There have been three major tech sell offs in the last three months. Each of the prior two was a buying opportunity.
The declines on March 21st and May 17th were one-day wonders. The Nasdaq 100 Index lost -143 points and -173 points respectively. On Friday the index was down -228 points intraday and rebounded to lose -143. On both prior declines there was a continued drop at the open the following day but the market rebounded immediately after the margin call selling was over. Today, there was a sharp drop at the open of another -108 points and there was a rebound but it did not make it back to positive territory. The NDX ended with a 33-point loss.
Personally I think recovering from a 108 point decline to end with only a 33 point loss is encouraging. I would like to have seen the indexes rebound into positive territory but it was not to be.
All of the charts were identical whether index or individual stocks. The NDX has fallen -265 points from Friday's high of 5,898 to Monday's low of 5,633. That is a -4.5% decline. A typical bout of Nasdaq profit taking is about 5% to 7%. That put us at that threshold at today's lows. With the strong earnings and optimistic economic outlook, it would be hard to build a case for a much steeper decline. You could always claim valuations but Apple is trading at a PE of 16 and a third of their market cap is cash. Obviously the rest of the FAANG stocks are trading at significantly higher multiples but they are also growing like weeds.
I wrote over the weekend that in order to be safe moving back into the market we should wait until the NDX was safely back over the 5,750 level and moving higher on strong volume. That did not happen today.
I also warned that a move under 5,715 would be troubling and a reason to exercise caution on new entries. The NDX gapped well below that level at the open and failed to rebound above it on Monday. Now it is even more important that we wait for the move back over 5,750 before making multiple entries.
The dip to 5,633 today was right to uptrend support so there is a good reason for expecting the Nasdaq to rebound. However, the oscillating indicators are negative but they are very unreliable in volatile markets. They are best suited for trending markets.
The Dow closed at a new high on Friday and held its gains on Monday despite a monster loss on Apple, McDonalds and UnitedHealth. This is market positive. As long as the Dow can hold over 21,130 the rally should continue.
The S&P traded in a relatively narrow 10-point range and closed at the highs with a loss of 2 points. The S&P, like the Dow, is refusing to decline despite the major losses in big cap tech stocks. Support remains 2,420 and resistance 2,440.
The Russell 2000 closed at a new high on Friday when the Nasdaq was imploding. The Russell only gave back 2 points today so that should be considered somewhat bullish. This is even more surprising since the rebalance should have been weighing on the index today.
The earnings calendar has run dry. There are no earnings of significance this week. At least there are no reports that are expected to move the market.
The economic calendar is headlined by the Fed meeting on Wednesday. This is somewhat positive since there is a strong trend for the market to be positive the day before a Fed meeting. At the last meeting in May, the trend failed, but that was a rare exception.
Despite the negative indexes on Monday, the markets did close well off their lows. The futures are positive and the Fed trend is in our favor. However, and you knew there would be a fly in the soup, PBS ran a story tonight saying President Trump was thinking about firing Special Counsel Robert Mueller. He is the one tasked with investigating the Russian collusion matter. If Trump were to fire him, it would suggest one more attempt at a cover up and the market could decline significantly. If Mueller is fired, Congress would immediately appoint a new counsel, possibly even Mueller, and there would be an even stronger attempt to find something to pin on the Trump administration. This could really tank the market. The futures are ignoring the story so hopefully there is no substance.
Enter passively, exit aggressively.
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NEW DIRECTIONAL CALL PLAY
RH - RH Inc - Company Profile
RH, together with its subsidiaries, operates as a retailer in the home furnishings market. The company offers products in various categories, including furniture, lighting, textiles, bathware, decor, outdoor and garden, tableware, and child and teen furnishings. It provides its products through its retail galleries and Source Books, as well as online through rh.com, rhmodern.com, restorationhardware.com, rhbabyandchild.com, rhteen.com, and waterworks.com Websites. As of January 28, 2017, the company operated 85 retail galleries, including 50 legacy galleries, 6 larger format design galleries, 8 next generation design galleries, 1 RH modern gallery, and 5 RH baby and child galleries in the United States and Canada; 15 Waterworks showrooms in the United States and the United Kingdom; and 28 outlet stores. The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. Company description from FinViz.com
RH reported earnings of 5 cents that beat estimates for 4 cents. Revenue of $562.1 million beat estimates for $560.4 million. So far, so good. However, they guided for Q2 earnings of 38-43 cents and analysts were expecting 53-75 cents. No, that is not a misprint.
