Despite the minor decline on Monday, the earnings cycle should lift the markets.

Monday's volume was the lowest since July 3rd and investors were not in a rush to add to positions ahead of a potential missile launch by North Korea on Tuesday. If it is just a launch, traders will ignore it and buy any dip.

This week is developing a new set of political headlines but so far none of them have had any market impact. Investors only want to hear that tax reform is moving forward, even if it is only at a snail's pace.

The actual motivation for a continued rally will be the Q3 earnings cycle. Officially the consensus is for 4.9% growth but the last four years that consensus has been 4% too low at the beginning of the cycle. The wild card here is the hurricanes. Quite a few companies could have seen their earnings dip as a result of the damage and business closures. That covers retail, fast food, energy and home building. We have already had some warnings from some of the builders. Analysts have warned that retailers could see a 2%-3% decline in earnings from store closures and damages.

The good news is that everyone understands there will be hurricane impacts. If some retailer reports 16 cents instead of 18 cents because of the hurricane, investors should cut them some slack. Other retailers like Home Depot and Lowes could post a benefit from the storms but it is really too early for earnings to shoot higher. That will happen in Q4. In September, they have costs from shipping literally thousands of truckloads of supplies from all over the country, into the damaged areas. Those costs could depress Q3 earnings but the sales of those supplies will boost Q4 earnings. Home Depot is expected to see more than $1 billion in additional sales from the storms.

The bottom line is that the earnings should be decent even after the hurricane impacts. The next three quarters are expected to average 10% growth and that is without a tax cut factored into the equation. A corporate tax cut is expected to increase S&P earnings by $2 for every 1% tax cut. Since the S&P is trading at a PE of 18 that means every 1% cut is worth 36 S&P points for 2018. With the average marginal corporate tax rate at 27%, a 7% cut to 20% would be worth roughly 252 S&P points. Obviously, some companies that pay a lot higher rate would see a lot higher earnings impact.

The S&P broke its 6-day winning streak on Friday and declined another 4 points on Monday. Given the low volume of 4.6 billion shares, it was just a lack of buyers, but there was also a lack of selling volume as well. Normally on days where the bond market is closed the equity market trades sideways and Monday was just following the script.

The S&P has resistance at 2,550 and that has stopped the advance for three consecutive days. Support is well back at 2,525 and again at 2,490.


The Dow posted another minor decline but remains within 15 points of a new high. The internals were about even with slightly more advancers but GS and UNH produces significant drag. We should not read too much into the Dow's decline since the holiday volume was so low.

The index is well above support at 22,500 followed by 22,275. It would take a seriously bad day to retrace to those numbers.



The Nasdaq ended its streak of consecutive gains at 9 days with a minor 10 point loss. The big cap techs were mostly positive with the exception of GOOGL, TSLA and NFLX. The Nasdaq has resistance at 6,600 with today's intraday high at 6,599.34.

Support is well back at 6,460, which was prior resistance. The big cap techs do not begin to report earnings until the following week and I would expect some disappointments. Expectations are very high for these large, market-moving, stocks.



The Russell struggled all week to hold its gains and did a remarkable job. The low volume on Monday provided a minor imbalance of sellers over buyers but the decline was small. I would not be surprised to see further declines give the 162-point rally. I seriously doubt we are going to get away with an 8-point retracement but I would be thrilled to be wrong.


The earnings cycle kicks off with the big banks on Thr/Fri and that could be market moving. The bank results impact the entire financial sector including insurance companies, credit card companies, brokers, etc.


The FOMC minutes are the most important item on the calendar but the twin price indexes will also be important for gauging potential Fed action in December. Everything else this week is just economic noise.


We should still be in buy the dip mode until proven wrong. The last two weeks of October are typically bullish and November 1st starts the best six months of the year for the markets. This assumes rocket man does not launch an H-bomb into the Pacific as he has threatened. That would throw a serious wrench into the markets.

