Berkshire held 81 million shares of IBM. Berkshire used the proceeds to buy more Apple shares and more shares in Bank of America. Several analysts said this was a turning point for IBM because of Buffett's capitulation. Shares declined to $146.21 in the market drop on Wednesday has rebounded back to $150 intraday on Friday.

Update 12/17/17: IBM added JP Morgan Chase, Barclays and Samsung to its quantum computing project. These companies join a dozen others in developing applications for the new quantum computing technology that is expected to far surpass conventional computers in speed and power. IBM said quantum computing today is equivalent to the state of conventional computing back in the 1950s.

Update 1/7/28: IBM shares spiked on news they had partnered with Stellar to develop a rapid, international payments system for cryptocurrencies. The system will have low transaction fees and short transaction times.

Position 11/9 with an IBM trade at $150:

Long Jan 2019 $160 LEAP calls @ 8.06. See portfolio graphic for stop loss.

MCD - McDonalds - Company Profile


No specific news. Shares are trending sideways ahead of earnings.

Original Trade Description: August 27th.

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, Latin America, and internationally. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2016, it operated 36,899 restaurants, including 31,230 franchised restaurants comprising 21,559 franchised to conventional franchisees, 6,300 licensed to developmental licensees, and 3,371 licensed to foreign affiliates; and 5,669 company-operated restaurants. Company description from FinViz.com.

McDonalds has revitalized their menu and now offers fresh burgers rather than frozen, all day breakfasts, inexpensive drinks, healthier sides and reasonable prices. This is not your father's McDonalds.

Same store sales in the last quarter rose 6.6%, which is unheard of for a fast food chain the size of McDonalds. The CEO said, "We're building a better McDonald's and more customers are noticing. Our relentless commitment to running great restaurants and keeping the customer at the center of everything we do is generating broad-based strength and momentum across our entire business."

Their latest surprising innovation is food delivery. They have partnered with multiple mobile delivery services and business is booming. McDonalds said delivery orders were significantly larger than dine in or take out because people now realize they can order for parties, football games, family dinners, etc. They order multiples of everything and the average check is significantly higher than a dine in order.

They are also implementing mobile ordering and payment with the order. You just show up and pick up your meal and it is ready to go. No lines to pay, no waiting for your food. They will have mobile order/pay in more than 20,000 stores by the end of 2017. The CEO said they were also seeing higher check sizes of 1.2x to 2.0x when mobile ordering is used.

Shares have topped out over the last two weeks from their constant new highs. The lethargic market has put a drag on their shares. Given their strong metrics, rapidly rising sales and refusal to sell off from their highs, it suggests they will go higher when the market begins moving up again.

Update 9/10/17: McDonalds said it was going to sell some of the McCafe beverages in supermarkets in early 2018 through a partnership with Coca Cola. The company also announced three new espresso drinks for its own stores. They are Carmel Macchiato, Cappuccino and Americano. They are going to rebrand the McCafe offerings with a new logo and packaging. They are rolling out new coffee makers to nearly all of their 14,000 stores.

Update 9/17/17: McDonalds shares were crushed after data tracker M Science suggested they could miss on earnings and revenue as a result of the hurricanes. McDonalds has more than 2,000 locations in Texas and Florida but obviously only a very few were impacted. They have more than 31,230 stores so the impact to 10-20 or even 50 for several days is not likely to impact revenue that significantly. I think this was a cry for attention by M Science. Shares should rebound once investors think it through.

Update 9/24/17: McDonalds raised its quarterly dividend by 7% to $1.01 payable Dec 15th to holders on Dec 1st. This is a killer dividend, now $4.04 annually. This is the 41st consecutive annual dividend increase.

Update 10/1/17: McDonalds shares rebounded after a consumer research company said sales at McDonalds were soaring in states that had legalized marijuana. They said 43% of users were eating at McDonalds, 18% Taco Bell, 17.8% Wendy's and 17.6% Burger King in order to satisfy their munchies after smoking pot. A side effect of marijuana is increased appetite.

