There was a lack of material headlines on Wednesday leading to a lackluster market. With earnings nearly over, investors were left to rehash old news and try and decide if they are going to hold them or fold them before the Memorial Day weekend. The major indexes gave back much of their intraday gains in a low volume rebound.
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Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.
BULLISH Play Updates
ABBV - AbbVie - Company Profile
No specific news. Shares are basically following the market but they did move over the 100-day average and are now using that we support.
Original Trade Description: May 12th
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.
Expected earnings July 26th.
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.
ABBV reported earnings of $1.87 compared to estimates for $1.79. Revenue was $7.93 billion, beating estimates for $7.60 billion. Humira, Imbruvica, Lupron, Creon, Synagis, AndroGeol, Duodopa and Sevoflurane sales all came in above expectations. The company raised guidance from $7.33-$7.43 to $7.66-$7.76. They also announced a $7.5 billion buyback starting May 1st.
The company's many new drugs are going to be cash cows. Imbruvica generated $1.8 billion in sales in 2016 and could reach $7 billion annually over the next couple of years. Venclexta was approved in 2016 for leukemia and sales could peak at $3.5 billion a year. An experimental cancer drug called Rova-T could hit $5 billion a year when approved. A psoriasis drug called risankizumab could produce $4 billion a year and arthritis drug upadacitinib could peak at $3.5 billion.
AbbVie's drug Humira is expected to sell more than $20 billion in 2018 after a $18 billion revenue in 2017. The FDA has 10 FDA approved indications giving it a massive patient base. This is just one of AbbVie's billion dollar blockbuster drugs. AbbVie and Amgen reached an agreement on a biosimilar for Humira. Amgen can sell its copy in the US starting Jan 23rd, 2023 and several European countries on Oct 16th, 2018. Amgen will pay royalties to AbbVie for the marketing rights. Both parties canceled legal proceedings regarding existing patents. The marketing agreement grants "non-exclusive" right, which suggests AbbVie will repeat the same agreement with other companies and thereby guaranteeing future royalty streams.
AbbVie has declared war on the Gilead Sciences Hep-C franchise. The AbbVie drug Mavyret has a 97.5% cure rate and only costs $13,200 for four weeks of treatment compared to Gilead's newest drugs at $25,000 for four-weeks. Most patients are cured in 8 weeks but some have to continue for 12 weeks. Gilead's Harvoni was initially $96,000 for a 12-week treatment.
Here is the key point for AbbVie. The company said non-Humira sales are expected to rise from $9.6 billion in 2017 to $35 billion by 2025. The company is launching 20 additional products by 2020 with at least 8 of them expected to generate more than $1 billion in annual sales. These drugs will focus on Alzheimers, womens health and Hepatitis C.
In mid March AbbVie was crushed after they reported disappointing mid-stage results on their Rova-T drug. They were hoping to use the drug in a different application to treat third line small cell lung cancer. The company said it has shifted its focus after a phase 2 trial resulted in a "magnitude of effect across multiple parameters." This is not a setback but a redirection. AbbVie has dozens of drugs in the pipeline with many of them expected to be blockbusters. The company has seen analysts raise earnings estimates 11 times over the last 60 days. Expectations are for 34% earnings growth and 14% revenue growth in 2018.
Shares are recovering from the March drop and have tested the 100-day average twice. A break over that level could trigger short covering.
I am reaching out to August so that earnings expectations are still reflected in the option premium when we exit before earnings.
Long Aug $110 Call @ $3.50, see portfolio graphic for stop loss.
CAT - Caterpillar - Company Profile
No specific news. Shares failed at resistance on Monday and dropped with the market on Tuesday. This stock is following the Dow.
Original Trade Description: April 25th
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. The company was founded in 1925 and is headquartered in Peoria, Illinois. Company description from FinViz.com.
In mid February, CAT reported their rolling 3-month sales rose 34% globally. There was a 23% ris ein North America. Resource segment sales rose 49%, construction sales +30%, rnergy and transportation rose 16%, power generation +8%, industrial sales +13% and oil and gas sales +27%. This company is in the sweet spot of the global economic boom. The report the rolling 3-month average to smooth out the big ticket sales spikes from month to month.
