New Watch List Entries

AAPL - Apple Inc.

CELG - Celgene Corp.

GD - General Dynamics

Active Watch List Candidates

GS - Goldman Sachs

LLY - Eli Lilly & Co

New Watch List Candidates:

Apple Inc. - AAPL - close: 108.00

Company Info

Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $633 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

The company's latest earnings report was super strong. AAPL reported its Q4 (calendar Q3) results on October 20th. Wall Street was expecting a profit of $1.31 a share on revenues of $39.84 billion. The company delivered a profit f $1.42 a share with revenues up +12.4% to $42.12 billion. The EPS number was a +20% improvement from a year ago. Gross margins were up +1% from a year ago to 38%. International sales were 60% of the company's revenues.

AAPL's iPhone sales exceeded estimates at 39.27 million in the quarter and up nearly 16% from a year ago. The only soft spot in their ecosystem seems to be iPad sales, which have declined several quarters in a row. The company hopes to rejuvenate its tablet sales with a refresh of the iPad models. More importantly AAPL management raised their Q1 (calendar Q4) guidance as they expect revenues in the $63.5-66.5 billion in the quarter. Recent news would suggest that AAPL might deliver an incredible 50 million iPhone 6s in 2014. That's not counting their new iPhone 6+.

The better than expected results and bullish guidance sent the stock to new highs. The rally has created a quadruple top breakout buy signal on its point & figure chart that is currently forecasting at $133 target. Yet we do not want to chase AAPL here. The stock is up $12 from its October low. We do want to be ready if shares see a pullback.

Tonight I am suggesting a buy-the-dip trigger to buy calls at $103.50 with a stop loss at $98.90.

Buy-the-dip trigger @ $103.50, stop loss @ 98.90

BUY the 2016 Jan. $115 call (AAPL160115c115) current ask $9.25

Option Format: symbol-year-month-day-call-strike

Chart of AAPL:

Originally listed on the Watch List: 11/02/14

Celgene Corp. - CELG - close: 107.09

Company Info

We previously had CELG on our LEAPStrader newsletter but got stopped out during the market's extreme volatility and correction in the first half of October. The bullish story on CELG has not changed. We'd like to reopen bullish positions again. However, CELG is extremely short-term overbought. The biotechs have been showing major relative strength and soaring to new highs. I'm suggesting a buy-the-dip trigger at $100.00 with a stop loss at $94.90.

I am listing our previous play description below with an update on its most recent earnings report.

(Earlier play description)
If you're looking for opportunity it's hard to beat some of the biotech names. CELG is one of the strongest. According to their press release, "Celgene Corporation, headquartered in Summit, New Jersey, is an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of novel therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation."

What makes CELG so attractive is the company's pipeline. Developing drugs is an expensive business. A lot of older firms are buying other companies for their pipeline. Meanwhile CELG is developing a very strong pipeline. You can view the company's current progress on this webpage.

CELG is also growing earnings. The company's Q2 report was July 24th. Wall Street was looking for a profit of 89 cents a share on revenues of $1.84 billion. CELG beat estimates with a profit of 90 cents and revenues rising +17.1% to $1.87 billion. Earnings per share are up +18% from a year ago. Management raised their guidance for 2014. Wall Street was a little disappointed with the guidance because analysts are more optimistic.

The latest earnings report was October 23rd. Analysts were looking for a profit of $0.94 on revenues of $1.95 billion. CELG beat estimates with $0.97 as revenues grew +18.4% to $1.98 billion. Management then raised their EPS and revenue guidance above Wall Street's estimates.

Multiple firms raised their price target on CELG following the Q3 results and the P&F chart is now forecasting at $157 target. We do not want to buy calls here. Wait for a pullback.

Buy-the-dip trigger @ $100.00, stop loss @ 94.75

BUY the 2016 Jan. $120 call (CELG160115c120)

Option Format: symbol-year-month-day-call-strike

Chart of CELG:

Originally listed on the Watch List: 11/02/14

General Dynamics - GD - close: 139.76

Company Info

GD is another really strong stock that we got stopped out of during the sharp market pullback in the first half of October. Since then shares of GD have not only recovered but have sprinted to new highs.

GD is considered part of the industrial goods sector. The company is a huge aerospace and defense company. They have four significant segments: aerospace, combat systems, information systems, and marine systems (ships and submarines). The defense industry in the U.S. has been saddled with significant budget cuts due to the 2011 sequestration deal that will shave $500 billion from U.S. defense spending from 2012 through 2021. The industry has managed to thrive in spite of these budget cuts.

GD has beaten Wall Street's earnings estimates five quarters in a row. The company is also seeing margin improvement. Their Q2 report was on July 23rd and it not only beat analysts' estimates but management raised their EPS and revenue guidance for 2014. Multiple analysts raised their price target on GD following this announcement.

