Google, Microsoft, Starbucks and Visa disappointed after the bell but the futures are flat. While each of those stocks declined 4-5% in afterhours the Nasdaq futures are only down -10 and the S&P futures are only slightly negative. While we cannot predict market direction from the futures at 8:PM we can surmise that the earnings misses did not spoil market sentiment.
The S&P retreated from Wednesday's dead stop high at 2,111 to close at 2,091 today. The Dow hit 18,167 on Wednesday and closed at 17,982 today, -185 points below that high.
The indexes were overextended and due to rest. They have been battling resistance for three weeks and the gains of the last six days needed to be equalized.
Going into Friday with Caterpillar, GE and McDonalds reporting, we could start the day off with another set of disappointments. However, I expect GE and MCD to beat the street. CAT has been projecting lower sales for months so the outlook is already grim. They could beat the lowered expectations.
I am neutral for market direction on Friday. You never know if the shorts are going to cover ahead of the weekend event risk or will they get even shorter in expectations of a negative weekend event or news from China.
Maybe this would be a good day to stay on the sidelines.
Current Position Changes
CONN - Conn's Inc
The long position was opened when CONN traded at $13.80.
ORBC - Orbcomm
Cancel this recommendation.
Check the graphic above for any profit stops in green.
We need to always be prepared for a profit exit at resistance.
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow.
We need to always be prepared for an unexpected decline.
BULLISH Play Updates
CONN - Conns Inc - Company Profile
No specific news. The position was opened this morning with a trade at $13.80.
Original Trade Description: April 20th.
Conn's operates as a specialty retailer of durable consumer goods and related services in the USA. The company stores offer refrigerators, freezers, washers, dryers, dishwashers, ranges, furniture, mattresses, home office products including computers, tablets, desks, printers, etc. They also sell consumer electronics including TVs, home theater equipment, etc. They operate more than 100 locations and were founded in 1890. Conn's is like a Best Buy with furniture and appliances.
Shares fell -23% after reporting earnings in late March and bottomes on April 8th. Revenue rose 7% and same store sales rose 3.6% excluding categories the company exited during the quarter. The furniture section saw same store sales rise +15.2% while electronics sales decline -13.3%. They reported earnings of 11 cents compared to estimates for 28 cents. The sharp earnings miss was caused by a major increase in loan loss reserves on their customer financing programs. The 60-day delinquency rate rose to 9.9%. Conn's finances 80% of its sales through its own in house financing plans. This is a short-term problem that will pass as they tighten up credit standards on future sales. They plan to open 10-15 new stores in 2016.
Earnings are May 31st.
An insider bought 250,000 additional shares last week for roughly $3 million. That is a huge vote of confidence.
The sell off was overdone. Shares have now rebounded above the consolidation highs for the last four weeks where the sellers were exiting. Wednesday's close was a four-week high.
I believe we can take a long position in Conn's and ride it up to the $16 level or possibly higher.
Position 4/21/16 with a CONN trade at $13.80
Long CONN shares @ $13.80, initial stop loss $12.25.
No options recommended.
The June $14 is $1.45 and I think that is too expensive if we are only targeting $16-$17 on the long position.
DPLO - Diplomat Pharmacy - Company Profile
No specific news. The company scheduled an investor day for May 18th.
Original Trade Description: April 15th.
Diplomat Pharmacy operated as an independent specialty pharmacy in the USA. The company stocks, dispenses and distributes prescriptions for various biotechnology and specialty pharmaceutical manufacturers. A specialty pharmacy does more than just dispense pills. The provide other services for the patients like infusion, patient financial assistance, risk evaluation and medication strategies. Many of their patients are on complex programs with multiple high dollar drugs. The company has 16 locations and was founded in 1975.
DPLO had a rough six months. The Valeant problem with specialty pharmacy Philidor put a cloud over the entire sector. After DPLO reported robust earnings back in March, JP Morgan downgraded them saying they could decline 15%. The company guided below expectations but remained bullish. The analyst said he could not bridge the gap between the guidance and management bullishness. Shares dropped from $36 to $26 on the downgrade.
Fortunately, that was the bottom and shares have been moving up steadily. They accelerated last week after the company announced the availability of a new Lilly drug for Plaque Psoriasis. This confidence in DPLO by Lilly seemed to encourage investors.
Earnings are May 9th.