The company said it was ditching its prior merchandising model and switching to a membership model in order to make the company Amazon proof and enhance the customer experience. They are moving away from the highly promotional retail experience with constant sales and discounts and moving to a membership model where the focus will be on the customer experience. "Members" will pay $100 a year for the ability to shop in a high quality store where they will find only high quality merchandise.
Shares crashed 26% to $42 on the guidance but the rebound has been amazing. Apparently investors like the concept and the idea of a "Costco" model but in high quality products.
Earnings August 31st.
Buy August $55 call, currently $2.70, initial stop loss $44.85.
FB - Facebook - Company Profile
Facebook, Inc. provides various products to connect and share through mobile devices, personal computers, and other surfaces worldwide. Its solutions include Facebook Website and mobile application that enables people to connect, share, discover, and communicate each other on mobile devices and personal computers; Instagram, a mobile application that enables people to take photos or videos, customize them with filter effects, and share them with friends and followers in a photo feed or send them directly to friends; Messenger, a messaging application to communicate with people and businesses across platforms and devices; and WhatsApp Messenger, a mobile messaging application. The company also offers Oculus virtual reality technology and content platform, which allow people to enter an immersive and interactive environment to play games, consume content, and connect with others. Company description from FinViz.com.
Facebook also blew away earnings estimates and they are growing earnings at the fastest rate of any of the FAANG stocks. They have multiple revenue streams and sites like Instagram and WhatsApp that are just starting to accelerate earnings. They said Instagram had reached 50,000 advertisers. Facebook's problem is they do not have enough page views to monetize despite the 1.9 billion users. They have more advertisers than they have space.
Earnings August 2nd.
Facebook was setting new highs last week until Friday's flash crash. The two day decline knocked the stock back from $155.50 to $144.50, and exactly to support from the May 17th bottom. This "should" be the perfect spot to open a new position on FB. The two day decline has deflated the option premiums and once the tech sector begins to rebound, the FAANG stocks should be leaders again because of their earnings growth rates.
Buy Aug $155 call, currently $3.85, initial stop loss $143.25.
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Check the graphic below for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline. Any items shaded in blue were previously closed.
Current Position Changes
BABA - Alibaba
The long call position was entered at the open on Tuesday.
ATVI - Activision
The long call position was stopped at $56.85 on Monday. RELOAD
DIS - Disney
The long call position was stopped at $105.50.
CGNX - Cognex
The long call position was stopped at $90.25. RELOAD
LIT - Lithium ETF
The long call position was closed at the open on Tuesday.
SMH - Semiconductor ETF
The long call position was stopped at $85.50. RELOAD
Original Play Recommendations (Alpha by Symbol)
ATVI - Activision Blizzard - Company Profile
No specific news. We lost the ATVI position thanks to the tech wreck. The nearly $6 decline was too much. I am recommending we reload the position with a trade at $57.50. There was no news directly related to ATVI that caused the drop. It was simply a flash crash in the tech sector.
RELOAD: With an ATVI trade at $57.50, buy Aug $60 call, currently $2.15.
Original Trade Description: May 15th.