We see a similar trend with the latest earnings report on October 22nd. GD reported their Q3 results with a profit of $2.05 per share. That beat analysts' estimates by 14 cents. Margins continued to improve, up 50 basis points from the same quarter a year ago. GD's backlog of orders soared +56% to $74.4 billion in the quarter. Management then raised their 2014 earnings guidance above Wall Street's estimate (again).

The stock has been in rocket-mode with shares in a non-stop rally from $115 to $140. We do not want to buy calls here. GD is very short-term overbought. Tonight I am suggesting patience and a buy-the-dip trigger at $132.00 with a stop loss at $124.75.

Buy-the-dip trigger @ $132.00, stop loss @ 124.75

BUY the 2016 Jan. $140 call (GD160115c140)

Option Format: symbol-year-month-day-call-strike

Chart of GD:

Originally listed on the Watch List: 11/02/14

Active Watch List Candidates:

The Goldman Sachs Group, Inc. - GS - close: $189.99

11/02/14: Wow! We were bullish on GS but we were hoping for a pullback first. The plan was to buy calls on a dip at $180.50. Instead shares of GS surged from $183.35 to $189.99. This is a new multi-year high and GS is testing potential round-number resistance at $190.00.

This stock is now up over 18 points from its October low (just over +10%). We do not want to chase it here. Tonight we will move our buy-the-dip trigger from $180.50 to $183.50.

Earlier Comments: October 26, 2014:
Goldman is in the financial sector. They are considered part of the national investment brokerage industry. Goldman was founded in the year 1869 and is headquartered in New York. The company provides investment banking and management services to corporations, other financial institutions, governments and high-net-worth individuals. The lion share of their business is institutional client services where GS makes markets in fixed income, equities, currencies, and commodities.

The company's recent earnings report was strong. GS announced its Q3 results on October 16th. As of the first nine months of 2014 their revenues were up $1.4 billion above the same period a year ago. Management has managed to boost profits by reducing costs. A strong mergers and acquisitions market in 2014 has helped drive GS' results as the company is gaining market share.

Looking at their recent results Wall Street expected a profit of $3.21 per share on revenues of $7.8 billion for the quarter. GS delivered $4.57 per shares, a +59% increase from a year ago. Revenues soared +25% to $8.4 billion. GS saw $20 billion in net inflows bumping client assets to $1.15 trillion.

The company does have a habit of crushing analysts' earnings estimates so the market wasn't that surprised. The stock actually sank on these results but the initial weakness is over and GS is rebounding.

The stock experienced a -10% correction from its early October high to the mid October low. The recent breakout past resistance near $180 and all of its key moving averages is encouraging. I would be tempted to buy calls right now. However, I suspect the market might see some mild profit taking after last week's big rally.

Tonight I am suggesting a buy-the-dip entry point at $180.50 with a stop loss at $174.50. Our long-term target is the $220-230 zone.

Buy-a-dip at $183.50 with a stop at $174.50

BUY the 2016 Jan $200 call (GS160115c200)

11/02/14 adjust buy-the-dip trigger from $180.50 to $183.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 10/26/14

Eli Lilly & Co - LLY - close: 66.33

11/02/14: The stock market's surge on Friday pushed LLY above resistance near $67.00 and the stock tagged new 10-year highs. Yet the rally didn't last. LLY underperformed the major indices on Friday with a -0.7% decline.

Friday's intraday high was $67.43. We will adjust our entry trigger from a close above $67.25 to a close above $67.50. However, nimble traders may want to consider buying a dip. A 50% retracement of the October bounce from $60.50 to $67.40 would be about $64.75. A dip near $65 or better yet a dip to and then a bounce from $65.00 might be an alternative bullish entry point.

I'm crossing my fingers that LLY does see a pullback and we can adjust our entry point again and take advantage of any profit taking. For now we'll move the trigger to a close above $67.50.

Earlier Comments: October 5, 2014:
You may have noticed that stocks have turned a bit more volatile recently. That could be a new trend after as investors try to look ahead into 2015 and ponder a market environment without a QE program by the Federal Reserve. That's why tonight we're looking at a stock like LLY, which is traditionally considered a more safe haven trade.

LLY has been building on its longer-term trend of higher lows. Plus the company has seen some good news. The U.S. FDA recently approved LLY's new once-a-week injectable diabetes drug for adults with type 2 diabetes. This new treatment, Trulicity, helps improve the patients' blood sugar levels. There are an estimated 26 million Americans who suffer with type 2 diabetes. LLY is also teaming up with AstraZeneca to work on a Alzheimer's treatment.

The two-week pullback in shares of LLY was pretty mild and investors are already buying the dip. We want to hop on board if this rebound continues. Tonight we are suggesting investors wait for LLY to close above $66.25 and then buy calls the next morning with a stop loss at $61.90.

trigger: Wait for LLY to close above $67.50
Then buy calls the next morning with a stop at $61.90

BUY the 2016 $70 call (LLY160115c70)

11/02/14 adjust entry trigger. Wait for a close above $67.50
10/26/14 adjust entry point strategy. Move trigger from $66.25 to a close above $67.00. Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 10/05/14