Shares are just over $30 with resistance at $35. With the potential for a market meltdown on Monday if the OPEC meeting in Doha does not go well, I am putting an entry trigger on the position.
Position 4/18/16 with a DPLO trade at $30.35
Long DPLO shares @$30.35, see portfolio graphic for stop loss.
No options because of wide spreads.
HALO - Halozyme Therapeutics - Company Profile
No specific news. Holding at three-month highs.
Original Trade Description: April 13th.
HALO is a biotechnology company that researches, develops and commercializes human enzymes. Its human enzymes are used to facilitate the delivery of injected drugs and fluids, enhancing the efficacy and the convenience of other drugs or can be used to alter tissue structures for clinical benefit. The company is also developing PEGylated recombinant human hyaluronidase (PEGPH20) for the treatment of metastatic pancreatic cancer, non-small cell lung cancer, gastric cancer, metastatic breast cancer, and other cancers in combination with various cancer therapies.
This is an easy play. The company is presenting data from multiple trials at the American Association of Cancer Research meeting that will take place April 17-20th. They will release five different abstracts detailing drug interactions at this conference. At the same time they will host an investor/analyst meeting on April 18th at 4:PM.
They reported earnings of 3 cents compares to expectations for a loss of 11 cents. Revenue was $52.2 million.
HALO has partnerships with Roche, Baxalta, Pfizer, Janssen, AbbVie and Lilly. This is not a pipsqueak company.
HALO broke over recent resistance at $11.25 on Wednesday and could run if the data presented is positive. I am recommending we take a long position with a tight stop at $10.50.
Long HALO shares @ $11.99, see portfolio graphic for stop loss.
No options recommended.
KKD - Krispy Kreme - Company Profile
Still holding at the highs on the news of addition to the S&P-600.
Original Trade Description: April 18th.
Krispy Kreme operates as a branded retailer and wholesaler of doughnuts, coffee, treats and packaged sweets. Who would have thought that Krispy Kreme Donuts would be impacted by falling oil prices and currency translation issues? They are a donut store headquartered in the USA. Unfortunately, not all their stores are in the U.S. KKD only has 297 stores in 41 states but they have more than 825 stores in 25 other countries.
There are 105 stores in Saudi Arabia, 136 in Mexico, 19 in the UAE, 14 in Kuwait and 12 in Russia. All of those countries have been impacted by the drop in oil prices and spike in the dollar.
In the last quarter sales at locations outside the U.S. fell -7.1% and expectations are for a continued decline in sales. The strong dollar caused revenue to decline -3.4% to $7.4 million in last quarter.
In late March they warned earnings would be in the range of 87-91 cents and analysts were expecting 93 cents. Shares fell -10% on the news. However, within four days the stock had rebounded to more than the level before the warning and have continued higher. Monday's close was an 8-month high.
They are running promotions to boost sales in the U.S. and they appear to be succeeding. On April 1st they gave away a free donut to anyone walking in their door, no purchase necessary. The stores were packed.
KKD only has $11 million in debt and $51 million in cash. They bought back 2.8 million shares in 2015. They have an authorized buyback for up to $144 million in shares for 2016.
Earnings are June 21st.
I am recommending we buy KKD shares with a trade at $16.50, just over today's high using a tight stop loss.
Position 4/20/16 with KKD trade at $16.50
Long KKD shares @ $17.05, see portfolio graphic for stop loss.
Optional: Long May $17 call @ .30, no stop loss.
ORBC - Orbcomm Inc - Company Profile
I am giving up on Orbcomm. After two weeks with no gains, I am cancelling the recommendation.
This recommendation is cancelled.
Original Trade Description: April 5th.
Orbcomm provides machine-to-machine (M2M) and internet of things (IoT) solutions in the U.S., South America, Japan, Europe and internationally. Customers are able to track and manage fixed and mobile assets. They also provide satellite automatic identification service (AIS) for vessel navigation. Orbcomm has its own constellation of 41 low earth orbit satellites. Communication can also be handled through terrestrial based cellular network services.
Basically, Orbcomm can track anything and communicate with anything that is Internet, Cellular or GPS enabled. Companies use Orbcomm devices to track refrigerated trucks and trailers while monitoring temperatures of those vehicles. Orbcomm can track and monitor engine performance, locations, operating time, etc on over the road trucks, earth moving equipment, trailers on trains, containers on ships, etc.