I continue to suggest you keep some cash in reserve just in case a buying opportunity appears.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



NEW DIRECTIONAL CALL PLAY

MCD - McDonalds - Company Profile

McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, Latin America, and internationally. The company's restaurants offer various food products, soft drinks, coffee, and other beverages. As of December 31, 2016, it operated 36,899 restaurants, including 31,230 franchised restaurants comprising 21,559 franchised to conventional franchisees, 6,300 licensed to developmental licensees, and 3,371 licensed to foreign affiliates; and 5,669 company-operated restaurants. Company description from FinViz.com.

Earnings Oct 24th.

McDonalds has revitalized their menu and now offers fresh burgers rather than frozen, all day breakfasts, inexpensive drinks, healthier sides and reasonable prices. This is not your father's McDonalds.

Same store sales in the last quarter rose 6.6%, which is unheard of for a fast food chain the size of McDonalds. The CEO said, "We're building a better McDonald's and more customers are noticing. Our relentless commitment to running great restaurants and keeping the customer at the center of everything we do is generating broad-based strength and momentum across our entire business."

Their latest surprising innovation is food delivery. They have partnered with multiple mobile delivery services and business is booming. McDonalds said delivery orders were significantly larger than dine in or take out because people now realize they can order for parties, football games, family dinners, etc. They order multiples of everything and the average check is significantly higher than a dine in order.

They are also implementing mobile ordering and payment with the order. You just show up and pick up your meal and it is ready to go. No lines to pay, no waiting for your food. They will have mobile order/pay in more than 20,000 stores by the end of 2017. The CEO said they were also seeing higher check sizes of 1.2x to 2.0x when mobile ordering is used.

McDonalds said it was going to sell some of the McCafe beverages in supermarkets in early 2018 through a partnership with Coca Cola. The company also announced three new espresso drinks for its own stores. They are Carmel Macchiato, Cappuccino and Americano. They are going to rebrand the McCafe offerings with a new logo and packaging. They are rolling out new coffee makers to nearly all of their 14,000 stores.

Shares dipped in late September after data tracker M Science suggested they could miss on earnings and revenue as a result of the hurricanes. McDonalds has more than 2,000 locations in Texas and Florida. McDonalds shares rebounded after a consumer research company said sales at McDonalds were soaring in states that had legalized marijuana. They said 43% of users were eating at McDonalds, 18% Taco Bell, 17.8% Wendy's and 17.6% Burger King in order to satisfy their munchies after smoking pot. A side effect of marijuana is increased appetite.

Shares have returned to resistance at $160 and once the market turns positive again, I expect them to break out and begin a new leg higher. I am recommending a December option and we will hold over the earnings in two short weeks.

Buy Dec $165 call, currently $1.93. Initial stop loss $155.50.


If there is a trade you would like me to consider or you have comments on this newsletter please click the email link below.

Jim Brown

Send Jim an email



Current Portfolio


Open Positions

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


AABA - Altaba
The long call position was entered at the open on Tuesday.


Original Play Recommendations (Alpha by Symbol)


AABA - Altaba - Company Profile

Comments:

No specific news. Alibaba closed at a new high on Monday so AABA did as well.

Original Trade Description: October 2nd

Altaba Inc. operates as a non-diversified, closed-end management investment company in the United States. Its assets consist primarily of equity investments, short-term debt investments, and cash. The company was formerly known as Yahoo! Inc. and changed its name to Altaba Inc. in June 2017. Altaba Inc. was founded in 1994 and is based in New York, New York. Company description from FinViz.com

Altaba owns a 15% stake in Alibaba, currently worth about $70 billion. They hold a stake in Yahoo Japan currently worth $7.7 billion. They have $130 million in investments. They have a $740 million stake in Excalibur, a unit of the new company that holds all the Yahoo patents that were not sold to Verizon. The company has $12 billion in cash. They recently announced a $5 billion stock buyback and the company has committed to returning nearly all the cash in the bank plus any thrown off by the investments, to the shareholders.

Last week they announced they sold their entire 4.6 million share investment in SNAP for $69.3 million or roughly a 177% gain despite the big decline. They bought into SNAP before the company went public.

Owning Altaba is just like owning Alibaba only without the expensive options and a lot less volatility. We get the other parts for free. Obviously Altaba is reactive to Alibaba movement so there will still be some volatility, it is just comes with a lower risk.