Activision Blizzard, Inc. develops and publishes online, personal computer (PC), video game console, handheld, mobile, and tablet games. The company operates through two segments, Activision Publishing, Inc. and Blizzard Entertainment, Inc. The company develops, publishes, and sells interactive software products and content through retail channels or digital downloads; and downloadable content to a range of gamers. It also publishes subscription-based massively multiplayer online role-playing games; and strategy and role-playing games. In addition, the company maintains a proprietary online gaming service, Battle.net that facilitates the creation of user generated content, digital distribution, and online social connectivity in its games. Further, it engages in creating original film and television content; and provides warehousing, logistical, and sales distribution services to third-party publishers of interactive entertainment software, as well as manufacturers of interactive entertainment hardware products. The company serves retailers and distributors, including mass-market retailers, consumer electronics stores, discount warehouses, game specialty stores, and consumers through third-party distribution, licensing arrangements, and direct digital purchases in the United States, Canada, Canada, the United Kingdom, France, Germany, Ireland, Italy, Sweden, Spain, the Netherlands, Australia, South Korea, China, and internationally. Company description from FinViz.com
Activision reported Q1 earnings of 56 cents, up 17%. Sales rose 19% to $1.73 billion. Activision had originally guided for 25 cents and $1.55 billion. Analysts were expecting 22 cents and $1.1 billion so it was a major blowout. For the full year they raised guidance to 88 cents and $6.1 billion, up from 72 cents and $6.0 billion.
Blizzards's monthly active users rose to 431 million. King Digital has 342 million active users. The new Overwatch game was the fastest Blizzard title to hit 25 million registered players and now has more than 30 million. Revenues from in game purchases rose 25% driven by World of Warcraft and Overwatch customization features.
Earnings August 3rd.
We just exited a profitable position on ATVI last week in order to avoid any potential earnings disappointment. Hindsight is 20:20 as shares continued to move higher. With the strong earnings and raised guidance, Activision should continue higher. Options are ridiculously cheap.
Closed 6/12/17: Long August $60 call @ $1.69, exit $2.15, +.46 gain.
RELOAD: With an ATVI trade at $57.50, buy Aug $60 call, currently $2.15.
BABA - Alibaba - Company Profile
Perfect timing on the Alibaba entry. The stock rocketed higher ahead of the analyst day and has held its gains despite the tech crash. The company guided for revenue growth of 45-49% in the current fiscal year and that was well above analyst estimates for 37% growth. MKM partners raised the price target to $177. Pacific Crest raised their price target to $160 from $137. Needham raised their target to $155. The Benchmark Company is targeting $175.
Original Trade Description: May 29th.
Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. Company description from FinViz.com
Alibaba is the poor investor's Amazon. With shares at $125, the options are at least reasonable but not cheap. Alibaba is growing as fast or faster than Amazon and tries to copy everything Amazon does.
When the company reported earnings for the last quarter at 63 cents, they missed estimates for 68 cents. Revenue of $5.6 billion easily beat estimates for $5.2 billion. Other than the earnings miss it was a solid quarter with ecommerce up 47% and cloud computing up 102%. Digital media growth was up 234%. Mobile MAUs rose from 493 to 507 million. That is important because 90% of China's ecommerce occurs on a mobile device.
The company announced plans to buy back $6 billion in stock over a two-year period.
Earnings August 18th.
Shares dipped on the earnings miss then spiked on the guidance to $125.50, which was a new high. After a little more than two weeks of post earnings consolidation, shares have returned to that $125.50 level and closed at a new high on Monday.
There is an analyst day on Thursday and that could power the stock higher or lower so be warned. However, Jack Ma is an expert at giving only positive guidance so the outcome should be positive.
Long August $130 call @ $4.10, see portfolio graphic for stop loss.
Short August $140 call @ $1.69, see portfolio graphic for stop loss.
Net debit $2.41
CGNX - Cognex - Company Profile
No specific news. Shares fell from $98 to $87 in the tech wreck to stop us out. I am recommending we reload this position with a CGNX trade at $90.75. The crash deflated the option positions and we can reload with just the long call.
RELOAD: With a CGNX trade at $90.75, buy Aug $95 call, currently $3.60.
Original Trade Description: May 22nd.
