Editors Note:

The S&P and Nasdaq both closed at new record highs on very light volume. The meltup continues despite declines in Intel and Exxon erasing 45 Dow points on earnings disappointments on Friday. There is still no excitement and the mix of good and bad earnings is keeping the market in check. However, slow and steady wins the race and we cannot complain as long as the new highs continue.



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


CSCO - Cisco Systems
The long position was entered at the open on Monday.

INTC - Intel
The long position was closed at the open on Monday.

MSFT - Microsoft
The long position was closed at the open on Tuesday.

SWKS - Skyworks Solutions
The long position was stopped at $88.85 on Monday.


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


BULLISH Play Updates

CSCO - Cisco Systems - Company Profile

Comments:

No specific news on Cisco and shares were negative for the week after Intel lowered guidance. The original play was to hold over earnings on May 15th so I did not put a stop loss on it. There is decent support at $55 even though the uptrend did break.

Original Trade Description: April 19th

Cisco Systems, Inc. designs, manufactures, and sells Internet Protocol (IP) based networking and other products related to the communications and information technology industry worldwide. The company offers switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points, and servers; and next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice, and video applications. It also provides collaboration products comprising unified communications products, conferencing products, collaboration endpoints, and business messaging products; data center products, such as blade and rack servers, series, fabric interconnects, and management software solutions; wireless products consisting of wireless access points, WLAN controllers, cloud and appliances based services, and integrated software services. In addition, the company offers security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, and advisory, integration, and managed services; and other products, such as emerging technologies and other networking products. Further, the company offers a distributed file system for hyperconvergence that enables server-based storage systems; service provider video software and solutions; and technical support services and advanced services. It serves businesses of various sizes, public institutions, governments, and service providers. The company sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California. Company description from FinViz.com.

It appears that everyone is moving to the subscription model for software after the success of companies like Adobe in moving from a sales to a license subscription model. Microsoft Office, Autodesk, even BlackBerry is moving to a subscription model.

Cisco is moving to a subscription model on their highest capacity routers and switches. These devices cost from tens of thousands of dollar to hundreds of thousands. These are Cisco's highest capacity and smartest devices. However you need a masters in device programming to make them work correctly. With cyber security threats growing daily, enterprise users want to be able to stop the majority of the threats at the router level.

Cisco now sells multiyear software as a service (SaS) subscriptions for these top of the line devices. The CEO said the unbilled revenue for SaS subscriptions was their fastest growing revenue line item even though it is not on their books. If someone signs a 3-year service contract, Cisco can only recognize the revenue from the current quarter, and then defers revenue for the rest of the fiscal year. The revenue in future years is not disclosed. Deferred and unbilled revenue was up 28% for the quarter and she said unbilled portion was the largest component.

In late March the company reported earnings of 73 cents that beat estimates for 72 cents. Revenue of $12.45 billion beat estimates for $12.42 billion. They guided for the current quarter for earnings of 76-78 cents on revenue of $12.96-$13.21 billion, a 4-6% increase. Analysts were expecting 76 cents and $12.84 billion. They also raised their dividend 6% to 35 cents and added $15 billion to their stock repurchase program.

Because of the 4.7 billion outstanding shares, the options are inexpensive and we can reach out to 2020 and capture all of the 2019 gains.

Earnings May 15th.

Because of my concerns about a potential decline after new market highs, I want to use a short-term May option that expires just after earnings. When we get to the May 15th earnings we will decide if we want to hold over. The option is cheap enough it might be worth the risk, depending on what the stock does between now and then.

Position 4/22:
Long May $57.50 call @ $1.02, see portfolio graphic for stop loss.


FIVE - Five Below - Company Profile

Comments:

No specific news. Starting to look toppy at $146.50 so I tightened up the stop loss.

