The chip stocks crumbled last week to drag the Nasdaq to unexpected levels.
The Semiconductor Index began collapsing on Monday with a failure at 1,099 intraday and led the Nasdaq lower all week. The chip sector normally leads the Nasdaq on big moves in either direction. There was no specific news dragging the chip stocks lower until Friday when there was a sell the news event on Micron. They posted great earnings and raised guidance but shares fell 5% anyway. It was that kind of week.
Apple's chip suppliers were the hardest hit. This caused a stop on the Skyworks position and the SMH ETF. The decline in the SOX weighed so heavily on the Nasdaq it broke below support intraday on Thursday to claim another trio of our positions. The rebound was lackluster and the attempted rebound on Friday failed. The Nasdaq closed at a 5-week low. The index added another 216 point high to low drop to the three earlier triple digit corrections.
As long as the index remains over 6,100, there is hope of a rebound. The Nasdaq futures are up +14 on Sunday evening but the S&P futures are +6. They are underperforming and suggests there could be some more weakness this week. The Nasdaq chart is bearish and will become even more bearish if it moves under 6,100.
The Dow is the least bearish of the big three indexes. The Dow closed at the bottom of its recent congestion but is still poised to return to the highs, which are about 180 points above the Friday close. I would be surprised to see that this week but I was also surprised to see the amount of window undressing last week. Portfolio managers appeared desperate to unload the FAANG stocks and any supplier related to Apple. There are still rumors making the rounds that the iPhone 8 deliveries could be delayed by 1-2 months on production problems.
If managers are going to restructure the Dow stocks in their portfolios before earnings, they only have one week left. New retirement money from Q2 should be hitting accounts this week so that could provide some Dow lift.
The S&P has been volatile but it has remained in a narrow 30-point range from 2,420 to 2,450 with the exception of the intraday dip to 2,405 on Thursday. As long as the index remains above 2,420 on a closing basis, the longer-term trend is still intact.
The Russell outperformed the big cap indexes and nearly mad a new high on Wednesday. The financials are supporting the Russell with 17% of the index weighting. The Russell normally profits from the cash flows at the beginning of the quarter. If managers are going to rotate out of the big cap tech stocks for the summer, the Russell stocks could see some gains.
The calendar for next week is busy with the payroll numbers going to receive the most attention. This could be a critical month since the estimates have been significantly wrong the last couple of months. Current jobs should have been influenced by the optimistic economic outlook from the Trump presidency since we are now 5 months into the term.
The FOMC minutes are going to be important because the Fed is expected to begin tapering QE at the September meeting. These minutes could provide added insight.
The ISM reports are seen as the national summary for the month. The various Fed regions put out similar reports every week but they are regional.
Being stopped out of so many positions in one week is painful. I did have the stop losses a little tighter than normal because of the volatility the prior week. The object is to lose as little as possible when the market suddenly turns bearish. If we maintain wide stops then a $3.50 option turns into a $1 option by the time we are stopped. There is no science to stop losses. We try to put them under support whenever possible but once a stock shoots up significantly in a short period, the support is too far away to be an effective stop loss point. If we tighten them we get a lot of stops. If we leave them wide the losses are fewer but larger. I strongly urge readers to set their own stop losses based on their own risk profile.
I would be cautious about this week. We could see some money flow related moves through Thursday and then the focus shifts to earnings the following week.
Enter passively, exit aggressively.
Send Jim an email
NEW DIRECTIONAL CALL PLAY
VAR - Varian Medical Systems - Company Profile
Varian Medical Systems, Inc. designs, manufactures, sells, and services medical devices and software products for treating cancer and other medical conditions worldwide. It operates through two segments, Oncology Systems and Imaging Components. The Oncology Systems segment provides hardware and software products for treating cancer with radiotherapy, fixed field intensity-modulated radiation therapy, image-guided radiation therapy, volumetric modulated arc therapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy. Its products include linear accelerators, brachytherapy afterloaders, treatment simulation, verification equipment, and accessories; and information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. This segment serves university research and community hospitals, private and governmental institutions, healthcare agencies, physicians' offices, oncology practices, radiotherapy centers, and cancer care clinics. The Imaging Components segment offers X-ray imaging components for use in radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, computer aided diagnostics, and industrial applications. It also provides Linatron X-ray accelerators, imaging processing software, and image detection products for security and inspection purposes. This segment serves original equipment manufacturers, independent service companies, and end-users. In addition, the company offers products and systems for delivering proton therapy; and develops technologies in the areas of digital X-ray imaging, volumetric and functional imaging, and improved X-ray sources. The company was formerly known as Varian Associates, Inc. and changed its name to Varian Medical Systems, Inc. in April 1999. Varian Medical Systems, Inc. was founded in 1948. Company description from FinViz.com.