CAT declared a 78-cent dividend payable May 19th to holders on April 23rd. They have paid higher dividends to shareholders for 24 consecutive years. The earnings date changed to April 24th. Buckingham Research reiterated a buy with a $170 price target saying they were in the early stages of a multiyear earnings expansion story.
On April 24th, CAT reported earnings of $2.82 that rose 120% on a 31% rise in revenue to $12.86 billion and they raised guidance. Analysts were expecting $2.11 and $11.58 billion. Everything was great with the stock spiking 4.5% on the news. Unfortunately, on the conference call the CEO said operating margins would be lower for the rest of 2018 because of targeted investments to continue expanding their offerings and services, consistent with our strategy for long-term growth. Shares immediately crashed from the $161 high to close at $144.
I believe this is a buying opportunity. Earnings rose 120%. Not 10% or 20% but 120%. Revenue rose 31%. This company is knocking the cover off the ball. They raised guidance but said "margins" would decline because of investments. That is bullish for real investors.
There is decent support at $144 and with those earnings I would be shocked if the stock declined significantly. CAT has not traded below the 200-day since May-2016.
I am reaching out to August so the options will retain their premium if we get some additional market volatility. Expiration is after the July earnings so that will also support premiums. We can buy time but we do not have to use it. If you want to buy the July strike it is about $1 cheaper but it will evaporate faster since it expires before earnings.
Update 5/9: At the conference this morning the CAT CEO clarified his comment on earnings saying, it was not meant to suggest that markets are peaking. The "high water mark" comment just meant CAT had a very good quarter and earnings made a new record high. Shares rallied $2.68 on the clarification.
Long Aug $155 Call @ $5.05, see portfolio graphic for stop loss.
CRM - Salesforce.com - Company Profile
No specific news. New record high close on Friday but the software stocks sold off hard on Monday. Tuesday saw a lower low but a rebound that was followed by a minor gain today. We need the Nasdaq so shale off Tuesday's decline and move higher over resistance at 7,421. That will lift all the software stocks.
Original Trade Description: May 5th
Salesforce.com, inc. develops enterprise cloud computing solutions with a focus on customer relationship management. The company offers Sales Cloud to store data, monitor leads and progress, forecast opportunities, and gain insights through analytics and relationship intelligence, as well as deliver quotes, contracts, and invoices. It also provides Service Cloud, which enables companies to deliver personalized customer service and support, as well as a field service solution that enables companies to connect agents, dispatchers, and mobile employees through a centralized platform, on which they can schedule and dispatch work, and track and manage jobs in real-time. In addition, the company offers Marketing Cloud to plan, personalize, and optimize one-to-one customer marketing interactions; Commerce Cloud, which enables companies to enhance engagement, conversion, revenue, and loyalty from their customers; and Community Cloud that enables companies to create and manage branded digital destinations for customers, partners, and employees. Further, it provides Quip collaboration platform, which combines documents, spreadsheets, apps, and chat with live CRM data; Salesforce Platform for building enterprise apps, as well as artificial intelligence (AI), no-code, low-code, and code development and integration services, including Trailhead, Einstein AI, Lightning, Internet of Things, Heroku, Analytics, and AppExchange; and various solutions for financial services, healthcare, and government. Additionally, the company offers professional cloud services, such as consulting and implementation services; training services, including instructor-led and online courses; and support and adoption programs. It provides its services through direct sales; and through consulting firms, systems integrators, and other partners. Company description from FinViz.com.
Earnings May 30th.
Salesforce is rebounding strongly and with earnings three weeks away they are set to benefit from earnings beats by everyone else. Oppenheimer said they were positive on the sector and the stock. They recommended buying the leader and that is Salesforce. Jefferies expects the stock to gain another $10 to $132 in the short term. They pointed to the many engines of growth powering Salesforce earnings. Field checks revealed enterprise business growth was strong in the Americas and even stronger internationally. In surveys, respondents now pegged Microsoft as a major competitor at below 60% after being over 70% in a prior survey. That means Salesforce is pulling away from Microsoft in market share and customer satisfaction.
