We had a successful week for the watch list. HD, PPC, and STZ all graduated to our active play list.
Tonight I have removed DAL as a candidate.
New Watch List Entries
M - Macy's Inc.
Active Watch List Candidates
EQR - Equity Residential
GE - General Electric
Dropped Watch List Entries
HD, PPC, and STZ all graduated to our active play list.
DAL has been removed.
New Watch List Candidates:
Macy's Inc. - M - close: 37.88
Leading up to the 2008 financial crisis shares of Macy's (M) were already in decline. The stock fell nearly -90% from its 2007 highs and by late 2008 M traded near $5.00 a share. The market didn't bottom until early 2009. At that time M was trading about $6.25. The stock rallied the next six years in a row. It looked like 2015 would make it seven years in a row. Then momentum suddenly reversed in July 2015. The stock surged to all-time highs near $73.00 on rumors of an activist investors getting involved. That proved to be the peak. Macy's collapsed from about $73.00 in July to $34.50 in December - a 52% plunge. Recent action suggest Macy's has bottomed and all the bad news is priced in.
M is part of the services sector. They are in the department story industry.
According to the company, "Macy's, Inc., with corporate offices in Cincinnati and New York, is one of the nation's premier retailers, with fiscal 2014 sales of $28.015 billion. The company operates about 900 stores in 45 states, the District of Columbia, Guam and Puerto Rico under the names of Macy's, Bloomingdale's, Bloomingdale's Outlet, Macy's Backstage and Bluemercury, as well as the macys.com, bloomingdales.com and bluemercury.com websites. Bloomingdale's in Dubai is operated by Al Tayer Group LLC under a license agreement."
U.S. retail sales were very disappointing last year. All of 2015 saw retail sales rise +2.1%. That's down from the five-year average of +5.1%. All year long analysts were expecting consumers to spend more because they were saving more money at the gasoline pump due to falling oil prices. That extra spending never showed up. This lack of spending weighed on several retailers and M's stock continued to sink. Macy's management took advantage of their falling stock price and bought back over 30 million shares last year.
Of course stock buybacks will also do so much. On January 6th Macy's slashed their full-year guidance due to weak sales during the holiday shopping season. Cold weather apparel and goods were not selling due to an unusually warm winter. Macy's said their comparable-store sales dropped -4.7% during the November-December time frame. The company reduced their full-year outlook from $4.20-4.30 a share down to $3.85-3.90 a share. Wall Street was expecting $4.24. That same night Macy's announced a major restructuring program. They will close 36 stores this spring. Plus they will reduce staff and cut costs in an effort to save $400 million a year. Shares rallied the next day.
If a company can cut its earnings guidance and rally then all the bad news is probably priced in. If you haven't noticed lately the stock market is plunging. The S&P 500 is already down -8.0% in the first ten trading days of 2016. Shares of Macy's are moving the opposite direction and the stock is up +8.2% year to date.
The recent lows near $34.00 look like a bottom. However, we would like to see M breakout past technical resistance at its 50-dma and past its recent highs.
The late November high was $40.69. Tonight I am suggesting investors wait for M to close above $40.75 and then buy calls the next day with a stop loss at $36.45.
Breakout trigger: Wait for M to close above $40.75
Then buy calls the next morning with an initial stop at $36.45.
BUY the 2017 Jan $45 call (M170120C45) current ask $2.97
Option Format: symbol-year-month-day-call-strike
Chart of M:
Weekly Chart of M:
Originally listed on the Watch List: 01/17/16
Active Watch List Candidates:
Delta Air Lines - DAL - close: 44.50
Tonight we are cutting DAL loose and removing it from the watch list. You might assume that multi-year lows for oil would be bullish for the airline industry and you'd be right. However, worries over a global slowdown and concerns about too much capacity continue to pressure the industry.
Trade did not open.
01/17/16 removed from the watch list.
Originally listed on the Watch List: 12/27/15
Equity Residential - EQR - close: 78.58
We are not giving up on EQR. It was another rough week for the stock market and EQR only lost about 30 cents for the week. Shares bounced near support on Friday morning and pared its loss to close virtually breakeven on the session.
The area to watch is overhead resistance near $82.00. We are waiting for EQR to close above $83.00 as our entry trigger.
Trade Description: January 3, 2016:
The S&P 500 just delivered its worst yearly performance since 2008 with a -0.7% decline for 2015. EQR outperformed the broader market with a +13.5% gain last year. More importantly shares look poised to break out and hit new highs in 2016.
EQR is part of the financial sector. According to the company,
"Equity Residential is an S&P 500 company focused on the acquisition, development and management of high quality apartment properties in top U.S. growth markets. Equity Residential owns or has investments in 393 properties consisting of 109,540 apartment units."
Traditional wisdom says that you don't want to own big dividend paying REITs in a rising rate environment. REIT.com published an article challenging this very idea. In the article, titled "Misconceptions about REITs and Interest Rates", the author says, "Asset prices [REITs] often decline as the immediate response to a rise in interest rates because higher interest rates reduce the present value of future cash flows, including bond coupons and stock dividends. If future cash flows are not expected to rise, then increasing interest rates would have a clear negative impact on asset values, including the share prices of stock exchange-listed Equity REITs." They go on to discuss how rising interest rates due to stronger economic growth is good. A growing economy usually means more business spending, hiring new employees, more consumer spending. This leads to better occupancy rates for REITs and rental growth and overall better business fundamentals. You can read more about it
Barron's also published an article suggesting REITs are not an automatic sell if rates are rising. You can read it here .