Alibaba is growing much faster than Amazon and they have a larger market with 4.5 billion consumers in Asia.

Position 10/3/17:

Long Jan $70 call @ $3.05, see portfolio graphic for stop loss.



ABBV - AbbVie - Company Profile

Comments:

No specific news. Shares closed at a new high on Monday.

Original Trade Description: August 7th.

AbbVie Inc. discovers, develops, manufactures, and sells pharmaceutical products worldwide. The company offers HUMIRA, a biologic therapy administered as a subcutaneous injection to treat autoimmune diseases; IMBRUVICA, an oral therapy for the treatment of patients with chronic lymphocytic leukemia; and VIEKIRA PAK, an interferon-free therapy, with or without ribavirin, for the treatment of adults with genotype 1 chronic hepatitis C. It also provides Kaletra, an anti- human immunodeficiency virus(HIV)-1 medicine used with other anti-HIV-1 medications as a treatment that maintains viral suppression in HIV-1 patients; Norvir, a protease inhibitor indicated in combination with other antiretroviral agents to treat HIV-1; and Synagis to prevent RSV infection at-risk infants. In addition, the company offers AndroGel, a testosterone replacement therapy for males diagnosed with symptomatic low testosterone; Creon, a pancreatic enzyme therapy for exocrine pancreatic insufficiency; Synthroid to treat hypothyroidism; and Lupron, a product for the palliative treatment of prostate cancer, endometriosis, and central precocious puberty, as well as for the treatment of patients with anemia. Further, it provides Duopa and Duodopa, a levodopa-carbidopa intestinal gel to treat Parkinson's disease; Sevoflurane, an anesthesia product for human use; and ZINBRYTA, a subcutaneous treatment for relapsing forms of multiple sclerosis. The company sells its products to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers from its distribution centers and public warehouses. AbbVie Inc. has collaboration agreements with C2N Diagnostics; Calico Life Sciences LLC; Infinity Pharmaceuticals, Inc.; M2Gen; and Principia Biopharma Inc. Company description from FinViz.com.

A lot of companies have 1-2 real drugs in the pipeline that may be approved. Several companies have one drug that could be a blockbuster and reach $1 billion in sales annually. AbbVie has multiple blockbusters in the pipeline and dozens of other drugs already in the market.

AbbVie was a spinoff from Abbott Labratories in 2012 and they are doing great. In the first quarter they reported earnings of $1.28, that rose 11.3% and beat estimates by 2 cents. Revenue of $6.5 billion rose 10.1% and that was higher than three of its biggest competitors Amgen, $2.8 billion, Biogen $5.5 billion and Celgene $3.0 billion.

Earnings are expected to continue growing with analyst estimates for 14% annual growth over the next five years. AbbVie guided for 13% to 15% in 2017. Despite the earnings growth the stock only trades at a PE of 11. AbbVie reported Q2 earnings of $1.42 compared to estimates for $1.40. Revenue of $6.94 billion narrowly beat estimates for $6.93 billion. They guided for the full year for $5.44-$5.54. Shares declined because the sales of its Hep-C drug, Viekira Pak were $225 million and well below estimates for $257 million. This is a temporary setback because they have multiple drugs in the pipeline that are expected to generate more than $1 billion in sales annually. Shares declined $3 on the earnings.

Next expected earnings Oct 27th.

Shares dipped back in May when Coherus won a court battle invalidating one of AbbVie's patents on Humira, their biggest drug. However, AbbVie said it was not a problem because there were 61 other patents on the drug and they would fight it in the courts until 2020. The first trial is not even scheduled until 2019. Amgen won FDA approval for a biosimilar but AbbVie said it would not happen until 2020 at the earliest.

The company's confidence that there would not be a biosimilar drug until 2021-2022 matched analyst estimates. This is a steep uphill battle for anyone trying to copy this drug.

The company's other drugs are going to be cash cows. Imbruvica generated $1.8 billion in sales in 2016 and could reach $7 billion annually over the next couple of years. Venclexta was approved in 2016 for leukemia and sales could peak at $3.5 billion a year. An experimental cancer drug called Rova-T could hit $5 billion a year when approved. A psoriasis drug called risankizumab could produce $4 billion a year and arthritis drug upadacitinib could peak at $3.5 billion. Given all these cash flow giants in the pipeline, I am amazed the company only trades at a PE of 11.