On Friday, Credit Suisse called them a "Top Pick" and raised the price target to $150.
Shares have rebounded from $116 to $125 in a choppy market over the last two weeks. Over the last two days the stock has surged to a new five week high. There could be a new high before their earnings.
Long June $130 call @ $3.35, see portfolio graphic for stop loss.
MTCH - Match Group - Company Profile
No specific news. Shares down with the software sector on Monday but now attempting to rebound.
Original Trade Description: May 9th
Match Group, Inc. provides dating products. It operates a portfolio of brands, including Tinder, Match, PlentyOfFish, Meetic, OkCupid, OurTime, and Pairs. Match Group, Inc. offers its dating products through its Websites and applications in 42 languages approximately in 190 countries. The company was incorporated in 2009 and is headquartered in Dallas, Texas. Match Group, Inc. is a subsidiary of IAC/InterActiveCorp. Company description from FinViz.com.
Match reported earnings on Tuesday of 33 cents that easily beat estimates for 19 cents. Revenue rose 36% to $407.4 million and beat estimates of $386 million. Tinder, their leading revenue generator, added 368,000 paying members beating estimates for 355,000. The CEO said the new Facebook dating service should have no impact on Match because Tinder was the driving force behind their earnings and Facebook has no equivalent application. Match is entrenched and has a loyal following.
The CEO reiterated those comments on Wednesday. Bank of America reiterated a buy rating with a $46 price target.
Match crashed $13 when Facebook made their announcement a week ago. I believe the worst is over since the stock has not decline any further in a week. The close today was a post crash high.
Earnings August 7th.
Long September $40 call @ $3.70, see portfolio graphic for stop loss.
RHT - Red Hat - Company Profile
No specific news. New high close on Friday but major decline this week on no news.
Original Trade Description: April 11th.
Red Hat, Inc. provides open source software solutions to develop and offer operating system, virtualization, management, middleware, cloud, mobile, and storage technologies to various enterprises worldwide. It offers infrastructure-related solutions, such as Red Hat Enterprise Linux, an operating system platform that runs on hardware for use in hybrid cloud environments; Red Hat Satellite, a system management offering that helps to deploy, scale, and manage in hybrid cloud environments; and Red Hat Enterprise Virtualization, a software solution that allows customers to utilize and manage a common hardware infrastructure to run multiple operating systems and applications. The company offers application development-related and other technology solutions, such as Red Hat JBoss Middleware, a solution for developing, deploying, and managing applications; integrating applications, data, and devices; and automating business processes in hybrid cloud environments; Red Hat cloud offerings, a software solution that enables customers to build and manage various cloud computing environments; Red Hat Mobile, a software development platform that enables customers to develop, integrate, deploy, and manage mobile applications for enterprises; and Red Hat Storage, a software solution that enables customers to manage large, unstructured, or semi-structured data in hybrid cloud environments. It also provides consulting, support, and training services; and real-time operating system, distributed computing, directory services, and user authentication. Red Hat, Inc. has a collaboration with Wipro Limited to set up a cloud application factory that offers developers and IT teams a methodology for application modernization across public, private, and hybrid clouds. The company was formerly known as Red Hat Software, Inc. and changed its name to Red Hat, Inc. in June 1999. Red Hat, Inc. was founded in 1993 and is headquartered in Raleigh, North Carolina. Company description from FinViz.com.
Red Hat saw revenue rise 22.8% to $772.3 million in Q4 to beat estimates of $753 million. Earnings of 91 cents beat estimates by 10 cents. The company raised revenue guidance for Q1 but maintained earnings guidance. BMO raised the target price to $180 and Stifel boosted their price to $172.
Shares broke through strong resistance at $156 on Tuesday to close at a new high but gave back a little in Wednesday's weak market.
Red Hat has a great chart over the last year and now that it is in new high territory, the gains should continue. This is a true growth stock in the tech sector.
Long June $165 call @ $4.70, see portfolio graphic for stop loss.
Optional Short June $175 call @ $2.10, see portfolio graphic for stop loss.
Net debit $2.60.
BEARISH Play Updates (Alpha by Symbol)
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