Update 10/29/17: McDonalds (MCD) reported earnings of $1.76 that only matched estimates. Revenue of $5.75 billion declined from $6.42 billion and matched analyst estimates. Global same store sales rose 6.0% and beat estimates for 4.6% with US sales rising 4.0%. This was a disappointing report. Many analysts, including myself, expected the company to post stronger results because of their new premium burger menu and the full implementation of the delivery program. McDonalds did say the premium burgers were responsible for its earnings growth along with the McPick 2 menu. That is where you get two low dollar items for $2.50 or two larger items for $5.00. The company returned $2.9 billion to shareholders in Q3 through share buybacks and dividends.

Update 12/10/17: On Tuesday, Jefferies upgraded McDonalds (MCD) saying the partnership with Uber Eats will continue to push sales higher. McDonalds has said their delivery orders have a higher average ticket than traditional on site orders. Jefferies raised the price target from $150 to $200. The company is going to restart its dollar menu in January and there will be $1, $2 and $3 items on the menu. An example would be any size drink or cheeseburger for $1, McDoubles and small McCafe drinks for $2 and Happy Meals and triple cheeseburgers for $3. Shares rose $2.34 on the upgrade.

Position 8/28/17:

Long Jan 2019 $165 call @ $7.92, see portfolio graphic for stop loss.
Short Jan 2019 $185 call @ $2.49, see portfolio graphic for stop loss.
Net debit $5.43.

MNST - Monster Beverage - Company Profile


No material movement. The company announced an investor meeting on January 18th at 4:45 ET.

Original Trade Description: June 4th.

Monster Beverage Corporation, through its subsidiaries, develops, markets, sells, and distributes energy drink beverages, soda, and its concentrates in the United States and internationally. It operates through three segments: Monster Energy Drinks, Strategic Brands, and Other. Its Monster Energy Drinks segment sells ready-to-drink packaged drinks and non-carbonated dairy based coffee energy drinks primarily to bottlers and full service beverage distributors, as well as sells directly to retail grocery and specialty chains, wholesalers, club stores, mass merchandisers, convenience chains, food service customers, and the military. The Strategic Brands segment sells concentrates and/or beverage bases to authorized bottling and canning operations; and ready-to-drink packaged energy drinks to bottlers and full service beverage distributors. It sells its products under the Monster Energy, Nalu, Monster Rehab, NOS, Monster Energy Extra Strength Nitrous Technology, Full Throttle, Java Monster, Burn, Muscle Monster, Mother, Mega Monster Energy, Ultra, Punch Monster, Play and Power Play, Juice Monster, Gladiator, Ubermonster, Relentless, Samurai, BU, and Mutant Super Soda brands. The company was formerly known as Hansen Natural Corporation and changed its name to Monster Beverage Corporation in January 2012. Company description from FinViz.com.

Monster reported earnings of 33 cents that rose 26.9% and beat estimates by a penny. Revenue of $742.1 million rose 9.1% and beat estimates for $741.4 million. These numbers beat estimates despite a -$3.7 million hit from foreign currency translation. Net sales outside the U.S. rose 28% to $190.9 million. Sales of new products were so strong there was actually a shortage of product.

Monster is doing great in a weak retail sector. This proves if you sell something habit forming you will always have a market.

They have multiple initiatives underway to increase global sales and they appear to be overcoming all the daily headaches that impact a retail distribution company. Gross profits rose from 62.2% to 64.8%.

For the last couple of years Monster has been transitioning their distribution into the Coca-Cola network. Coke took a major equity stake in Monster and part of the deal was that Coke would distribute the product globally. That is working out well and giving Monster a wider presence than they could have ever done on their own. Coke has an option to buy more Monster stock, or even the entire company. Given the slowdown in carbonated sugar drinks, Coke could be looking to exercise their option soon.

I am recommending two positions. The first is a Jan-2018 call that will get us through the rest of the year and capture any short-term gains. The second is a Jan-2019 LEAP call that could capture a run to a new high and/or acquisition by Coke. You can do one position or both.

Update 8/13/17: Monster reported earnings of 39 cents that missed estimates for 40 cents. Revenue of $907.1 million beat estimates for $906.6 million.