The company received a favorable opinion on MAVIRET, a once daily Hep-C drug, from the European Medical Agency and the CHMP. This is an 8-week cure for Hep-C that will compete with Gilead's products.

Analysts claim AbbVie's pipeline is the strongest in the industry. The post earnings drop is a buying opportunity and shares are rebounding.

Update 8/21/17: AbbVie said its all genotypic drug for Hep-C was approved in Canada. This is an 8-week treatment with a 97% cure rate. It is the only drug approved for all patients across all stages of the disease.

Update 9/11/17: This stock has gone to the moon. AbbVie filed two new drug applications with the FDA and reported positive results on two drug trials. Shares have gained $12 in a week. On Monday, they reported studies on rheumatoid arthritis with the drug Upadacitinib had met all primary and secondary endpoints. In testing two different doses 40% of patients reported clinical remission after 12 weeks and 50% reported the same after 24 weeks, without any unforeseen side effects. These were patients that had failed to respond to conventional treatments. More than 23 million people are afflicted with this disease. This will be a blockbuster drug for AbbVie and they have many more in the pipeline.

Update 10/2/17: Leerink upgraded ABBV from market perform to outperform on Monday. Last Monday Merck dropped two Hep-C drugs from development saying the market was becoming extremely crowded. That provided a boost to ABBV and shares closed at a new high on Monday. They also announced a deal with Amgen to resolve patent problems on Humira and push biosimilar competition well into the future.

Position 8/8/17:

Long Nov $72.50 call @ $1.90, see portfolio graphic for stop loss.



AKAM - Akamai Technologies - Company Profile

Comments:

Akamai announced on Monday the Content Delivery Network (CDN) capabilities for enterprises are now available on the IBM cloud. The new offering is part of the IBM Cloud Content Delivery Network. Akamai currently provides CND services on 1,700 networks in 131 countries. That now included IBM's footprint of 60 cloud centers across 19 countries. Akamai has more than 200,000 servers across 130 countries.

Original Trade Description: July 31st.

Akamai Technologies, Inc. provides cloud services for delivering, optimizing, and securing content and business applications over the Internet in the United States and internationally. The company offers Web and mobile performance solutions, such as Ion, a situational performance solution that consists of an integrated suite of Web delivery, acceleration, and optimization technologies; Dynamic Site Accelerator that helps in consistent Website performance; IP Application Accelerator to enable enterprises to deliver Internet Protocol-based applications; Global Traffic Management, a fault-tolerant solution; Image Manager that automatically optimizes online images; and Cloudlets, which provides self-serviceable controls and capabilities. It also provides cloud security solutions, including Kona Site Defender, Bot Manager, Fast Domain Name System, Prolexic Routed, and Client Reputation; enterprise solutions comprising Enterprise Application Access and Akamai Cloud Connect. In addition, the company offers media delivery solutions, such as adaptive delivery solutions, download delivery solutions, media delivery acceleration solutions, media services, media analytics, and NetStorage, a cloud storage solution. Further, it provides network operator solutions, including Aura Licensed CDN suite of solutions, Aura Managed CDN solutions, and Intelligent DNS Solutions; and professional services and solutions. Company description from FinViz.com

Expected earnings Oct 24th.

Akamai beat on earnings and revenue for Q2 but analysts thought the guidance was a little light. Shares were crushed for an $8 loss. The company posted earnings of 62 cents that beat estimates for 60 cents. Revenue rose 6.4% to $608.9 million and beat estimates for $604.5 million.

The company guided for Q3 earnings of 57 to 60 cents and analysts were expecting 61 cents. Revenue guidance was $604-$616 million and expectations were $619.4 million.

Akamai is losing business from the "Big Six" including Apple, Amazon and Netflix as those companies refine their "do it in house" strategies to keep from having to pay so much to Akamai. The income from the big six fell 9% to $178.9 million. Akamai has reported on this metric for the last two years and this was the 7th quarter of decline. Akamai is still the largest content delivery service and total revenues are still rising.