Original Trade Description: April 10th

Five Below, Inc. operates as a specialty value retailer in the United States. It offers accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and T-shirts, as well as nail polishes, lip glosses, fragrances, and branded cosmetics; and items used to complete and personalize living space, including glitter lamps, posters, frames, fleece blankets, plush items, pillows, candles, incense, lighting, novelty decor, and related items, as well as provides storage options for the customers room. The company also provides sport balls; team sports merchandise and fitness accessories, such as hand weights, jump ropes, and gym balls; games, including name brand board games, puzzles, collectibles, and toys covering remote control; and pool, beach, and outdoor toys, games, and accessories. In addition, it offers accessories, such as cases, chargers, headphones, and other related items for cell phones, tablets, audio, and computers; books, video games, and DVDs; craft activity kits; arts and crafts supplies that consist of crayons, markers, and stickers; and trend-right items for school comprising backpacks, fashion notebooks and journals, novelty pens and pencils, locker accessories, and everyday name brand items. Further, the company provides party goods, decorations, gag gifts, and greeting cards, as well as every day and special occasion merchandise products; assortment of classic and novelty candy bars, movie-size box candy, seasonal-related candy, and gum and snack food; chilled drinks through coolers; and seasonally-specific items used to celebrate and decorate for events. It primarily serves tween and teen customers. As of February 2, 2019, Five Below, Inc. operated 750 stores. The company was formerly known as Cheap Holdings, Inc. and changed its name to Five Below, Inc. in August 2002. Five Below, Inc. was founded in 2002 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com.

Five Below has 750 stores and is targeting 2,500. Their rapid expansion is the key to their surging 22% rise in revenue. They are not planning on 2,500 in 2019 but that is their goal over the next several years. They opened 125 stores in 2018. Average store volume is $2 million. Same store sales on those open more than a year was +4.4%. This rapid expansion should keep investors attention.

They are projecting 2019 revenue to rise 19.6%-20.9% to $1.865-$1.885 billion with a goal of 145-150 new stores. They are adding three new states and will be operational in 36 states plus DC by year-end.

Their Q4 earnings of $1.59 beat estimates for $1.57. Revenue of $602.7 million narrowly beat estimates for $601.0 million.

Shares spiked $10 after earnings but gave it all back before beginning the current rally. Shares are very close to a breakout over $130.

Update 4/17: Bank of America initiated coverage with a buy rating and $150 price target. It costs $300,000 to open a Five Below store and they generate about $450,000 in operating income in the first 12 months. The cash payback period is just seven months.

Earnings June 26th.

Position 4/11/19:
Long May $135 call @ $6.00, see portfolio graphic for stop loss.


INTC - Intel - Company Profile

Comments:

Intel reported earnings that disappointed the street and shares fell $5 on Friday. Fortunately, we close this position on Monday for a nice gain before the earnings.

Original Trade Description: Feb 16th

Intel Corporation designs, manufactures, and sells computer, networking, data storage, and communication platforms worldwide. The company operates through Client Computing Group, Data Center Group, Internet of Things Group, Non-Volatile Memory Solutions Group, Programmable Solutions Group, and All Other segments. Its platforms are used in notebooks, desktops, and wireless and wired connectivity products; enterprise, cloud, and communication infrastructure market segments; and retail, automotive, industrial, and various other embedded applications. The company offers microprocessors, and system-on-chip and multichip packaging products. It also provides NAND flash memory products primarily used in solid-state drives; and programmable semiconductors and related products for communications, data center, industrial, military, and automotive markets. In addition, the company develops computer vision and machine learning, data analysis, localization, and mapping for advanced driver assistance systems and autonomous driving. It serves original equipment manufacturers, original design manufacturers, industrial and communication equipment manufacturers, and cloud service providers. Intel Corporation has collaboration with Tata Consultancy Services to set up a center for advanced computing that develops solutions in the areas of high performance computing, high performance data analytics, and artificial intelligence. The company was founded in 1968 and is based in Santa Clara, California. Company description from FinViz.com.

In November Intel announced a $15 billion share buyback program. Intel had $4.7 billion remaining under a prior authorization putting them just shy of $20 billion. This represents almost 10% of the outstanding shares. Six years ago, Intel had 6.5 billion shares outstanding. If they complete this buyback program, they will have just over 4 billion shares outstanding.

Intel is poised to profit from the coming 5G revolution. Apple has already said they are going to use Intel's 5G model in their 2020 phones. Intel has participated in more than 25 5G trials with potential partners. In the last quarter Intel said revenue from communications service providers rose 30%. The company said in August it is pursuing the $24 billion communications infrastructure segment of the market and expects to gain significant market share by 2022. Intel is not just a PC and server processor company any more.