Update 9/10/17: There was more analyst speculation last week that Coke might be getting close to acquiring the rest of Monster shares it does not own. Coke has a 16.7% stake in Monster and that is the only portion of the drink business that is growing. Coke's Q2 revenues declined 16% for the 9th consecutive quarterly decline.

Update 11/12/17: Monster reported earnings of 40 cents that matched analyst estimates. Revenue of $909.5 million beat estimates for $901.1 million. Shares dipped to $56 after earnings and then exploded higher over the next two days to close at $61 on no specific news.

Update 12/30/17: The president and CEO combined to sell nearly 400,000 shares over the last week. They pair had exercised options for 433,000 shares each on Dec 12th. Shares of MNST declined from the new highs on Thursday.

Position 8/14/17:

Position 8/14/17: Long Jan 2019 $55 call @ $6.76, see portfolio graphic for stop loss.

I will turn the 2019 call into a spread once the stock moves higher so we can widen our potential gains.

Previously closed 8/9/17: Long Jan 2018 $55 call @ $2.65, exit $1.95, -.70 loss
Alternate position:
Closed 8/9/17: Long Jan 2019 $55 call @ $5.60, exit $5.70, +.10 gain.

MRK - Merck & Co - Company Description


Merck's Keytruda saw another successful trial for melanoma and is being explored for several other applications. Merck has good news breaking out all over.

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.

I am going to recommend two LEAPS because they are so cheap. Choose either one or buy both.

Update 12/3/17: Merck announced another $10 billion share buyback program and they increased their dividend to 48 cents.

Update 12/17/17: Merck said a late stage trial for its blockbuster drug Keytruda failed to meet the main goal of extending lives of patients with gastric cancer. The drug is effective in other forms of cancer. Shares declined slightly on the news.

Update 12/30/17: Merck said the drug Steglatro and the combination drug Steglujan, both for diabetes, had been approved by the FDA. These drugs are in partnership with Pfizer. Both will be available in January.

Position 11/13/17:

Long Jan 2019 $60 LEAP Call @ $2.38, see portfolio graphic for stop loss.

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

MU - Micron Technology Company Profile


Intel and Micron said they were going to terminate their partnership on developing new NAND memory technology after their third generation effort is complete in 2019. Micron is totally focused on memory and Intel is going back to focus on processors. This makes sense because the memory technology changes so quickly and it is priced as a commodity with very little margin it does not make sense for Intel to waste time and resources on a commodity product.

Original Trade Description: October 22nd.

Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; mobile low-power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, automotive and industrial applications, and computer memory upgrades; and hybrid memory cube semiconductor memory devices for use in networking and computing applications. The company also provides NAND Flash products, which are electrically re-writeable, non-volatile semiconductor memory devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; managed multi-chip package products; digital media products, including flash memory cards and JumpDrive products under the Lexar brand name. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. Company description from FinViz.com.

For Q2, they reported earnings of $2.02 compared to estimates for $1.84. Revenue rose 90% to $6.14 billion and analysts were expecting $5.97 billion.

For the current quarter, analysts are expecting $2.14 in earnings on a 60% increase in revenue. They are likely to beat those estimates.

Despite the strong earnings and forecasts, the company trades at a PE of 8.7 when the S&P is trading at 18.0. This is a monumental mismatch and suggests investors will be racing to buy this undervalued stock.

Shares spiked on earnings and ran up to $40.50. They have been consolidating in the $40-$42 range for the last two weeks.

On October 10th, they announced a $1 billion secondary offering and shares dipped for several days while the offering was priced and completed. This added 25 million shares to the float with 1.14 billion shares outstanding.

This was a great deal. They are using the proceeds to help fund the retirement of $2.25 billion in debt priced at 7.5% and 5.5% interest. This will reduce their costs and eliminate those debt service payments. They raised about $1.2 billion after the offering was upsized and the rest of the funds for debt retirement will come out of cash on hand.