Cognex Corporation provides machine vision products that capture and analyze visual information in order to automate tasks primarily in manufacturing processes worldwide. The company offers machine vision products, which are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. Its products include VisionPro, a software suite that provides various vision tools for programming; displacement sensors with vision software for use in 3D application; In-Sight vision systems that perform various vision tasks, including part location, identification, measurement, assembly verification, and robotic guidance; In-Sight vision sensors; ID products, which are used for reading codes that are applied on discrete items during the manufacturing process, as well as have applications in logistics automation for package sorting and distribution; DataMan barcode readers; barcode verifiers; vision-enabled mobile terminals for industrial barcode reading applications; and barcode scanning software development kits. The company sells its products through direct sales force, as well as through a network of distributors and integrators. Company description from FinViz.com
Cognex reported earnings of 42 cents that rose 200% and beat estimates for 28 cents. Revenue of $134.9 million rose 40% and beat estimates for $123.8 million. They guided for revenue of $165-$170 million for the current quarter and analysts were expecting $173.9 million. Shares did not decline because of the record earnings and their normally conservative guidance. Operating margins rose from 17% to 28%.
The company said the machine automation for the manufacturing sector was growing very strongly and accelerating. Revenue from that segment rose in the "mid-teens" percentages and their automotive business grew 20%.
In the San Francisco gold rush the people that made the most money were the ones that sold picks, shovels and wheelbarrows. Cognex is in the business of selling business tools that help businesses run better, cheaper and faster.
Earnings July 31st.
Shares dilled $5 in the market crash and have already rebounded to close at a new high on Monday. This should continue assuming the market cooperates.
Because of the stock price in relation to the strike price this needs to be a spread to produce the best results.
Closed 6/12/17: Long Aug $95 call @ $6.17, exit $3.30, -2.87 loss.
Closed 6/12/17: Short Aug $105 call @ $2.67, exit $1.10, +1.57 gain.
Net loss 1.30.
RELOAD: With a CGNX trade at $90.75, buy Aug $95 call, currently $3.60.
COMM - Commscope Holdings - Company Profile
No specific news. New 5-week high on Thursday with only a minor decline in the tech crash.
Original Trade Description: May 8th.
CommScope Holding Company, Inc. provides infrastructure solutions for communications networks worldwide. The company's CommScope Connectivity Solutions segment offers optical fiber and twisted pair structured cable solutions, intelligent infrastructure software, and network rack and cabinet enclosures under the SYSTIMAX, AMP NETCONNECT, and Uniprise brands; and fiber management systems, patch cords and panels, complete cabling systems, and cable assemblies for use in offices and data centers. This segment also provides fiber optic connectivity solutions, including hardened connector systems, fiber distribution hubs and management systems, couplers and splitters, plug and play multiport service terminals, hardened optical terminating enclosures, high density cable assemblies, splices, and splice closures that supports video, voice, and high-speed data services provided by telecommunications operators and multi-system operators. Its CommScope Mobility Solutions segment offers macro cell site solutions for wireless tower sites and on rooftops, such as base station antennas, microwave antennas, hybrid fiber-feeder and power cables, coaxial cables, connectors, and filters; metro cell solutions for outdoors on street poles and on other urban structures comprising radio frequency delivery and connectivity solutions, equipment housing, and concealment; and small cell and distributed antenna system (DAS) solutions consisting of DAS and distributed cell solutions that allow wireless operators to enhance efficiency, and cellular coverage and capacity in network conditions. This segment provides its solutions under the Andrew brand. CommScope Holding Company, Inc. sells its products through a network of distributors, system integrators, and resellers. The company was formerly known as Cedar I Holding Company, Inc. Company description from FinViz.com
Commscope reported earnings of 52 cents compared to estimates for 53 cents. Revenue of $1.14 billion matched street estimates. They guided for the current quarter for earnings of 62-67 cents and revenue from $1.20 to $1.25 billion. Full year earnings are expected to be $2.70-$2.80 with revenue $4.85-$4.95 billion.
The earnings were ok, the guidance was a killer. Analysts were expecting $2.95 and $5.1 billion. Shares fell from $41 to $33. Management blamed the miss on "more cautious spending patterns" at North American telecom customers. They are also experiencing some merger pains from their 2015 acquisition of TE Connectivity, which they said they were addressing aggressively. The TE products were lower margin products.
Despite the negativity, telecom spending is expected to pickup in the second half of the year.
Earnings August 3rd.
