There has been no selloff but continuing to post daily gains has turned into a struggle.
The markets are suffering from post earnings depression as the number and quality of earnings declines. Last year the S&P fell 69 points in the last two weeks of November. Post earnings depression is normal and there is no guarantee the market will decline but it may not rise until the earnings gains have been consolidated.
November is slightly different from the other earnings cycles. November also suffers from tax loss selling. Investors are trying to position themselves to pay minimum taxes and that sometimes means selling winners to offset losers. By selling in winners November they can buy them back again in January and ride them for another year.
In the current calendar both houses of congress are working to craft a tax reform package that will eventually be passed separately by each house and then sent to a conference committee to merge the plans together into something that has a chance of being passed into law.
The current proposals contain something for everyone and some of the features will actually raise your taxes while others will lower taxes. This is a professional sleight of hand trick played by both houses. "Look at how much these features will cut your taxes and don't worry about these other features because they only apply to rich people."
There will be daily changes to both proposals and great fanfare when they each come to a vote. The problem will be when the merged proposals come up for a vote and the GOP only has a 1 vote margin, if Roy Moore drops out of the race or is defeated, which is looking more likely every day. One vote is nothing. Any two senators can voice objections to the bill and it goes down in flames and takes the market with it.
The market drop on Thursday came after the senate version leaked out with no change in corporate taxes until 2019. With all the anticipation in the market for lower taxes and higher earnings in 2018, that was a serious blow. A 20% corporate tax and repatriation of $2 trillion in cash from overseas was expected to magically raise S&P earnings by $15 a year and add 270 points to the S&P. Since investors have been expecting that all year, we have probably pulled quite a few of those points forward into 2017. The potential for skipping a year was a punch in the market's gut. If that became true, we could expect to see those points subtracted from the market until late in 2018 when expectations would begin to rise again.
The problem with investors watching legislation being created is that they tend to have knee jerk reactions to every bit of potentially negative news.
For the rest of the year there are only 14 calendar days of joint sessions of the House and Senate. There is almost zero chance that a merged tax reform proposal will be voted on in 2017 and it could be February before something is passed. That in itself suggests that 2019 will be the first effective year. Once investors figure this out, we could see a lot of profit taking.
Wells Fargo said today they are expecting a 120-150 point drop any day now and immediately if the tax reform conversation turns negative.
People have been talking down the market for months, to no avail. The indexes continued to rise. However, the Dow has now stalled for three weeks and is fighting just to hold over support at 23,300. The Dow has a huge air pocket down to 22,275 if a real bout of selling appeared.
So far, that has not happened and every intraday dip is bought.
The S&P is only marginally better. When the index has made gains recently, they have only been 2-3 points per day. The index is holding over support at 2,565 with additional support at 2,555 and 2,545. The S&P is better support than the Dow because of its broader 500 stock composition. Still, there could be a decent decline if a sell off appeared with distant support at 2,495, which is also the 100-day average. Resistance remains 2,595.
The Nasdaq was led higher by the big cap tech stocks last week. Several of them have now turned negative and are starting to give back some of their gains. Apple has about $10 at risk from their earnings spike based on historical post earnings declines.
The Nasdaq Composite is only 32 points below its record high and has been rebounding from last Thursday's decline in very small increments like the +6.66 gain today. Momentum has left the building and post earnings depression has taken its place.
The Nasdaq has near term support and I would not expect a major decline from this index but 150-170 points would be within the realm of possibilities in a strong bout of selling.
The biggest problem is the Russell 2000. The index has closed right on 1,475 for three consecutive days and a major break and close below that level could be toxic for market sentiment. The Russell normally leads the market both higher and lower. Let's hope it finds some traction soon.
Earnings are slowing down in both quantity and quality with only 18 S&P companies reporting this week. There are three Dow components reporting with HD, CSCO and WMT. None of them are expected to be market movers.
The economic calendar is busy but none of these reports are expected to move the market because everyone is focused on the tax proposals and every sound bite that emanates from Washington on that topic.
I am becoming worried about the market. I am not concerned about a major crash but I do expect some rocky sessions as the Roy Moore scenario plays out and votes begin to peel off from support of the tax proposals. Already there are several lawmakers saying they cannot support it in the current form and should that snowball into an expected failure, the market will react negatively.
Personally, I think the GOP is going to have a tough time getting it passed in any form that is material to the market. There are a lot of negotiations in progress and everybody wants their pet deduction saved or they will vote no. Anything is possible but investors will be hanging on every word and should negative expectations reach critical mass, it could produce a decent decline.
I would advise against buying any dip over the next week. At least after the first day. We are due for a several day decline regardless of what happens in Washington. Look for a rebound with volume before putting new money at risk.
Enter passively, exit aggressively!