Summit Redstone said buy because the secondary offering to pay off debt was an exercise in value creation. The analyst has a $51 price target. Credit Suisse reiterated an outperform rating and $50 target. Susquehanna has a $50 target and Evercore ISI has a $50 target. Barclay's boosted their target price from $40 to $60 saying DRAM demand looks good through 2018. Demand should remain high and supply should remain tight. Stifel has a $60 target. Needham's, Rajvinda Gill has a price target of $76.

UBS analyst Stephen Chin says he expects Micron's profits to rise 50% in 2018 to $7.50 per share. If you put any kind of market multiple on those earnings, the stock should double.

Update 12/17/17: Morgan Stanley said buy Micron despite rising production on NAND memory and the expected softening of prices. Analysts expect Micron's NAND cost to decline 30% over the next 12 months. They said demand remains very healthy and new sources of demand keep popping up everywhere. They referenced the IoT, AI and self driving cars.

Update 12/30/17: Micron reported earnings of $2.45 that beat estimates for $2.20. Revenue of $6.8 billion rose 71.4% and beat estimates for $6.39 billion. They guided for current quarter earnings of $2.51-$2.65 and revenue of $6.8-$7.2 billion. Analysts were expecting $1.95 and $6.08 billion. Shares spiked on the news then declined for the last week as the semiconductor sector rolled over in a generally weak market.

Position 10/23/17:

Long Jan 2019 $45 call @ $7.00, see portfolio graphic for stop loss.
Short Jan $60 call @ $3.10, see portfolio graphic for stop loss.
Net debit $3.90.

PGR - Progressive Corporation - Company Description


No specific news.

Original Trade Description: November 26th

The Progressive Corporation, through its subsidiaries, provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. Its Personal Lines segment writes insurance for personal autos, and recreational and other vehicles. This segment's products include personal auto insurance; and special lines products, including insurance for motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles. The company's Commercial Lines segment provides primary liability, physical damage, and other auto-related insurance for autos, vans, and pick-up trucks, and dump trucks used by small businesses; tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses, and non-fleet long-haul operators; dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-type businesses; tow trucks and wreckers used in towing services and gas/service station businesses; and non-fleet taxis, black-car services, and airport taxis. Its Property segment provides residential property insurance for homeowners, other property owners, and renters, as well as offers personal umbrella insurance, and primary and excess flood insurance. The company also offers policy issuance and claims adjusting services; home, condominium, renters, and other insurance; and general liability and business owners policies, and workers' compensation insurance, as well as sells personal auto physical damage and auto property damage liability insurance in Australia. In addition, it offers reinsurance services. Company description from FinViz.com

Despite the hurricanes in Aug/Sep, Progressive reported earnings of 41 cents that rose 13.9% and beat estimates for 30 cents. Premiums written increased by 18% to $7.1 billion. Premiums earnings rose 14% to $6.5 billion. Premiums written benefitted from a 15% rise in prices. Operating revenues rose 15% to $2.1 billion. Investment income rose 20%, fees and other revenue rose 16% and service revenues rose 22%. These are outstanding numbers despite the impact from the hurricanes on auto losses.

At the end of the quarter there were 5.9 million direct auto policies in force and 5.5 million agency auto policies in force, an 11% overall rise.

In early November they reported premiums written in October totaled $2.758 billion, up 22% from Oct 2016. Total personal policies in force rose 9% to 15.950 million and commercial policies rose 5% to 643,500.

There is no bad news anywhere in their financial disclosures.

Shares are not fast movers but premiums are cheap. Previously Progressive did not have LEAPS but they were just added. The 2020 LEAPS have no open interest and the bid ask spread is 100%. A $55 2020 LEAP is bid $2.85, ask $5.80. We do not want to go there.

Update 12/17/17: Progressive said net premiums written in November rose 20% to $2.022 billion. Total policies for personal insurance like auto or home rose 9% to 15.98 million. Total business policies rose 20% to 1.436 million. Shares spiked to a new high and then faded on Thursday.

Position 11/27/17:

Long Jan 2019 $55 Call @ $3.00, see portfolio graphic for stop loss.

PYPL - PayPal - Company Profile


No specific news. New high close on Friday.