Shares are already rebounding and I believe this is a buying opportunity on a previously strong chart. If I am wrong the option is cheap and we do not have much at risk.
Long August $38 calls @ $1.25, see portfolio graphic for stop loss.
DIS - Walt Disney Co - Company Profile
Disney shares continued to decline on the success of Marvel's Wonder Woman. We were stopped out last Tuesday morning at $105.50.
Original Trade Description: May 29th.
The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company's Media Networks segment operates cable programming services, including the ESPN, Disney channels, and Freeform networks; broadcast businesses, which include the ABC TV Network and eight owned television stations; radio businesses consisting of the ESPN Radio Network; and the Radio Disney network. It also produces and sells original live-action and animated television programming to first-run syndication and other television markets, as well as subscription video on demand services and in home entertainment formats, such as DVD, Blu-Ray, and iTunes. Its Parks and Resorts segment owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. This segment also operates Disney Resort & Spa in Hawaii, Disney Vacation Club, Disney Cruise Line, and Adventures by Disney; and manages Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort, as well as licenses its intellectual property to a third party for the operations of the Tokyo Disney Resort in Japan. The company's Studio Entertainment segment produces and acquires live-action and animated motion pictures for distribution in the theatrical, home entertainment, and television markets primarily under the Walt Disney Pictures, Pixar, Marvel, Lucasfilm, and Touchstone banners. This segment also produces stage plays and musical recordings; licenses and produces live entertainment events; and provides visual and audio effects, and other post-production services. Its Consumer Products & Interactive Media segment licenses its trade names, characters, and visual and literary properties; develops and publishes games for mobile platforms; and sells its products through The Disney Store, DisneyStore.com, and MarvelStore.com, as well as directly to retailers. Company description from FinViz.com
There have been hundreds of headlines about Disney and their future since the earnings in early May. The stock fell from the $116 high to $105 on May 17th when the market sold off. That appears to have been the end of the Disney decline. Shares are now honoring support at $107 and starting to move higher.
The fifth edition of Pirates of the Caribbean opened poorly this weekend but is still on track for $77 million for the holiday weekend and should gross $600 to $800 million globally.
Disney is opening the World of Avatar at Walt Disney World after a $500 million investment. They are also opening Toy Story Land and they have two new cruise ships under construction. Credit Suisse believes Disney's theme park revenue could triple to $2.7 billion. That would put to rest fears over cord cutting at ESPN. The analysts believes the theme park revenue growth is mostly overlooked by investors.
Earnings are August 8th.
I believe the worst is over for Disney and they will likely retest their recent highs. This is a cash generating monster and while the stock moves slowly, it is also relatively low volatility except for the period right after earnings.
Closed 6/6/17: Long Aug $110 call @ $2.39, exit $1.19, -1.20 loss.
FMC - FMC Corp - Company Profile
No specific news. Shares closed at a new high on Friday.
Original Trade Description: April 17th.
FMC Corporation, a diversified chemical company, provides solutions, applications, and products for the agricultural, consumer, and industrial markets worldwide. The company operates through three segments: FMC Agricultural Solutions, FMC Health and Nutrition, and FMC Lithium. The FMC Agricultural Solutions segment develops, manufactures, and sells crop protection chemicals, such as insecticides, herbicides, and fungicides that are used in agriculture to enhance crop yield and by controlling a range of insects, weeds, and diseases, as well as in non-agricultural markets for pest control. The FMC Health and Nutrition segment offers microcrystalline cellulose for use in drug dry tablet binders and disintegrants, and food ingredients; carrageenan for use in food ingredients for thickening and stabilizing, pharmaceutical, and nutraceutical encapsulates; alginates for food ingredients, pharmaceutical excipients, healthcare, and industrial uses; natural colorants for use in foods, pharmaceutical, and cosmetics; and omega-3 EPA/DHA for nutraceutical and pharmaceutical uses. The FMC Lithium segment offers lithium for use in batteries, polymers, pharmaceuticals, greases and lubricants, glass and ceramics, and other industrial uses. FMC Corporation was founded in 1884 and is headquartered in Philadelphia, Pennsylvania. Company description from FinViz.com
FMC has been around forever as in 123 years. However, last month it entered a new phase of its life. DuPont is (DD) merging with Dow Chemical (DOW) and the EU is forcing them to divest DuPont's crop protection business in order to gain approval of the merger.