Drugs are not the only opportunity to rid yourself of a terrible disease. Varian produces multiple products for discovering and targeting cancer. They are the sector leader in imaging and radiation therapy.
Varian reported Q1 earnings of 89 cents that beat estimates for 88 cents. Revenue of $655 million beat estimates for $643 million. They guided for full year earnings of $3.56-$3.64 per share.
Earnings July 26th.
On May 6th, the company announced a "game-changing treatment platform" to combat the cancer challenge. (their words) The new Halcyon system is an entirely new device that "simplifies and enhances virtually every aspect of image-guided volumetric intensity modulated radiotherapy (IMRT). This new treatment system is designed to expand the availability of high quality cancer care globally and help save the lives of millions more cancer patients." The new system requires only 9 steps compared with the 30 treatment steps required by current generation equipment. "Halcyon is well suited to handle the majority of cancer patients, offering advanced treatments for prostate, breast, head & neck, and many other forms of cancer." Press Release
The company demonstrated the new device to packed crowds at the ESTRO 36 conference in Vienna. Shares spiked $4 on the announcement.
In late May Varian announced it was going to install its first Proton Therapy System in Thailand. The first one in a country is always the hardest. The order will be booked in this quarter's earnings.
Varian had a nearly $30 gain since January. The market volatility over the last week blunted that rally and given us a buying opportunity. There is decent support at $101.
Buy August $105 call, currently $2.80, initial stop loss $99.65.
If there is a trade you would like me to consider or you have comments on this newsletter please click the email link below.
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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
COST - Costco
The long call position was entered at the open on Tuesday.
ATVI - Activision
The long call position was stopped at $58.45.
CGNX - Cognex
The long call position was stopped at $89.65.
FB - Facebook
The long call position was stopped at $149.25. (RELOAD)
GDDP - GoDaddy
The long call position was stopped at $41.75.
SMH - Semiconductor ETF
The long call position was stopped at $84.35.
SWKS - Skyworks Solutions
The long call position was stopped at $99.75.
THO - Thor Industries
The long call position was stopped at $104.35. (RELOAD)
Original Play Recommendations (Alpha by Symbol)
ATVI - Activision Blizzard - Company Profile
No specific news. Shares closed at a new high at $61.58 the prior Thursday then crashed back to earth and $56.22 this Thursday. This was simply profit taking on the Nasdaq. There was no stock news specific to ATVI.
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 6/27/17: Long August $60 call @ $2.24, exit 2.06, -.18 loss.
Previously closed 6/12/17: Long August $60 call @ $1.69, exit $2.15, +.46 gain.
CGNX - Cognex - Company Profile
No specific news. Cognex was another Nasdaq profit taking casualty. We were stopped at $89.25. This was purely market related with no stock news.
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 6/29/17: Long Aug $95 call @ 4.02, exit 2.40, -1.62 loss. .
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.
COMM - Commscope Holdings - Company Profile
No specific news. Shares held up well for a Nasdaq stock.
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.
COST - Costco - Company Profile
Shares have stopped falling. Costco will release its June sales numbers this week and that could give a big boost to the stock. Two BMO analysts said there is nothing wrong with Costco. The entire drop was a matter of perception and is overblown. They reiterated an outperform rating and $185 price target.
Original Trade Description: June 12th.
Costco Wholesale Corporation, together with its subsidiaries, operates membership warehouses. It offers branded and private-label products in a range of merchandise categories. The company provides dry and packaged foods, and groceries; snack foods, candies, alcoholic and nonalcoholic beverages, and cleaning supplies; appliances, electronics, health and beauty aids, hardware, and garden and patio; meat, bakery, deli, and produces; and apparel and small appliances. It also operates gas stations, pharmacies, optical dispensing centers, food courts, and hearing-aid centers; and engages in the travel businesses. In addition, the company provides gold star individual and business membership services. As of August 28, 2016, it operated 715 warehouses, including 501 warehouses in the United States, Washington, District of Columbia, and Puerto Rico; 91 in Canada; 36 in Mexico; 28 in the United Kingdom; 25 in Japan; 12 in Korea; 12 in Taiwan; 8 in Australia; and 2 in Spain. Further, the company sells its products through online. Company description from FinViz.com
Estimated earnings date August 24th.