Original Trade Description: July 30th.

PayPal Holdings, Inc. operates as a technology platform company that enables digital and mobile payments on behalf of consumers and merchants worldwide. It enables businesses of various sizes to accept payments from merchant Websites, mobile devices, and applications, as well as at offline retail locations through a range of payment solutions, including 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. Company description from FinViz.com

PayPal has been on a roll lately. They reported earnings of 46 cents, up from 36 cents and beat estimates for 43 cents. Revenue of $3.14 billion beat estimates for $3.09 billion. Transactions processed rose 23%. They guided for the full year for revenue of $12.78-$12.88 billion with earnings of $1.80-$1.84. Analysts were expecting $12.7 billion and $1.79. Paypal added 6.5 million accounts to total 210 million customers. The company said they were on track to add 25 million new accounts in 2017.

The company recently announced partnership deals with Baidu, Bank of America, Visa, JP Morgan, Facebook and Apple. They have changed their focus from disruptor to partner where they can process more transactions through the partners. The Baidu partnership will connect them to 700 million Chinese shoppers and 17 million Paypal merchants. The deal with Apple to allow Paypal in the iTunes store, AppStore and Apple Music will connect them to more than 1 billion IOS devices worldwide. The Facebook partnership gives them access to 2.01 billion users.

Pacific Crest Securities said their market cap of $71 billion does not make them too big to be acquired by a larger bank. Even Amazon has been mentioned as a possible acquirer.

Update 8/13/17: Paypal said it was acquiring Swift Financial, a small business lender and the transaction would close by the end of 2017. No terms were given. This will extend Paypal's reach for financing services. Paypal already has a working capital unit since 2013 and they have loaned more than $3 billion to small businesses.

Update 8/21/17: Paypal said payment platform Venmo was on track with expectations. The platform processed $8 billion in payment volume, a 103% YoY increase. Thanks to recent agreements with MC/V, users will be able to transfer money directly from their accounts to credit/debit cards, which will become a big selling point. The new "Pay with Venmo" platform that will allow users to make purchases at retail locations is in test mode with Lululemon, Athletica and Forever 21 already accepting those payments. This is turning into another big revenue stream for Paypal.

Update 9/24/17: Evercore ISI reiterated a buy rating and raised the price target from $68 to $81. The company has $7 billion in cash and it looking for bolt on acquisitions that will be immediately accretive to earnings and continue to expand the brand.

Update 10/1/17: Bernstein wrote a piece on potential acquisition candidates by PayPal. Square (SQ) was a potential target. Bernstein article

Update 10/21/17: PayPal reported earnings of 46 cents that rose 31% and beat estimates for 44 cents. Revenue of $3.24 billion rose 21% and beat estimates for $3.17 billion. They processed $114 billion in payments and person to person payments rose 47% to $24 billion. The Venmo app processed $9 billion in payments for 93% growth. They added 8.2 million new active members. They guided for the current quarter to earnings of 50-52 cents and for the full year for $1.86-$1.88. Shares spiked 5% on the report.

Update 11/19/17: The company said it has sold its credit card assets to Synchrony Financial (SYF) for $5.8 billion. The bank will become the exclusive issuer of Paypal branded credit cards. The company also raised its guidance for Q4 to 52-59 cents on revenue of $3.64-$3.7 billion. Prior guidance was 37-39 cents on $3.57-$3.63 billion. Paypal said they had been using 40% to 50% of their free cash flow to fund the credit card business. With the asset sale, they will continue to promote the cards and grow the business but it will be up to Synchrony to fund the credit expansion. This was a win-win for both companies.

Update 12/3/17: Keybanc raised their price target to $90 saying the Venmo app was the preferred payment app for 76% of responders in a recent survey. They expect $75 billion in Venmo payments in 2018 and Paypal will see earnings rise 4 cents for every $10 billion.

Update 1/7/18: Paypal surged after the MGI/ANT merger fell apart. ANT was formerly known as Alipay but was split off from Alibaba just before the IPO. MoneyGram International (MGI) was going to merge with ANT but the deal was killed by CFIUS on data security concerns in the US. This opens the way for PayPal to expand its hold on the personal payment sector. It also suggests there will be further M&A and possibly by PayPal.

