Editors Note:

The markets continue to creep higher using the two forward, one backward strategy. With the last half of February normally weak, the markets are struggling to maintain forward momentum. The only thing keeping the markets from selling off is the hope for a Chinese trade deal. Economics are mixed and earnings are nearly over. We are approaching the tax sale period where investors liquidate some positions to pay their taxes. When coupled with the post earnings depression cycle, this makes the next several weeks tough for market gains. Not impossible, but normally choppy to down.



Current Portfolio


Stop Loss Updates

Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


Profit Targets

Check the graphic below for any profit stops in green. We need to always be prepared for a profit exit at resistance.





Current Position Changes


STZ - Constellation Brands
The long position was stopped at $169.75.


Full updates on all plays on Wednesday and Saturday. Only closed plays are updated on other days.


BULLISH Play Updates

STZ - Constellation Brands - Company Profile

Comments:

Constellation guided for a 10 cent hit to earnings because of its investment in Canopy Growth and shares imploded on the 21st. The guidance came during a conference presentation. They said the Canopy earnings would grow by 10% annually over the next three years but this quarter would see a hit to earnings. They also said they were going to sell some inexpensive wine brands and concentrate on high end products. Shares fell $12 on the news to stop us out.

Original Trade Description: Feb 6th

Constellation Brands, Inc., together with its subsidiaries, produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. The company sells wine across various categories, including table wine, sparkling wine, and dessert wine. It provides beer primarily under the Corona Extra, Corona Light, Modelo Especial, Modelo Negra, Modelo Chelada, Pacifico, and Victoria brands, as well as Funky Buddha, Obregon Brewery, and Ballast Point brands. The company offers wine under the 7 Moons, Black Box, Clos du Bois, Estancia, Mount Veeder, The Dreaming Tree, Franciscan Estate, Nobilo, The Prisoner, Kim Crawford, Ravage, The Velvet Devil, Kung Fu Girl, Mark West, Meiomi, Robert Mondavi, Ruffino, and Simi brands, as well as Schrader Cellars and Charles Smith brands; and spirits under the Casa Noble, High West, SVEDKA Vodka, Black Velvet Canadian Whisky, Casa Noble Tequila, and High West Whiskey brands. It provides its products to wholesale distributors, retailers, on-premise locations, and state alcohol beverage control agencies. The company was founded in 1945 and is headquartered in Victor, New York. Company description from FinViz.com.

Constellation took a $4.1 billion stake in marijuana company Canopy Growth. Their plan is to market THC infused drinks, snacks, etc, wherever marijuana is legal. That includes all of Canada, multiple US states and more than likely the entire US by the end of this decade. There are multiple countries other than Canada where the plant is legal.

This has significant implications where medical marijuana is legal. Patients who would rather not smoke a joint can drink a beer or other THC infused beverage with the same results. Constellation took a major hit on the announcement because many funds cannot invest in "sin" stocks. Shares fell to a low of $160 in late December with the market crash but are starting to rebound now.

Constellation is a buy just on its regular beverages at this level and the THC drinks are going to add to that valuation in the next couple years.

The company reported earnings of $2.37 that beat estimates for $2.06. Sales rose 9% to $1.97 billion and beat estimates for $1.91 billion. Beer sales rose 16% to $1.21 billion to beat estimates for $1.16 billion. Wine and spirit sales rose 0.4% to $762.8 million and beat estimates for $747.8 million.

For 2019 the company cut guidance from $9.60-$9.75 to $9.20-$9.30. Analysts were expecting $9.43. They said beer sales would still rise 9% to 11% but wine and spirit sales were expected to decline in the low single digit range compared to prior guidance for 2% to 4% growth.

Sales of wine were down but the company said they were going to reduce their low margin products and products under $11 and concentrate on higher dollar wines with higher margins. Once they begin marketing cannabis infused products, the sales are going to explode. Getting those products through research and development is going to take months but investors should be able to anticipate the profits.

The CEO said Canopy was expected to produce $1 billion in revenue over the next 18 months and that was 56% more than analysts expected. As Canopy begins to report these numbers, Constellation will benefit.

Earnings April 10th.

Options are somewhat expensive, and I am recommending April so the earnings expectations will keep the premiums inflated.

If you want to offset some of the premium you can sell a corresponding put. I am recommending a 180/160 combination. If you do not want to sell the put then use the $185 call option.

Position 2/11/19:
Closed 2/20: Long Apr $180 call @ $6.00, exit $4.00, -2.00 loss.
Optional:
Closed 2/20: Short Apr $160 put @ $2.65, exit 3.25, -.60 loss.
Net loss $2.60.


BEARISH Play Updates

No Current Puts