The Federal Reserve did raise rates in December for the first time in almost a decade. It's widely anticipated that they will raise rates three or four more times in 2016. Yet shares of EQR ended 2015 near all-time highs. The threat of rising rates does not seem to scare away REIT investors.
The company's most recent earnings report was October 26th. They beat estimates on both the top and bottom line and raised guidance.
Research firm CoreLogic is also bullish on rental demand. They recently published their outlook for 2016 and believe that this year should see about 1.25 million new households formed. Most of them will want to rent even though rents are high with vacancies near 30-year lows.
Technically EQR has been showing strength. Last week the point & figure chart produced a new triple-top breakout buy signal that is forecasting at $107 price target.
EQR does have major resistance near $83.00. That's why a breakout past this level would be very bullish. Tonight I am suggesting investors wait for EQR to close above $83.00 and then buy calls the next day with a stop loss at $76.45.
Please note that readers may want to limit their position size to reduce risk. Last August (2015) the stock market experienced a sharp correction lower. The stock market plunged on August 24th. Shares of EQR experienced their own private little flash crash with the stock trading in a $20 range. There is no way to predict if and when something like that might occur again.
*Small positions to limit risk*
Breakout trigger: Wait for EQR to close above $83.00
Then buy calls the next morning with a stop loss at $76.45
BUY the 2017 Jan. $90 call (EQR170120C90)
Option Format: symbol-year-month-day-call-strike
Originally listed on the Watch List: 01/03/16
General Electric - GE - close: 28.49
I am surprised that GE did not hit our buy-the-dip trigger at $28.00 in the face of another violent market decline. Shares seemed content to just consolidate sideways in the $28.00-29.00 zone last week.
More aggressive investors may want to jump in early right now. We currently have two different triggers list - the $28.00 trigger and a close above $31.55 as an alternative entry point.
FYI: GE has earnings coming up on January 22nd.
Trade Description: December 20, 2015:
Tonight we are going old school with our new watch list candidate. GE has been slowly drifting higher since the 2009 market lows. Most of 2014 and 2015 the stock was stuck churning sideways. The situation changed in early October this year after a big activist investor got more involved. It's making a difference. The S&P 500 is down -2.6% year to date. Yet GE is up +20% in 2015 and should continue to outperform in 2016.
GE is in the industrial goods sector. According to the company,
"GE is the world's Digital Industrial Company, transforming industry with software-defined machines and solutions that are connected, responsive and predictive. GE is organized around a global exchange of knowledge, the 'GE Store,' through which each business shares and accesses the same technology, markets, structure and intellect. Each invention further fuels innovation and application across our industrial sectors. With people, services, technology and scale, GE delivers better outcomes for customers by speaking the language of industry. www.ge.com"
One of the biggest changes at GE has been the company's long-term transformation to get rid of its financial assets that have been an albatross around its neck for so long. Management is focusing on the company's roots, which is industrial products and innovation.
The company recently held their annual meeting with analysts. The year ahead brings a lot of challenges. The global market is still struggling. The U.S. economy is limping along at +2% growth. Plus the strong dollar hurts sales outside the U.S. In spite of these headwinds GE's CEO Jeffery Immelt is bullish on 2016.
Management is forecasting 2016 earnings to rise +15% on revenue growth of +2% to +4%. That is impressive for such a massive company like GE who does so much business overseas. They also foresee paying investors $8 billion in dividends and spending $18 billion on stock buybacks in 2016. GE provided a long-term 2018 earnings forecast of more than $2.00 per share compared to $1.30-1.20 a share in 2015. They expect to return $55 billion to shareholders in dividends and buybacks between now and 2018. That sort of investor-friendly action could help GE weather any market volatility in 2016.
The stock has been showing relative strength the last few months. The stock held up pretty last week too during the market's volatile moves. GE tagged multi-year highs on Wednesday. The point & figure chart is bearish and forecasting a long-term target at $53.00.
The action in GE's stock over the last few weeks is either a new top or it's a new base. We are betting it is the latter. Tonight I am suggesting investors wait for GE to close above $31.35 and then buy calls the next morning.
Trigger #1: Wait for a close above $31.55
Then buy calls the next morning with a stop at $29.40
BUY the 2017 Jan $35 call (GE170120C35)
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Trigger #2 Buy-the-dip @ $28.00 (intraday trigger) start with a stop at $25.85
BUY the 2017 Jan $30 call (GE170120C30)
01/10/16 Add a secondary entry trigger -- buy the 2017 Jan. $30 call if GE trades down to $28.00 (start with a stop loss at $25.85)
01/03/16: Adjust entry trigger from a close above $31.35 to $31.55
Option Format: symbol-year-month-day-call-strike
Originally listed on the Watch List: 12/20/15