Intel reported Q4 earnings of $1.28 that beat estimates for $1.22. However, revenue of $18.66 billion missed estimates for $19.02. Their biggest problem was guidance for Q1 of 87 cents on $16 billion in revenue. Analysts were expecting $1 on $17.29 billion.

Intel is poised to benefit from a trade agreement with China. They currently get 24% of their revenue from China. With the advent of 5G, Intel is poised to be a leading player. They bill themselves as an "end to end" provider. The 5G revolution is not only going to replace nearly every piece of networking gear on the planet, every cellphone owner will be upgrading to a new 5G phone, many with an Intel modem. Remember the old commercials from the 2000's, "Intel Inside?" With Intel's new push into the internet of things (IoT), smartphone communications and self-driving vehicles, they really will be inside most electronic products.

Intel is expected to grow revenue by 5% in 2019. That is better than the sector forecast for 2% growth.

Earnings April 25th.

We have to reach out to the June option cycle to get a strike that comes after earnings and will keep the premiums inflated. We can buy time, but we do not have to use it.

Position 2/19:
Closed 4/22: Long June $55 call @ $1.53, exit $4.25, +2.72 gain.


LOW - Lowes Companies - Company Profile

Comments:

No specific news. The decline is continuing. The stop is very tight.

Original Trade Description: March 30th

Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. It offers a line of products for maintenance, repair, remodeling, and decorating. The company provides home improvement products in various categories, such as lumber and building materials, tools and hardware, appliances, fashion fixtures, rough plumbing and electrical, seasonal and outdoor living, lawn and garden, paint, millwork, flooring, and kitchens, as well as outdoor power equipment. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. The company sells its national brand-name merchandise and private branded products to homeowners, renters, and professional customers. As of November 5, 2018, it operated 2,390 home improvement and hardware stores. The company also sells its products through online sites comprising Lowes.com and Lowesforpros.com; and through mobile applications. Lowe's Companies, Inc. was founded in 1946 and is based in Mooresville, North Carolina. Company description from FinViz.com.

Earnings May 29th.

Lowes is in the midst of a restructuring and the new CEO, Marvin Ellison took over in July. Since then he has closed stores all across the country and hired thousands of IT workers to improve online sales. As a result, Lowes is closing the gap with Home Depot.

In the last quarter the company posted earnings of 80 cents that beat estimates by a penny. Overall revenue rose 1% to $15.65 billion. The slower revenue growth was due to the store closures.

The CEO said the hard work has now been done over the last six months and they are fully prepared for a strong spring and summer selling season. In January alone, same store sales rose 5.8%.

Shares closed at a 6-month high on Friday and appear poised to retest the peak of $117 from September. I am using the June option to retain premium ahead of the May earnings. We will exit before the earnings.

Position 4/1/19:
Long June $115 call @ $2.51, see portfolio graphic for stop loss.


MSFT - Microsoft - Company Profile

Comments:

We closed the Microsoft position ahead of earnings to avoid the potential for an Intel like event. Unfortunately, Microsoft shares spiked higher instead of declining. We still exited with a nice $2.21 gain.

Original Trade Description: March 23rd

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. Its company's Productivity and Business Processes segment offers Office 365 commercial products and services, such as Office, Exchange, SharePoint, Skype for Business, Microsoft Teams, and related Client Access Licenses (CALs); Office 365 consumer services, including Skype, Outlook.com, and OneDrive; LinkedIn online professional network; and Dynamics business solutions comprising financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and medium businesses, large organizations, and divisions of enterprises. The company's Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform; and enterprise services, including premier support and Microsoft consulting services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions, as well as provides training and certification to developers and IT professionals. Its More Personal Computing segment offers Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, and MSN display advertising; devices comprising Surface, PC accessories, and other intelligent devices; Xbox hardware and software and services; and Bing and Bing Ads search advertising. The company markets its products through original equipment manufacturers, distributors, and resellers; and online and Microsoft retail stores. Microsoft Corporation has collaboration with E.ON; strategic alliance with Nielsen Holdings plc and PAREXEL International Corp.; collaboration with NIIT Technologies Ltd.; and a strategic collaboration with Mastercard Incorporated. The company was founded in 1975 and is headquartered in Redmond, Washington. Company description from FinViz.com.