Position 7/31/17:

Long Jan 2019 $65 call @ $6.27, see portfolio graphic for stop loss.

ROKU - Roku Inc - Company Description


No specific news. I tightened the stop loss to just below current support.

Original Trade Description: December 3rd

Roku pioneered streaming to the TV. We connect users to the streaming content they love, enable content publishers to build and monetize large audiences, and provide advertisers with unique capabilities to engage consumers. Roku streaming players and Roku TV models are available around the world through direct retail sales and licensing arrangements with TV OEMs and service operators. The company was founded by Anthony Wood, inventor of the DVR. Roku is headquartered in Los Gatos, Calif. Company description from FinViz.com

Roku is the hottest streaming service going today. Unlike Netflix where they stream movies, Roku streams everything from broadcast channels, cable channels, Hulu, Showtime, ESPN, HBO, Directv Now, Amazon Video, Sling TV, Google Play, ABC, NBC, CBS, FOX, Disney channels, 140 Sports channels, European channels, Asian channels, hundreds of other channels and even Netflix. Roku is a set top box or in the case of new TVs just a USB flash drive and a remote. Recently, most smart TVs come with the Roku app preloaded.

Manufacturers are partnering with Roku and nearly every content generator is putting their content on Roku. This is the answer to cutting out those sky high cable bills. This is the cord cutting device for millennials.

The challenge is that Roku IPOed at $15 in early October and the stock has run up to $45 in only two months. Some analysts are predicting it will triple over the next two years and others are saying it will return to $15. Short interest is 27%.

Roku is a very small company with a market cap of $789 million. Amazon, Disney, Google or even Netflix could buy them for pocket change and have another highway right into your living room.

I believe this is the wave of the future. The only drawback is that it is not a DVR. The plus side is that you can download almost anything on demand and will not need a DVR for most of your TV viewing.

Roku is currently almost giving away its hardware. This is the Amazon model. Give away the device and profit from the content delivery. Hardware revenues rose only 4% last quarter. Those are one-time sales. Platform revenues rose 137% and those repeat every month. The platform generates 80% of Roku revenues at this point. It has crossed the bridge from being just another over the top box to a service that everyone wants.

I think this company has a better chance of being acquired than seeing its stock triple. The company is too cheap and the service is too easy to use.

The bears point to Tivo and the disaster it became. This is not Tivo. That was a set top box that depended on a cable or network feed to film shows for later viewing. Comcast and Directv killed that service with their own DVRs.

LEAPS are not cheap but if the bullish analysts are right and the stock triples from here, it will be worth the investment. If the bears are right, we will lose some part of the $700 per contract we are going to spend. We will stop out if the stock goes against us.

Update 12/30/17: There are 5.94 million shares short against a float of 17.4 million. There are 97.8 million shares outstanding but the rest are tightly held by insiders. The average daily volume in December was 8.487 million shares. There is a good possibility of higher highs if the market turns positive.

Update 1/7/18: Shares fell after Morgan Stanley said the long-term earnings potential was not clear. The analyst said Roku may boast of 5,000+ channels, the top 6 get the most views with Netflix and YouTube the top 2 channels. They derive very little revenue from those two companies. However, Roku did double its revenue in 2017.

Position 12/4/17:

Long JAN 2019 $45 call @ $13.03, see portfolio graphic for stop loss.
Short JAN 2019 $75 call @ $5.88, see portfolio graphic for stop loss.
Net debit $7.15. Potential gain $23.00.

TEVA - Teva Pharmaceuticals - Company Description


Teva directors cut their salary in half for 2018. Teva also struck deals with workers in Israel about closing some plants and the stock moved higher on the news.