Costco shares were crushed from $180 to $156 on the Amazon acquisition bid for Whole Foods. While this could have "some" impact on the grocery sector "if" the acquisition is actually completed, it would be at least 12-18 months before any changes would be made at Whole Foods. Amazon hopes to complete the acquisition in Q4 but multiple analysts and commentators claim the regulatory approvals are going to be a nightmare even through Whole Foods only has 4% market share of groceries in the U.S. They believe if it does close it will be Q1 or even Q2. Assuming the most likely being Q1, there would probably not be any major changes until Q1-2019.
Whole Foods has 460 stores and revenue of $15.8 billion. Costco has 750 and does $123.3 billion in annual revenue. Whatever Amazon does to Whole Foods will have such a minor impact on Costco over the next two years that it will be insignificant. I am recommending we buy this dip because sooner or later investors will come to their senses.
A Raymond James analyst upgraded Costco to outperform on Monday saying, "enough already!" "The Whole Foods acquisition will not materially impact Costco's unique business model and we would be buyers on this weakness."
I considered waiting until Costco rebounded a little more but that will just make our option premiums more expensive. We know Costco is not going out of business and there will be no impact for a long time, if ever. I am recommending we bite the bullet and just buy it at this level.
Long Oct $168 call @ $4.00. see portfolio graphic for stop loss.
The $168 strike is left over from the $7 special dividend in May. It was originally a $175 strike but was reduced by the dividend amount.
FB - Facebook - Company Profile
Facebook hit a new high on Monday at $156.50 and then crashed back to $148.92 on Thursday to sto pus out for a 70 cent loss. Facebook has been a good performer and has excellent relative strength. It just got caught in the Nasdaq downdraft. I am recommending we reload the Facebook position using the same option.
RELOAD: Buy Aug $155 call, currently $3.90, initial stop loss $147.85.
Original Trade Description: June 12th.
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.
Closed 6/29/17: Long Aug $155 call @ $4.45, exit 3.75, -.70 loss.
RELOAD: Buy Aug $155 call, currently $3.90, initial stop loss $147.85.
GDDY - GoDaddy - Company Profile
No specific news. GoDaddy was another Nasdaq casualty. We were stopped at $41.75.
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.
Closed 6/17/17: Long August $44 call @ $1.45, exit $1.04, -41 cent loss
HAIN - Hain Celestial - Company Profile
After waiting for three months, we finally got lucky. Hain is under attack by Engaged Capital with a 9.9% stake and they are pushing the company to sell itself and to replace 7 of the 8 board members. Shares spiked 8.5% on Friday and probably have farther to go. Engaged has had several successful attacks recently against other companies and even though they are small they are aggressive. Shares popped to $39 and we are holding the $40 strike. It will not take by a couple more dollars to turn us profitable again.
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.
Update 6/23/17: After a year of accounting research, HAIN said there was no need to restate earnings. The problems they found were so minor they were not worth the effort. They implemented some additional controls and promoted James Langrock to EVP and CFO. They discussed plans to cut costs by $350 million over the next three years and said they will buy back $250 million in stock.
They also reported earnings of 33 cents that missed estimates for 52 cents. They guided for the current quarter to earnings of 40-43 cents. For the full year they guided for $1.19-$1.22 and revenue of $2.84-$2.86 billion.
Shares were very volatile on Friday with all the headlines in the press release and the CEO's appearance on CNBC. On Monday shares rose $6.4% to $33.63. We have an August $40 call and we actually have a chance of it regaining value. I was hoping for more of a spike on the earnings release but the earnings miss overshadowed the positive news about the restatement. Since there is nothing wrong with the company or the past financials and it was crushed from $57 to $31 on the initial restatement warning, we could see funds begin to buy it again.
Long Aug $40 call @ $1.97, see portfolio graphic for stop loss.