Microsoft is closing in on one billion Windows 10 installations. This is a money printing machine. Their server software, Office 365, SQL Server, Azure cloud service, are all money printers. They are very close to killing the video game market and putting Gamestop out of business by releasing a download only video game console. They are going to put the Xbox in the cloud. This is called Project XCloud. The idea is to be able to play any game on any device at any time without a controller or software CD. This took some of the excitement out of the Google Stadia announcement.

This is a simple recommendation. Shares closed at a new high on Thursday and pulled back to short-term support on Friday. "IF" the market recovers, Microsoft should make new highs again.

Position 3/25/19:
Closed 4/23: Long May $120 call @ $2.99, exit $5.20, +$2.21 gain.


NTNX - Nutanix - Company Profile

Comments:

Still no specific news. Shares stalled the last two days because of some weak earnings in the sector and large market share gains by Microsoft and Amazon.

Original Trade Description: March 13th

Nutanix, Inc., together with its subsidiaries, develops and provides an enterprise cloud platform in North America, Europe, the Asia Pacific, the Middle East, Latin America, and Africa. Its solution addresses a range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications, and big data analytics. The company offers Acropolis, an open platform comprising hyperconvergence, native virtualization, enterprise storage, virtual networking, and platform services; and Prism, an end-to-end consumer-grade management plane providing management and analytics across its software products and services. It also provides Nutanix Calm that offers native application orchestration, automation, and lifecycle management to its enterprise cloud platform. In addition, the company offers Beam, a multi-cloud optimization service; and Frame, a desktop-as-a-service. It serves customers in a range of industries, including automotive, consumer goods, education, energy, financial services, healthcare, manufacturing, media, public sector, retail, technology, and telecommunications, as well as service providers. The company was founded in 2009 and is headquartered in San Jose, California. Company description from FinViz.com.

Nutanix shares were crushed on March 1st after they posted an adjusted loss of 14 cents. Analysts were expecting 25 cents, so this was a beat. Revenue of $335.4 million beat estimates for $331 million. However, billings rose from $355.9 million to $413.4 million. Analysts were expecting $416.5 million and not a big miss.

The problem came from guidance. They guided for the current quarter for a loss of 60 cents on revenue of $290-$300 million and billings of $360-$370 million. Analysts were expecting 28 cents on revenue of $348 million and billings of $430.2 million. That was a major miss.

The CFO said, "The guidance reflects the impact of inadequate marketing spending for pipeline generation and slower than expected sales hiring." "We took a critical look at these areas and have taken actions to address them."

Shares fell $17 to $33 on the news. After a week of sideways consolidation shares have started to move higher. The CFO said they corrected the problem. That may not mean there will be a recovery in the current quarter but there will be a recovery. I am recommending we buy the dip.

The first option cycle out of the 30-day premium depreciation window is July. We can buy time, but we do not have to use it.

Position 3/14/19:
Long July $42.50 call @ $3.25, see portfolio graphic for stop loss.


SWKS - Skyworks - Company Profile

Comments:

No specific news but the Macquarie downgrade from last week continued to depress the stock. We were stopped out on Monday.

Original Trade Description: April 6th

Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, antenna tuners, attenuators, circulators/isolators, DC/DC converters, demodulators, detectors, diodes, directional couplers, diversity receive modules, filters, front-end modules, hybrids, LED drivers, low noise amplifiers, mixers, modulators, optocouplers/optoisolators, phase locked loops, phase shifters, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for use in the aerospace, automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable markets. It sells its products through direct sales force, electronic component distributors, and independent sales representatives. Skyworks Solutions, Inc. has a collaboration agreement with MediaTek Incorporated to deliver standards-based 5G solution. The company was founded in 1962 and is headquartered in Woburn, Massachusetts. Company description from FinViz.com.

The chip sector has rallied 38% in 2019 compared to 23% for the S&P. However, some chip stocks have not participated. Skyworks spiked to $85 after its earnings in February then traded sideways until last week. Friday's close was a 5-month high and a breakout of the recent range.