On March 31st, the companies announced that FMC will acquire DuPont's crop protection business and overnight become the fifth largest in the world. Secondly, FMC will sell its health and nutrition business to DuPont. This is a low margin, low growth business that FMC is glad to be selling. FMC will pay DuPont $1.2 billion in cash.
The transactions will be immediately accretive to FMC upon closing. FMC expects revenue from the acquired business of $1.5 billion in 2017 and $475 million in EBITDA. Total annual revenue will be $3.8 billion. The combination of the DuPont crop business with the R&D capabilities of FMC it will catapult FMC into an entirely new range of capabilities. The company will acquire multiple major brands of pesticide and herbicides. It will also expand the reach of FMC around the world where there was little market penetration in the past. FMC is gaining a global manufacturing network of four active ingredient manufacturing facilities and 10 regional formulation plants.
In one transaction FMC dumped its underperforming health business and gained a crop protection business equal or greater than its own and cleaned up their balance sheet at the same time.
Earnings are May 2nd. There is no way to play this without holding over that earnings report. With all the good news breaking out about the transaction, the earnings will be another podium to brag about their good fortune.
Update 5/8/17: FMC reported earnings of 43 cents that missed estimates for 56 cents. Revenue of $596 million missed estimates for $742 million. However, those included some discontinued operations that reduced earnings by 21 cents and revenue by $177 million. When adding those back in they beat on both numbers. Shares dipped on the initial report but rebounded once the details were known. The acquisition of the Dow assets is expected to close in Q4.
Long July $77.50 call @ $2.54, see portfolio graphic for stop loss.
GDDY - GoDaddy - Company Profile
No specific news. Shares closed at a new high on Thursday and then crashed back to $40.50 intraday on Monday in the tech decline.
Original Trade Description: May 29th.
GoDaddy Inc. designs and develops cloud-based technology products for small businesses, Web design professionals, and individuals in the United States and internationally. It provides domain name registration product that enables to engage customers at the initial stage of establishing a digital identity; hosting and presence products, such as shared Website hosting, Website hosting on virtual dedicated servers and dedicated servers, managed hosting, and security. The company also offers Website builder, an online tool that enables customers to build Websites; online store product that allows customers to create their own standalone Website with an integrated online store optimized for mobile shopping; and search engine visibility product that helps customers get their Websites found on search sites through search engine optimization. In addition, the company offers business application products, including Microsoft Office 365, email accounts, email marketing, and telephony services. Company description from FinViz.com
GoDaddy reported earnings of a penny that beat estimates for a loss of 4 cents. Revenue of $489.7 million beat estimates for $487.8 million. They guided for the current quarter for revenue in the range of $548-$553 million. Full year guidance was $2.19-$2.23 billion. The three-year-old company is growing and turning profitable.
Earnings August 1st.
On May 8th, they announced a secondary of 24 million shares held by original investors with an offering price of $38.50. The company also said it was buying back $275 million of its own limited liability units from those initial shareholders along with an equal number of class B shares at the offering price.
Shares were trading at a high of $40.39 the day before the market crash on May 17th. The drop knocked them back to $38.34. The rebound was immediate and shares closed at $42 on Friday.
There is a persistent rumor that GoDaddy is looking for an acquisition partner. It would seem to me if that was the case, those initial shareholders including KKR and Silver Lake Partners would not have sold their shares. However, it has been a rocky road since the company went public at $25 in 2015. It is possible their continued involvement was hindering the search for an acquirer. Many bidders would have questioned why GoDaddy was looking for a SugarDaddy with those deep pockets already invested.
Those investors are now gone and the market sucked up those 24 million shares without even blinking. The stock is rising sharply in a bullish market for tech stocks. This may be their time in the spotlight.
Options are cheap so I am willing to take a chance on continued good fortune.
Long August $44 call @ $1.45, see portfolio graphic for stop loss.
