Editors Note:

The major indexes continue to flirt with record highs but lack any momentum. It was a choppy week with multiple sessions of triple digit declines on the Dow. The index recovered to only lose 38 points for the week but it cannot get past critical H&S resistance levels. The S&P closed within a quarter point of a new high but it was a battle with only a 5 point gain for the week.

We lost several positions after I raised the stops last week. The failure to move to new highs is troubling and I did not want to get caught long if the market rolled over.



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


ADSK - Autodesk
The long position was entered at the open on Monday.

NTGR - Netgear
The long position was entered at the open on Monday.

FIVE - Five Below
The long position was stopped at $143.50.

LOW - Lowes Companies
The long position was stopped at $111.65.

NTNX - Nutanix
The long position was stopped at $40.85.

LYFT - Luft Inc
The short position was stopped at $62.35.


BULLISH Play Updates

ADSK - Autodesk - Company Profile

Comments:

No specific news. Shares fell with the market on Wednesday but recovered on Friday.

Original Trade Description: April 27th

Autodesk, Inc. operates as a design software and services company worldwide. The company offers AutoCAD, a professional design, drafting, detailing, and visualization software; AutoCAD Civil 3D, a surveying, design, analysis, and documentation solution for civil engineering, including land development, transportation, and environmental projects; AutoCAD LT, a professional drafting and detailing software; BIM 360, a construction management cloud-based software; computer-aided manufacturing (CAM) software for computer numeric control machining, inspection, and modelling for manufacturing; Fusion 360, a 3D CAD, CAM, and computer-aided engineering tool; and Industry Collections software products for professionals in architecture, engineering and construction, product design and manufacturing, and media and entertainment industries. It also provides Inventor tools for 3D mechanical design, simulation, analysis, tooling, visualization, and documentation; Maya and 3ds Max software products that offer 3D modeling, animation, effects, rendering, and compositing solutions; and PlanGrid, a cloud-based field collaboration software, which provides general contractors, subcontractors, owners, and architects access to construction information in real-time. In addition, the company offers Revit software for building information modeling; and Shotgun, a cloud-based software for review and production tracking in the media and entertainment industry. Autodesk, Inc. sells its products and services to customers directly, as well as through distributors and resellers. The company was founded in 1982 and is headquartered in San Rafael, California. Company description from FinViz.com.

Analysts are positive on Autodesk saying they are well positioned in the growing sector and bookings are strong. Autodesk has around two million legacy users and about 12 million "noncompliant" users, which should be relatively easy to monetize. Noncompliant means they are on previously purchased software that has expired. In order to upgrade they will need to subscribe to the new subscription-based software, which provides ongoing revenue for Autodesk.

Keybanc just gave Autodesk a buy rating and $196 price target.

Earnings May 30th.

Shares have overcome a mid-April market related dip and closed at a new high on Friday but not yet a breakout.

Position 4/29:
Long June $185 call @ $6.50, see portfolio graphic for stop loss.
Optional: Short June $200 call @ $2.35, see portfolio graphic for stop loss. Net debit $4.15.


CSCO - Cisco Systems - Company Profile

Comments:

The bloom is off the Cisco rose. The stock continued to fall after Arista Networks (ANET) warned in their earnings that enterprise spending was slowing, and a large cloud provider had put spending on hold. I added a stop loss, but the May option lost most of its value when Cisco declined for the entire week.

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. Intra week market volatility stopped us out on Wednesday. It was a May call. We needed to exit.

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:
Closed 5/1: Long May $135 call @ $6.00, exit $14.10, +8.10 gain.


LOW - Lowes Companies - Company Profile

Comments:

No specific news. Our tight stop was hit on Monday after the prior week decline continued. Home Depot is also declining.

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:
Closed 4/29: Long June $115 call @ $2.51, exit $2.88, +.37 gain.


NTGR - Netgear Inc - Company Profile

Comments:

No specific news. Shares down slightly on weakness in Arista earnings guidance.

Original Trade Description: April 27th

NETGEAR, Inc. designs, develops, and markets networking and Internet connected products for consumers, businesses, and service providers. It operates in two segments, Connected Home, and Small and Medium Business. The company offers smart home/connected home/broadband access products, such as broadband modems, WiFi gateways, WiFi hotspots, WiFi routers and home WiFi systems, WiFi range extenders, Powerline adapters and bridges, WiFi network adapters, and digital canvasses; and value added service offerings, including technical support, parental controls, and cybersecurity protection. It also provides Ethernet switches, wireless controllers and access points, unified storage products, and Internet security appliances for small and medium-sized businesses. The company markets and sells its products through traditional retailers, online retailers, wholesale distributors, direct market resellers, value-added resellers, and broadband service providers in the Americas, Europe, the Middle-East, Africa, and the Asia Pacific. NETGEAR, Inc. was founded in 1996 and is headquartered in San Jose, California. Company description from FinViz.com.

Netgear reported adjusted earnings of 60 cents that more than doubled the 26 cents in the year ago quarter and beat estimates. Revenue rose only slightly from $245 to $249 million. However, they guided lower for Q2 because of a slight decline in shipments to "service-provider" customers. Gross margins will decline from 9% to 4.5% in Q2.

While that is negative there are positives. They have been very successful in rolling out their Orbi WiFi mesh systems and Nighthawk Gaming products to end users. Their paid subscription services offering now has more than 10.4 million subscribers.

They are also rolling out their new WiFi 6 routers in May to coincide with the launch of smartphones and laptops with the WiFi 6 protocols. Part of their lowered gross margin is additional marketing spend on these new products.

Shares fell nearly $6 on the earnings but I believe the drop was overdone and a rebound will appear to capture the new product cycle.

Earnings July 24th.

Position 4/29:
Long June $32 call @ $1.10, see portfolio graphic for stop loss.


NTNX - Nutanix - Company Profile

Comments:

The Arista comments that a large cloud provider put its spending on hold, rippled through the cloud sector and Nutanix was hit hard. We were stopped out for a minor $6 loss.

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:
Closed 5/2: Long July $42.50 call @ $3.25, exit $3.19, -.06 loss.


BEARISH Play Updates

LYFT - Lyft Inc - Company Profile

Comments:

After hitting a new intraday low the prior Friday, shares rebounded $7 to stop us out this Friday. I find this stranger ahead of the Uber IPO in the coming week but you never know what institutional investors are thinking. We may get another chance to short this in a week or two.

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:
Closed 5/3: Long June $55 put @ $4.21, exit $2.53, -1.68 loss.
Closed 5/3: Short June $45 put @ $1.30, exit .50, +.80 gain.
Net loss 88 cents.