Revenues in their new cyber security business rose 32% and the web performance business rose 15%. Akamai said the rapid advancement of video on demand was a strong factor in future earnings since they are the largest provider of content. Also seeing a rapid ramp was the cloud storage business. Akamai has a security hook in that growth and the redundancy of that storage.

I believe the big drop in the shares was an overreaction and their new businesses are growing so rapidly that revenue will continue to expand. They are forecasting 6% growth in Q3 and 5% to 8% growth for the year with a 64% gross margin. There is nothing wrong with their business.

If the market is going to be weak, these shares in companies that have already been punished will look like value stocks to investors looking for a safe haven after they exit the FAANG stocks.

Update 8/28/17: Akamai collaborated with Google, Cloudfire, Flashpoint, RiskIQ and the RBI to squash a botnet named WireX that had infected 120,000 Android phones in early August. The bot was generating 20,000 page requests a second against a set of targeted servers in a DoS attack.

Update 9/18/17: Akamai announced it had set a new record for throughput delivered on September 12th with more than 60 terabytes per second (Tbps). That beat the old record of 47 Tbps set on August 29th. Akamai delivers more content on a daily basis than any other content provider. In January, they set a single event record of 8.7 Tbps streaming the Presidential Inauguration. The company has more than 200,000 servers spread across 130 countries to accomplish this record content delivery.

Position 8/1/17:

Long Nov $50 call @ $2.28, see portfolio graphic for stop loss.



CERN - Cerner Corp - Company Profile

Comments:

No specific news. Shares hit a new high last Monday but faded slightly for the week.

Original Trade Description: September 3rd.

Cerner Corporation designs, develops, markets, installs, hosts, and supports health care information technology, health care devices, hardware, and content solutions for health care organizations and consumers in the United States and internationally. The company offers Cerner Millennium architecture, which includes clinical, financial, and management information systems that allow providers to access an individual's electronic health record at the point of care, and organizes and delivers information for physicians, nurses, laboratory technicians, pharmacists, front- and back-office professionals, and consumers. It also provides HealtheIntent platform, a cloud-based platform that enables organizations to aggregate, transform, and reconcile data across the continuum of care, as well as assists to enhance outcomes and lower costs. In addition, the company offers a portfolio of clinical and financial health care information technology solutions, as well as departmental, connectivity, population health, and care coordination solutions; and various complementary services, including support, hosting, managed, implementation, and strategic consulting services. Further, it provides various services, such as implementation and training, remote hosting, operational management, revenue cycle, support and maintenance, health care data analysis, clinical process optimization, transaction processing, employer health centers, employee wellness programs, and third party administrator services for employer-based health plans; and complementary hardware and devices for third parties. It serves integrated delivery networks, physician groups and networks, managed care organizations, hospitals, medical centers, reference laboratories, home health agencies, blood banks, imaging centers, pharmacies, pharmaceutical manufacturers, employers, governments, and public health organizations.Company description from FinViz.com

Cerner reported earnings of 61 cents that met analyst expectations. Revenue of $1.29 billion missed estimates for $1.3 billion. They guided for Q3 for earnings of 61-63 cents and revenue of $1.26-$1.33 billion. Analysts were expecting $1.29 billion. For the full year, they guided for earnings of $2.46-$2.54 and revenue of $5.15-$5.25 billion. Shares declined $4 on the report. The earnings were not bad, they just were not exciting.

Expected earnings October 26th.

On August 14th, MIT Medical selected Cerner's integrated healthcare technology and shares reversed their slide. On August 30th, IBD upgraded their rating from 69 to 73 saying internal metrics were improving and to watch for a breakout over prior resistance highs.

Last week Cerner announced a partnership with HealthSouth to create the Post-Acute Innovation Center. The center is planned to develop enhanced tools to manage patients across the continuum of care. Full press release

Shares have rebounded to the old resistance highs ay $68.50 and this time I expect a breakout that could easily add $10 to the price. There was a double top in June but triple tops normally lead to breakouts.