Original Trade Description: December 10th

Teva Pharmaceutical Industries Limited develops, manufactures, markets, and distributes generic medicines and a portfolio of specialty medicines worldwide. It operates through two segments, Generic Medicines and Specialty Medicines. The Generic Medicines segment offers sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances in various dosage forms, including tablets, capsules, injectables, inhalants, liquids, ointments, and creams. This segment also develops, manufactures, and sells active pharmaceutical ingredients. The Specialty Medicines segment provides branded specialty medicines for use in central nervous system and respiratory indications, as well as the women's health, oncology, and other specialty businesses. Its products in the central nervous system area comprise Copaxone for multiple sclerosis; Azilect for the treatment of Parkinson's disease; and Nuvigil for the treatment of excessive sleepiness associated with narcolepsy and certain other disorders. This segment's products in the respiratory market include ProAir, ProAir Respiclick, QVAR, Duoresp Spiromax, Qnasl, Braltus, Cinqair/Cinqaero, and Aerivio Spiromax for the treatment of asthma and chronic obstructive pulmonary disease, as well as Treanda/Bendeka, Granix, Trisenox, Lonquex, and Tevagrastim/Ratiograstim products in the oncology market. This segment also offers a portfolio of products in the women's health category, which includes ParaGard, Plan B One-Step, and OTC/Rx, as well as other products. The company has collaboration arrangements with Attenukine, Procter & Gamble Company, and Regeneron Pharmaceuticals, Inc. Teva Pharmaceutical Industries Limited was founded in 1901 and is headquartered in Petach Tikva, Israel. Company description from FinViz.com

Teva is the largest generic drug manufacturer in the world. Unfortunately, that market place is becoming very competitive and the company has to reinvent itself to return to a profitable growth profile.

Fortunately, the company is taking action. They have been selling off noncore assets to pay down debt. They just installed a new CEO,Kare Schultz, and he took immediate action. On his second day on the job, he restructured the management team and said he would present a major restructuring plan in mid December. Last week, the stock jumped to a two-month high after news broke they were considering cutting 10,000 of their 57,000 workers in an effort to save $1.5-$2.0 billion a year.

Shares fell in early November after the company cut full year guidance for the third time and said they may sell shares to reduce their debt. In early December, they pulled back on the share sale idea saying they have no plans for a secondary offering in the near future.

I believe the worst is over. The reaction to the news over the last four months has been horrendous. Shares had fallen from $32 to $10. Since the new CEO took control, they have rebounded back to $16.

Because of the giant drop, the LEAP premiums are very reasonable. I am suggesting we take advantage of the los premiums and the potential for a share price recovery. I am recommending both the 2019 and 2020 strikes. This way we can take some gains in late 2018 and let the longer term bet ride.

Update 12/17: Teva announced on Thursday they were cutting 14,000 workers from their 56,000-person workforce. They expect to reduce costs by $3 billion by the end of 2019, with $1.5 billion in cost reductions in 2018. The company also suspended its dividend for ordinary shares and will eliminate bonuses for 2017. They are planning on closing a "significant number" of R&D facilities, offices and other locations around the world. They are going to consolidate offices in the US from 7 locations to only one campus. Teva incurred a lot of debt when they purchased the Allergan generic pharmaceuticals business for $40 billion last year. That was poorly timed just as generic prices were crashing. The company is also reviewing its asset base in order to sell noncore assets. Apparently, the new CEO, Kare Schultz, is determined to turn the company around sooner rather than later. Shares are bouncing back from a 17-year low in November. Shares were upgraded by Morgan Stanley, Goldman Sachs and Credit Suisse on Friday.

Update 12/30/17: Teva said its BLA application for Fremanexumab as a preventive for migraine headaches had been granted a priority review designation by the FDA. There were two successful Phase III studies under the HALO program with patients with episodic migraine and chronic migraines.

Position 12/11/17:

Long Jan 2019 $20 LEAP Call @ $2.10, see portfolio graphic for stop loss.
Optional: Long Jan 2020 $20 LEAP Call @ $3.70, see portfolio graphic for stop loss.

TTD - The Trade Desk - Company Description


No specific news. I threatened to close the position this week if there were no gains and the stock did improve slightly. TTD is still on the bubble for next week if shares deteriorate.