Orbcomm added 239,000 connected devices in Q4 alone. Total installed and billable communicators rose from 976,000 at the end of 2014 to 1,569,000 at the end of 2015. On December 21st Orbcomm successfully launched 11 second generation OG2 satellites from Cape Canaveral and after testing all satellites went live on March 1st.
Large fleet customers are signing up for the Orbcomm service faster than the devices can be installed. Growth is accelerating faster than the 61% increase in 2015. Current high profile customers include Caterpillar, Hitachi Construction, John Deere, Komatsu, Volvo, C&S Wholesale, Canadian National Railway, Hub Group, KLM Transport, Marten Transport, Swift Transportation, Target, Tropicana, Tyson Foods, Walmart, Union Pacific Railroad, Werner Enterprises and hundreds more.
Earnings last quarter were only a penny because of the high cost of satellite launches. They also acquired three companies, Skywave, InSync and WAM Technologies.
Earnings are May 5th.
Shares of ORBC have been erratic over the last four months. As they announce successful satellite launches, new Fortune 100 customers, etc the stock spikes and then goes dormant for a week or two until the next announcement. Most traders have never heard of the company so every press release introduces ORBC to a new segment of investors. I know the stock looks over extended but I believe they are in a growth phase that will continue.
I am recommending we buy ORBC on a breakout over $10.50 with a stop loss at $8.75. One analyst last week was talking about $25 now that the satellite expansion phase was complete and the M2M and IoT applications were becoming a reality.
TRN - Trinity Industries - Company Profile
Trinity reported earnings of 61 cents that missed street estimates for 66 cents. Revenue of $1.19 billion also missed estimates for $1.33 billion. They guided for full year earnings of $2.00-$2.30, which was slightly lower than the $2.00-$2.40 prior guidance and analyst estimates for $2.21. The CEO said despite the minor decline Trinity was much better position than in prior economic cycles. They repurchased 2.1 million shares for $35 million in the quarter.
The rail group shipped 7,145 railcars and received orders for 1,620 cars. The order backlog on March 31st was $4.72 billion, representing 43,360 railcars. Those orders extend until 2020. The company has $835 million in cash and $2.1 billion in liquidity from committed credit facilities.
Shares declined -30 cents in afterhours. We have a July call option so plenty of time.
Original Trade Description: March 18th
Trinity Industries manufacturers rail cars, highway guard rails and steel beams for infrastructure projects, structural towers for wind turbines and electrical distribution grids, oil and chemical storage tanks, barges to transport grain, coal, aggregates, tank barges to transport oil, chemicals and petroleum products. The company was founded in 1933.
Shares crashed in mid February after they reported earnings that beat the street but guidance that disappointed. Earnings of $1.30 easily beat estimates for $1.07 but revenue of $1.55 billion missed estimates for $1.61 billion. They had full year earnings of $5.08 per share.
They guided for 2016 to earnings of $2.00 to $2.40 per share. The challenge is the slowdown in orders for railroad tank cars and barges to transport oil. With oil prices crashing the producers and refiners are cutting back on capex spending until prices recover. Trinity said revenue in 2016 could decline -32%. Shares declined -35% over two days on the news.
The key here is that Trinity is now trading at a PE of 3. Yes 3.74 to be exact. With earnings in the middle of their range at $2.20 and a PE of 10 that would equate to a $22 stock price.
Here is the good news. The company has $2.12 billion in cash and undrawn credit. They are not in financial trouble. They authorized a $250 million share buyback starting January 1st. They have an order backlog of $5.4 billion in orders for 48,885 railcars. They received orders for 2,455 cars in Q4 and their backlog stretches out to 2020. The barge division received orders for $190.1 million in Q4 and had a backlog of $416 million as of December 31st. The structural tower segment has $371.3 million in order backlogs.
They recognize that tankcar and barge orders are going to remain slow until oil prices recover, which should happen later this year.
This stock was extremely oversold but began recovering in early March. Trinity produces a lot of railcars for carrying all types of products other than oil. That demand is not going to disappear and they already have order backlogs stretching into 2020.
At their current valuation they could also be an acquisition candidate. This is a great business that has been overly punished by the oil crash.
Earnings April 21st.
Long July $20 call @ $1.50, no stop loss.
Previously Closed 4/5/16: Long TRN shares @ $19.15, exit $17.50, -1.65 loss.