Position 9/5/17:

Long Dec $70 call @ $2.70, see portfolio graphic for stop loss.



DLTR - Dollar Tree - Company Profile

Comments:

No specific news. Friday's close was a 9-month high but we hit resistance at $90. The stock needs to push through that level to trigger some short covering.

Original Trade Description: September 11th.

Dollar Tree, Inc. operates variety retail stores in the United States and Canada. It operates in two segments, Dollar Tree and Family Dollar. The Dollar Tree segment offers merchandise at the fixed price of $1.00. It provides consumable merchandise, including candy and food, and health and beauty care products, as well as everyday consumables, such as household paper and chemicals, and frozen and refrigerated food; various merchandise comprising toys, durable housewares, gifts, stationery, party goods, greeting cards, softlines, and other items; and seasonal goods, which include Valentine's Day, Easter, Halloween, and Christmas merchandise. This segment operates under the under the Dollar Tree and Dollar Tree Canada brands, as well as 11 distribution centers in the United States and 2 in Canada, and a store support center in Chesapeake, Virginia. The Family Dollar segment operates general merchandise discount retail stores that offer consumable merchandise, which comprise food, tobacco, health and beauty aids, household chemicals, paper products, hardware and automotive supplies, diapers, batteries, and pet food and supplies; and home products, including housewares, home decor, and giftware, as well as domestics, such as blankets, sheets, and towels. It also provides apparel and accessories merchandise comprising clothing, fashion accessories, and shoes; and seasonal and electronics merchandise, which include Valentine's Day, Easter, Halloween, and Christmas merchandise, as well as personal electronics that comprise pre-paid cellular phones and services, stationery and school supplies, and toys. This segment operates under the Family Dollar brand, 11 distribution centers, and a store support center in Matthews, North Carolina. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and 5 Canadian provinces. Company description from FinViz.com

Dollar Tree reported earnings in late August that rose 36.1% to 99 cents and beat estimates for 87 cents. Revenue of $5.28 billion rose 5.7% and beat estimates for 5.24 billion. Same store sales rose 2.4%. They guided for the full year for revenue of $22.07-$22.28 billion, up from $21,95-$22.25 billion. Earnings guidance of $4.44-$4.60 rose from $4.17-$4.43.

Shares spiked $6 on the earnings and then went through a week of post earnings depression. Shares have firmed and are right on the verge of breaking through resistance to a 9 month high, and probably higher.

Next earnings Nov 23rd.

After earnings Raymond James upgraded them from market perform to strong buy. Bernstein upgraded from underperform to market perform. Telset Advisory reiterated an outperform.

Dollar Tree is Amazon proof. With everything in the store $1 or less even Amazon cannot sell and ship items that cheap. Since their acquisition of Family Dollar they now operated 14,334 stores. This is a retail powerhouse and even if the economy weakens, their business will thrive because of the low price point.

Shares are right at resistance at $83.50 and a 5-month high. They are poised for a breakout with the next resistance at $90.

The November options expire several days before earnings so I am going with the January strikes so there is some earnings expectations in the premium when we exit before the event.

Position 9/12/17:

Long Jan $87.50 call @ $3.30, see portfolio graphic for stop loss.



HRS - Harris Corp - Company Profile

Comments:

No specific news. Shares closed at a new high.

Original Trade Description: September 25th.

Harris Corporation provides technology-based solutions that solve government and commercial customers' mission-critical challenges in the United States and internationally. The company operates in three segments: Communication Systems, Electronic Systems, and Space and Intelligence Systems. It designs, develops, and manufactures radio communications products and systems, including single channel ground and airborne radio systems, 2-channel vehicular radio systems, multiband manpack and handheld radios, multi-channel manpack and airborne radios, and single-channel airborne radios, as well as wideband rifleman team, ground, and high frequency manpack radios. The company also offers secure communications systems and equipment, including Internet protocol based voice and data communications systems, as well as single-band land mobile radio terminals and multiband radios comprising a handheld radio and a full-spectrum mobile radio for vehicles. In addition, it provides earth observation, environmental, exploration, geospatial, space protection, and intelligence solutions, such as sensors and payloads, as well as ground processing and information analytics for security, defense, civil, and commercial customers; and positioning, navigation, and timing products, systems, and solutions. Further, the company offers electronic warfare, avionics, surveillance and reconnaissance, command, control, communications, computers and intelligence, and undersea systems and solutions for aviation, defense, and maritime applications. Additionally, it provides managed services that support air traffic management; engineering support and sustainment for ground-based systems; and information technology and engineering managed services to government and commercial customers. Company description from FinViz.com