They reported earnings of $1.83 that missed estimates for $1.84. Revenue of $972 million missed estimates for $973 million. The generated a record $549 million in free cash flow from operations and ended the quarter with more than $1 billion in cash. Obviously, those misses were minor, and shares spiked on their strong guidance. They guided for Q2 for earnings of $1.43 and revenue of $800-$820 million. Q1/Q2 are normally light quarters for chip stocks because the surge in smartphone building occurs in Q3/Q4.

They also announced a $2 billion stock buyback program that replaced their expiring $1 billion program that had $129 million left to spend. They also announced a quarterly dividend of 38 cents that was paid on March 19th.

Skyworks will be a major beneficiary of the 5G rollout. They have already installed 5G base stations all across Europe and have secured contracts with multiple vendors for 5G chips. They are also a major supplier for Apple and Samsung and those new phones will begin hitting the market in August.

Earnings May 7th.

I am using a short-term May option because we will exit before the May earnings.

Update 4/17: Macquarie downgraded Skyworks from buy to hold because of the Apple deal with Qualcomm. The analyst said Qualcomm has some chips they could supply to apple that could produce price pressures for Skyworks, which gets 50% of its revenue from Apple.

Position 4/8/19:
Closed 4/22: Long May $90 call @ $2.60, exit $3.44, +.84 gain.


BEARISH Play Updates

LYFT - Lyft Inc - Company Profile

Comments:

With the Uber IPO price coming in well below expectations, the future looks grim for LYFT shares.

Original Trade Description: April 13th

Lyft, Inc. operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada. It provides Ridesharing Marketplace, which facilitates lead generation, billing and settlement, support, and related activities to enable drivers to provide their transportation services to riders. The company also offers a network of shared bikes and scooters in various cities to address the needs of riders for shorter routes; Express Drive program, a flexible car rentals program which connects drivers who need access to a car with third-party rental car companies; and concierge for organizations to manage the transportation needs of their customers and employees. In addition, it integrates third-party public transit data into the Lyft app to offer various enterprise programs, including monthly ride credits for daily commutes, supplementing public transit by providing rides for the first and last leg of commute trips, late-night rides home, and shuttle replacement rides. The company was formerly known as Zimride, Inc. and changed its name to Lyft, Inc. in 2013. Lyft, Inc. was incorporated in 2007 and is headquartered in San Francisco, California. Company description from FinViz.com.

Analysts are perplexed at the valuations for rid sharing companies. The drivers are free agents and the customer is a free agent. As one analyst said, "there is no stickiness in the business." Lyft managed to pump up its revenue over the last quarter because they were giving huge discounts to lure customers away from Uber ahead of the Lyft IPO. Offers like "50% off your next ten rides" were common. Lyft said it took market share from Uber in Q1 but they did not tell you it was because they were giving away highly discounted rides.

This is going to be a cutthroat business. I know several drivers that drive for both Uber and Lyft and several have said they have picked up the same people on both services. It is whoever is closest and which ride will be the cheapest. With multiple competitors gearing up to enter the space the cost per ride is going to decline along with the payments to the drivers.

This space is going to be a cat fight for the next couple of years while each of these companies tries to claw their way to profitability.

With the Uber IPO now announced and Uber being a much larger and much more integrated company, they are going to be the assumed winner in the months ahead. Anyone investing in this space is going to want to be in Uber and not Lyft. You want to go with the winner and not the underdog that is losing money on every ride.

In the Uber S1 they warned that they may never reach profitability. Lyft lost $900 million in 2019 and the cash burn is continuing. If Uber cannot be profitable with their multifaceted global business, how is Lyft going to be profitable offering only the cheapest rides available?

I believe Lyft shares are going to trade well under $50 in the coming months. I could be sorely mistaken but that is what I expect. When Uber begins trading, I expect Lyft to decline even further.

Wide stops because of expected volatility.

Position 4/15/19:
Long June $55 put @ $4.21, see portfolio graphic for stop loss.
Short June $45 put @ $1.30, see portfolio graphic for stop loss.
Net debit $3.10.