WIN - Windstream Holdings - Company Profile
No specific news. Minor profit taking from the 10-month high.
Original Trade Description: March 11th
Windstream provided network communications and technology solutions for consumers, businesses and enterprise organizations. They provide high-speed internet access, hosted web services and cable TV to a combined total of 1.6 million residential and business customers. They have more than 125,000 miles of high-speed fiber optic cable with speeds up to 500 gbps along their main corridors. They have 11 major data centers providing web hosting, cloud services, etc.
In the Q4 earnings, WIN reported adjusted earnings of $1.41 that crushed estimates for a loss of 48 cents. Revenue of $1.427 billion missed estimates slightly for $1.433 billion. The major earnings beat came from a spinoff of some of its telecom assets into a REIT. The cash received from the spinoff will allow some major network improvements in the months ahead.
The company declared a 15-cent quarterly dividend payable April 15th to holders on March 31st. That equates to a 7.3% annual yield.
WIN shares have been moving higher since they reported earnings on February 25th. Shares are at resistance at $8.25 and could breakout this week. The next resistance would be $11.85.
While we are not playing the stock for a takeover there is always the chance that somebody like Verizon or even Google could decide the $750 million market cap was chump change for 125,000 miles of high-speed fiber, cable TV and data center business.
I am going way out on the option to August because it is cheap and it will make a good lottery play even if we close the stock position early.
Long August $9.00 call @ .38 cents.(Adjusted) NO STOP LOSS
Previously closed 3/29/16: Long WIN shares @ $8.22, exit $7.10, -1.12 loss.
BEARISH Play Updates
LGF - Lions Gate Entertainment - Company Profile
Shares held at support at $20 No specific news.
Original Trade Description: April 12th.
Lions Gate Entertainment engages in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution and sales activities. They produced the series Twilight, Hunger Games and Divergent along with dozens of other films.
Shares have been falling since the Hunger Games and Divergent movies have run their course. The last Divergent movie, "Allegiant" only produced $137 million in worldwide ticket sales and was considered a disappointment.
The company has other films in progress but none are expected to be the box office draws like the ones mentioned above. There was a report last week that Lions Gate may be looking to partner with another studio and may be looking at buying a minority interest in Paramount. That would be a good deal for Lions Gate since Paramount owns Transformers, Mission Impossible and Star Trek. However at the 25-35% stake being discussed that would be roughly $2 billion and a big bite for Lions Gate at a time when future cash flows may be shrinking.
Lions Gate has not been one to shy away from acquisitions. They have done several in the past and that is how they got the Hunger Games and Twilight franchises when they purchased Summit Entertainment. They even tried to buy MGM in 2010 but failed.
Knowing that Lions Gate is on the prowl for an acquisition and has no major movies in the pipeline has put the stock into a slide.
Earnings are May 10th.
I am recommending we short LGF with a trade at $19.65 and look for them to set a new low on any acquisition announcement. Normally the acquirer shares go down. Even if they do not make an acquisition we know they are looking so investors are getting out of the way now.
Position 4/20/16 with a LGF trade at $19.65
Short LGF shares @ $19.65, see portfolio graphic for stop loss.
Long May $19 put @ 75 cents, see portfolio graphic for stop loss.
XLF - Financial ETF - ETF Profile
The XLF gave back 21 cents on the AXP earnings. Next week the regional banks will begin to report and that should help.
Original Trade Description: April 11th.
The XLF is commonly referred to as the banking ETF. However, it is actually a Financial Sector ETF. Banks account for 33% of the holdings with WFC, JPM, BAC, C, USB and GS six of the top ten holdings. Insurance, brokers, diversified financial services and REITs make up the rest of the ETF.
We are playing it to capitalize on the movements in those six top banks as they report earnings. The ETF normally moves slowly and I would not recommend it as a stock holding ahead of those earnings simply because we do not know which way it will move.
I am recommending a short-term option strategy called a strangle using very inexpensive options. We only care about catching the post earnings move in what could be a rocky quarter. Since estimates are already very low there is the potential for an upside surprise and that could cause some short squeezes with the banks.
I looked at playing the weekly puts but the premiums were in some cases higher than the May premiums so we will buy the time even though we will not use it.
Long May $23 call, @ 19 cents, no stop loss.
Long May $22 put @ 47 cents, no stop loss.
Net debit 66 cents.
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