RH - RH Inc - Company Profile
No specific news. Shares held their recent gains despite the market volatility.
Original Trade Description: June 12th.
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.
Long August $55 call @ $2.70, see portfolio graphic for stop loss.
SMH - Semiconductor Index - ETF Profile
The semiconductor index broke through support on Tuesday and led the Nasdaq lower all week. We were stopped out at $84.35.
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.
The semiconductor index always leads the Nasdaq both up and down.
Closed 6/27/17: Long Aug $88 call @ $2.33, exit $1.08, -1.25 loss.
Previously closed 6/9/17: Long Aug $82 call @ $2.40, exit $5.50, +$3.10 gain.
SWKS - Skyworks Solutions - Company Profile
No specific news. Chip stocks were hammered last week. They were the sector leading the Nasdaq decline and Skyworks is a chip stock. We were stopped out on The initial Tuesday drop.
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.
Closed 6/27/17: Long Aug $105 call @ $4.15, exit $2.65, -1.50 loss
THO - Thor Industries- Company Profile
No specific news. Thor dropped with the market to stop us out on Thursday. I believe this was simply a volatility, profit taking event for the end of the quarter. I am recommending we reload the position using the September $110 call.
RELOAD: Buy Sep $110 call, currently $2.55, initial stop loss $101.25.
Original Trade Description: June 19th.
Thor Industries, Inc., through its subsidiaries, designs, manufactures, and sells recreational vehicles, and related parts and accessories primarily in the United States and Canada. It operates through Towable Recreational Vehicles and Motorized Recreational Vehicles segments. The company offers travel trailers under the Airstream International, Classic Limited, Sport, Flying Cloud, Land Yacht, and Eddie Bauer trade names, as well as Interstate and Autobahn Class B motorhomes; gasoline and diesel Class A and Class C motorhomes under the Four Winds, Hurricane, Chateau, Challenger, Tuscany, Axis, Vegas, Palazzo, Synergy, Quantum, Compass, Gemini, A.C.E, Alante, Precept, Greyhawk, and Redhawk trade names; and fifth wheels under the Redwood and DRV Mobile Suites trade names. It also provides conventional travel trailers and fifth wheels under the Montana, Springdale, Hideout, Sprinter, Outback, Laredo, Alpine, Bullet, Fuzion, Raptor, Passport, Cougar, Coleman, Kodiak, Aspen Trail, Voltage, Cameo, Cruiser, ReZerve, Sunset Trail, Zinger, Landmark, Bighorn, Sundance, Elkridge, Trail Runner, North Trail, Cyclone, Torque, Prowler, Wilderness, Shadow Cruiser, Fun Finder, Stryker, Sportsmen, Spree, Venom, Durango, SportTrek, Connect, Sportster, Sonic, Jay Flight, Jay Feather, Eagle, Pinnacle, Seismic, AR-One, Launch, Autumn Ridge, Travel Star, Highlander, Roamer, and Open Range trade names. In addition, the company offers equestrian recreational vehicle products with living quarters under the Premiere, Silverado, Ranger, Laredo, Trail Boss, and Trail Hand trade names; lightweight travel trailers and specialty products under the Camplite and Quicksilver trade names; and Class A motorhomes under the Insignia, Aspire, Anthem, and Cornerstone trade names, as well as provides aluminum extrusions and specialized component products. Company description from FinViz.com
In a weak economy Thor is kicking butt. The company reported earnings of $2.11 which rose 41.6% compared to estimates for $1.87. Revenue of $2.02 billion rose 57% beat estimates for $1.96 billion. Operating cash flow rose 26.2% and gross profits rose 45.5%.
Sales of towable travel trailers rose 52.6% and sales of motorized RVs rose 78.7%. There was no bad news in the Thor report.
Estimated earnings date September 4th.
With the company posting record earnings the stock spiked from $94 to $104 on June 6th. When the market dipped, shares only pulled back to $102. Over the last week they have returned to $106 and Monday's close was a four-month high.
Winnebago (WGO) reports earnings this week and that is going to remind investors how strong Thor's report really was. I believe we will see Thor break through that post earnings resistance and head back to the highs at $115.
Closed 6/29/17: Long Aug $110 call @ $3.20, exit $1.80, -1.40 loss.
RELOAD: Buy Sep $110 call, currently $2.55, initial stop loss $101.25.
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