HAIN - Hain Celestial - Company Profile
No specific news. Hain failed to file their reports by the end of May and their lenders have given them a drop dead date of June 15th or they will be in default. They have $780 million in loans covered by that extension. The Nasdaq has given them until June 15th or be delisted. Hain said they fully intend to have all earnings through the March 31st quarter, filed by the June 15th date.
Original Trade Description: March 20th
The Hain Celestial Group, Inc. manufactures, markets, distributes, and sells organic and natural products in the United States, the United Kingdom, Canada, and Europe. Its grocery products include infant formula; infant, toddler, and kids foods; diapers and wipes; rice and grain-based products; flour and baking mixes; breads, hot and cold cereals, pasta, condiments, cooking and culinary oils, granolas, granola bars, and cereal bars; canned, chilled fresh, aseptic, and instant soups; Greek-style yogurt; chilies and packaged grains; and chocolates and nut butters, as well as plant-based beverages and frozen desserts, such as soy, rice, almond, and coconut. The company's grocery products also comprise juices, hot-eating, chilled and frozen desserts, cookies, crackers, gluten-free frozen entrees and bars, frozen pastas and ethnic meals, frozen fruits and vegetables, cut fresh fruits, refrigerated and frozen soy protein meat-alternative products, tofu, seitan and tempeh products, jams, fruit spreads and jelly, honey, marmalade, and other food products. In addition, it provides snack products, such as potato, root vegetable, and other vegetable chips, as well as straws, tortilla chips, whole grain chips, pita chips, puffs, and popcorn; specialty teas, including herbal, green, black, wellness, rooibos, and chai tea lattes; ready-to-drink beverages comprising organic kombucha and chai tea lattes; personal care products consisting of skin, hair and oral care, deodorants, baby care items, acne treatment, body washes, and sunscreens; and poultry and protein products, such as turkey and chicken products. The company sells its products through specialty and natural food distributors, supermarkets, natural food stores, mass-market and e-commerce retailers, food service channels and club, and drug and convenience stores in approximately 70 countries worldwide.
Company description from FinViz.com
We played Hain before back in the fall. Basically, they have not filed their quarterly reports since last May because of a review of accounting procedures. They have suffered over the last year and have reportedly spent $20 million in the complete accounting review for years past and a review of their procedures. They are facing class action suits and SEC probes but none of these things will have a lasting impact.
They are facing a new deadline of May for their reports or they will be in default with their lenders. While they will not say when they will file the back reports, they continue to assure investors there was no wrongdoing and these types of corporate autopsies for prior years take time.
They are so undervalued compared to their peers and their historical norms, it is silly not to have a long position. Once they file the reports this will all be behind them.
I am recommending we buy the August $40 call and forget about it. At $2 it is not a lot of money and they could quickly return to the $50s once they file the reports.
Long Aug $40 call @ $1.97, see portfolio graphic for stop loss.
LIT - Lithium ETF - Company Profile
No specific news. When shares stalled the prior week I recommended we exit the position at the open on Tuesday. Shares continued to hold at resistance until they fell with the tech stocks. The exit decision was the right one.
Original Trade Description: April 17th.
The investment seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Solactive Global Lithium Index. The fund invests at least 80% of its total assets in the securities of the underlying index and in American Depositary Receipts ("ADRs") and Global Depositary Receipts ("GDRs") based on the securities in the underlying index. The underlying index is designed to measure broad-based equity market performance of global companies involved in the lithium industry. The fund is non-diversified. Company description from FinViz.com
Lithium-Ion batteries are becoming the fuel of the future. We are right on the edge of an explosion in demand for lithium. Tesla is only making 100,000 cars per year today but by the end of 2018 they expect to be making up to 500,000 cars. They are only one of the manufacturers making electric vehicles. Others are right on the verge of their own surge in manufacturing.
Tesla also makes the batteries for the Solar City energy storage units and the Tesla storage batteries for residential, commercial and industrial use. This barely even scratched the surface of lithium demand two years ago. Add to that nearly 2 billion cell phones and tablets and suddenly there is a surge in lithium demand that is not going to stop.