Original Trade Description: November 19th

The Trade Desk is a technology company that empowers buyers of advertising. Through its self-service, cloud-based platform, ad buyers can create, manage, and optimize more expressive data-driven digital advertising campaigns across ad formats, including display, video, audio, native and social, on a multitude of devices, such as computers, mobile devices, and connected TV. Integrations with major data, inventory, and publisher partners ensure maximum reach and decisioning capabilities, and enterprise APIs enable custom development on top of the platform. Headquartered in Ventura, CA, The Trade Desk has offices across North America, Europe, and Asia. Company description from Trade Desk.

The Trade desk reported earnings of 35 cents that rose 46% and beat estimates for 26 cents. Revenue of $79.4 million rose 50% and beat estimates for $77 million. TTD has a history of strong earnings beats.

Mobile In-App revenue rose 77%, Mobile video rose 140% and connected TV revenue rose 159%. Customer retention remains over 95% for the 16th consecutive quarter.

The problem came from the guidance. The company said Q4 revenue would be around $101 million and EBITDA of $34 million. Analysts were expecting $102 million and $37 million.

However, they raised full year guidance for revenue of $306 million and EBITDA of $90 million. Up from $303 million and $88 million.

The company said they were investing in growth and expanding in Spain, France, Singapore, Germany, Korea and Indonesia where their business grew by 100% or more over the year ago quarter. China is now seen as a major growth opportunity.

There is nothing wrong with this company. Every company wishes they could post the same kind of growth numbers. Shares were crushed from $65 to nearly $45 after earnings. I suggest we buy the dip. The options are expensive so this has to be a spread.

Position 11/20/17:

Long Jan 2019 $55 call @ $10.52, see portfolio graphic for stop loss.
Short Jan 2019 $80 call @ $3.80, see portfolio graphic for stop loss.
Net debit $6.72.

VAR - Varian Medical Systems Company Profile


Varian held a webcast on Thursday to discuss new accounting rules and shares crashed $3 on Friday to stop us out. I am guessing investors did not like the new rules.

Original Trade Description: October 1st.

Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. Company description from FinViz.com.

Varian reported earnings of $1.04 that beat estimates for 95 cents. Revenue of $662.4 million just barely missed estimates for $663.2 million due in part to currency translation issues. They sell their high dollar imaging systems all over the world.

The guided for the current quarter for earnings of $1.15-$1.23 and analysts were expecting $1.18. This should have been positive but the stock fell $6 because of the minor revenue miss.

Shares had rebounded to a new high at $107.87 on Sept 14th but ran into a bout of profit taking that knocked it back to $98. There was no news that would have been negative. It was simply time for portfolio managers to rotate into something else for the next earnigns cycle.

Varian just announced the initial treatments of cancer patients using their new Halcyon radiation system. The first patient had head and neck cancer that required delivery of the treatment to nine different locations. The entire treatment time including setup, imaging, 3 minutes of beam time and patient discharge was only 13 minutes. Typically, a treatment like this using other technology requires 10 minutes of beam time and 20 min of total treatment time, plus it is far less precise.

Varian is delivering state of the art radiation systems all over the world and they are the leading edge in this technology.

The recent decline has taken VAR back to uptrend support and I believe it is time to buy the dip.

Varian does not have LEAPS so I am using the longest dated option available for May 2018.

Update 10/29/17: Varian reported earnings of $1.09 that missed estimates for $1.19. The company had guided for $1.16-$1.23. Revenue of $739 million also missed estimates for $741.7 million. The company revised full year guidance to $4.20-$4.32 on revenue of $2.72-$2.78 billion. Analysts were expecting $4.47 on revenue of $2.8 billion.

All of the sales metrics were very positive with strong bookings for their multimillion dollar systems. They booked 23 Halcyon systems and 6 proton therapy orders. They did take a charge for $13 million relating to a doubtful loan to California Proton Therapy Center. Earnings projections are rocky because delivery, installation, acceptance and payment of these monster systems are sporadic. There are hundreds of details involved in the site preparation, delivery, installation and training.

Position 10/2/17:

Closed 1/12: Long May $105 call @ $5.40, exit $7.00, +$1.60 gain.

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