Harris is a very strong defense company. As the description above states, they are very active in defense communications. This is a rapidly growing sector because of eavesdropping, jamming, spoofing or hacking into military communications as a clandestine attack in preparations for times of war. With the advent of drones this is becoming an even bigger area of trouble because a hacked drone can be stolen or even worse, used against friendly forces or population centers. Harris has 17,000 employees and nearly 8,000 engineers and scientists.

Harris shares exploded higher starting on the 14th and topped at $131 on the 20th. The stock is Dow reactive. When the Dow began to weaken on Wednesday, Harris moved sideways. On Monday the stock dipped slightly when the Dow was down -130 intraday. I believe this is a buying opportunity on a stock showing a new surge of momentum. With North Korea stirring the pot, defense stocks are being bid higher.

Earnings Oct 31st.

I would not normally recommend a stock with this kind of short-term gain but my cautious recommendations over the last several weeks have been struggling.

Position 9/26/17:

Long Nov $135 call @ $1.80, see portfolio graphic for stop loss.



TSN - Tyson Foods - Company Profile

Comments:

No specific news. Shares slipped back slightly from last week's $6 spike.

Original Trade Description: September 18th.

Tyson Foods, Inc., together with its subsidiaries, operates as a food company worldwide. It operates through four segments: Chicken, Beef, Pork, and Prepared Foods. The company raises and processes chickens into fresh, frozen, and value-added chicken products; processes live fed cattle and live market hogs; and fabricates dressed beef and pork carcasses into primal and sub-primal meat cuts, as well as case ready beef and pork, and fully-cooked meats. It also supplies poultry breeding stock; sells allied products, such as hide and meats; and manufactures and markets frozen and refrigerated food products, including pepperoni, bacon, breakfast sausage, turkey, lunchmeat, hot dogs, pizza crusts and toppings, flour and corn tortilla products, desserts, appetizers, snacks, prepared meals, ethnic foods, soups, sauces, side dishes, meat dishes, breadsticks, and processed meats. Tyson Foods, Inc. offers its products primarily under the Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Van's, Sara Lee, Chef Pierre, Wright, Aidells, State Fair, Gallo Salame, and Golden Island brands. The company sells its products through its sales staff to grocery retailers, grocery wholesalers, meat distributors, warehouse club stores, military commissaries, industrial food processing companies, chain restaurants or their distributors, live markets, international export companies, and domestic distributors, as well as through independent brokers and trading companies. Tyson Foods, Inc. was founded in 1935 and is headquartered in Springdale, Arkansas. Company description from FinViz.com

Tyson has seen a rocky ten month period. With bird flu, chicken slaughters, hurricanes and commodity prices all working against them. However, they have persevered. The SEC probe on chicken pricing was concluded in late August and the SEC did not recommend any enforcement actions. The probe had been ongoing for more than a year over production and pricing of broiler chickens. This was a win for Tyson to remove this cloud from their outlook.

They announced last week they were going to build a $320 million plant in Leavenworth Kansas that could process 1.25 million chickens a week. Business is good!

For Q2 the company reported earnings of $1.21 that beat estimates for $1.18. Revenue of $9.85 billion beat estimates for $9.48 billion. They guided for the full year for earnings of $4.95-$5.05 and analysts were expecting $5.01.

Earnings Nov 6th.

Tyson shares have been chopping around between $58 and $66 since the probe was announced last November. Shares closed at a 10-month high on Monday at $67.41. I believe this breakout is going to stick now that the SEC cloud has been lifted.

Position 9/19/17:

Long Jan $70 calls @ $2.50, see portfolio graphic for stop loss.



Prices Quoted in Newsletter

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