Tesla's Gigafactory is so big that it will double the entire planet's battery making capacity. Elon Musk is now saying he may need up to four additional Gigafactories to keep up with demand as he builds hundreds of thousands of electric cars per year plus the solar storage demand for mass scale utility companies, businesses, residential, etc.
The demand for lithium could rise by 1,000% over the next several years. Companies are racing to find new supplies of the raw material and contract it before the prices explode out of sight.
Rather than buying one company that maybe has one mine or one division to produce lithium there is now an ETF for that purpose. It has options but the prices are crazy if you can even find them listed. Most quote locations just list zero for the bid/ask.
The ETF is relatively inexpensive dollar wise given the coming surge in lithium demand and prices. This may be as close as we can get to the ground floor since the odds of it moving lower are almost zero.
Closed 6/6/17: Long LIT shares @ $28.20. exit $29.82, +1.62 gain.
SMH - Semiconductor Index - ETF Profile
The chip rally finally cracked and the semiconductor ETF collapsed to erase a month of gains. We were stopped out for a nice gain at $85.50. I am recommending we reload this position. Chips lead the Nasdaq and I don't see chip companies making a lot of earnings warnings. I am going to use a different strike on the reload.
RELOAD: Buy Aug $88 call, currently $2.00.
Original Trade Description: May 8th.
VanEck Vectors Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.
The top five components are TSM 12.9%, INTC 11.4%, QCOM 5.7%, AMAT 5.34% and NVDA 5%. The rest of the components are the top names in the business.
The ETF has had a good year with a $30 gain since last June. However, electronics are the fastest selling consumer items and sales are increasing every month. The chip sector is the leading edge of the tech sector. With the iPhone 8 coming along with the 5G revolution beginning, the chip stocks are going to continue rising.
Nvidia reports earnings on Tuesday after the close and that could lift the SMH.
The ETF paused on April 28th and has been moving slowly sideways with a minor upward bias. This corresponds with flat markets over the last two weeks. If the markets are going to break through current resistance levels the SMH should power higher as well. The semiconductor index always leads the Nasdaq but up and down.
Closed 6/9/17: Long Aug $82 call @ $2.40, exit $5.50, +$3.10 gain.
RELOAD: Buy Aug $88 call, currently $2.00.
SWKS - Skyworks Solutions - Company Profile
No specific news. Perfect retracement right back to support.
Original Trade Description: May 1st.
Skyworks Solutions, Inc., together with its subsidiaries, designs, develops, manufactures, and markets proprietary semiconductor products, including intellectual property worldwide. Its product portfolio includes amplifiers, 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 shifters, phase locked loops, power dividers/combiners, receivers, switches, synthesizers, technical ceramics, voltage controlled oscillators/synthesizers, and voltage regulators. The company provides its products for automotive, broadband, cellular infrastructure, connected home, industrial, medical, military, smartphone, tablet, and wearable applications. Skyworks Solutions, Inc. sells its products through direct sales force, electronic component distributors, and independent sales representatives. Company description from FinViz.com
Skyworks reported earnings of $1.45 that beat estimates for $1.40. Revenue of $851.7 million beat estimates for $840.3 million. They guided for Q2 revenue of $890 million and earnings of $1.52. Analysts were expecting $866.6 million and $1.49. Annual revenue growth os forecast at 18%.
On the conference call the company said Apple was still 40% of the company's revenue but Samsung and Huawei now exceeded 10% each. The company said the quarter just ended was normally their low point for the year and it was actually a strong quarter this year. They expect even better quarters later this year when the next generation of phones begin to ship in quantity. The Apple iPhone 7s and/or 8 will be a big boost to revenue. They are looking at double digit revenue increases for the next two quarters.
Earnings July 27th.
Shares inexplicably declined $5 after the report. Multiple analysts immediately came out claiming this was a buying opportunity. I agree.
We have to reach out to the August option cycle to get past the July earnings and keep that earnings expectation premium inflated.
Long Aug $105 call @ $4.15, see portfolio graphic for stop loss.
Prices Quoted in Newsletter
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