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NEW DIRECTIONAL CALL PLAY
CAT - Caterpillar - Company Profile
Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for heavy and general construction, rental, quarry, aggregate, mining, waste, material handling, oil and gas, power generation, marine, rail, and industrial markets. Its Construction Industries segment offers backhoe, compact, track-type, small and medium wheel, knuckleboom, and skid steer loaders; small and medium track-type, and site prep tractors; mini, wheel, forestry, small, medium, and large track excavators; and motorgraders, pipelayers, telehandlers, cold planers, asphalt pavers, compactors, road reclaimers, and wheel and track skidders and feller bunchers. The company's Resource Industries segment provides electric rope and hydraulic shovel, landfill and soil compactor, dragline, large wheel loader, machinery component, track and rotary drill, electronics and control system, work tool, hard rock vehicle and continuous mining system, scoop and hauler, wheel tractor scraper, large track-type tractor, and wheel dozer products; longwall, highwall, and continuous miners; and mining, off-highway, and articulated trucks. Its Energy & Transportation segment offers reciprocating engine powered generator set and engine, integrated system, turbine, centrifugal gas compressor, diesel-electric locomotive and component, and other rail-related products and services. The company's Financial Products segment offers finance for Caterpillar equipment, machinery, and engines, as well as dealers; property, casualty, life, accident, and health insurance; and insurance brokerage services, as well as purchases short-term trade receivables. It's "All Other" operating segments provides parts distribution and digital investments services. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986.
Company description from FinViz.com.
CAT has been alternately ignored or talked down for the last couple years but the shares keep rising. Part of the recent gains came from the guidance. The company has been bitten by the global slowdown in construction since the financial crisis. Then it was hit by the slowdown in the energy sector. Every expected rebound falied to appear and CAT continued to give cautious guidance. That changed over the last several months.
The global economy is rebounding. There are massive construction projects now underway in China and Asia. The Eurozone is also seeing a resurgence in consrtuction. Commodity metals are booming and mines are reopening shuttered capacity and opening new mines. Everything is suddenly positive for CAT and guidance is exploding.
In December they guided for full year 2017 revenues of $38 billion "as a reasonable midpoint expectation." Analyst estimates for earnings of $3.25 were "too optimistic" according to CAT.
In January they guided for $36-$39 billion in revenue and $2.90 in earnings.
In April they guided for $38-$41 billion in revenue and $3.75 in earnings.
In July they guided for $42-$44 billion in revenue and $5 in earnings.
In October they guided for $44 billion and $6.25 in earnings.
In April they guided for revenue from construction at flat to 5%.
In July they guided for 10% to 15% growth.
In October they guided for 20% construction growth.
In April they guided for revenue from mining at 10% to 15%.
In July they guided for 20% to 25% growth.
In October they guided for 30% growth in mining.
In April they guided for energy revenue at flat to 5%.
In July they raised it to 5% to 10%.
In October they raised it to 12%.
At the September 12th investor day meeting the new CEO said they were targeting $55 billion in revenue in 2018 with margins of 14%-17% compared to 12% in 2017. That would take them back to 2014 levels before the bear market in commodity/energy began. That is 28% above 2017 levels. He was careful not to call it a target but said that level was achievable if the current rebound in mining, energy and construction continued.
In late September, CAT reported a global increase in machine sales of 11% for August. Total sales in Asia and the Pacific surged 44%. In their October earnings, they said Asia-Pacific revenue spiked 57%.
After the devastation in Houston, there were new estimates from analysts for 17% or higher revenue growth in construction equipment.
In late October Caterpillar (CAT) reported earnings of $1.95 that nearly quadrupled and blew past estimates for $1.22. That is the kind of earnings beat that should have spiked shares but given CAT's recent string of new highs over the last three months, a lot of excitement was already priced into the stock. Revenue rose 25% to $11.41 billion compared to estimates for $10.61 billion. Construction equipment revenue rose 37% with energy and transportation equipment revenue rising 12%. CAT raised guidance for the full year from $5.00 to $6.25 on revenue of $44 billion. Analysts were expecting $5.29 and $42.94 billion. This was a killer quarter for CAT and this confirms more than anything else that the global economy is beginning to surge.
CAT shares surged to $140 on the earnings. Over the last three weeks the Dow has been moving sideways and so has CAT. Despite the intraday dips in the Dow CAT continues to hold at $136. If the Dow takes a cliff dive over the next couple of weeks, CAT will follow but the 30-day average is $133 and that has been support. I am recommending we buy a December $130 put to hedge against a sudden decline.
Lastly, the S&P futures are negative tonight. If the market opens lower DO NOT enter this position until CAT shares are positive, even if it takes a couple of days. I would rather buy a dip if possible.
Buy Feb $140 call, currently $4.55, no initial stop loss.
Buy Dec $130 put, currently 99 cents, no initial stop loss.
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.
The portfolio look positively barren after closing five plays for nice gains last week.
Current Position Changes
ABBV - AbbVie
The long call position was entered at the open on Monday.
Original Play Recommendations (Alpha by Symbol)
AABA - Altaba - Company Profile
Alibaba reported record sales of $25.3 billion on Friday's Singles Day event. That was well above the $17.8 billion from 2016. The promotion is still underway with their new 24 day Festival of Sales, which is new for this year. Shares faded slightly after the headline news moved on to other stocks.
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.
Update 10/16/17: Alibaba said it was going to spend an additional $15 billion over the next three years on research. They already spend $3 billion and have more than 25,000 engineers on the payroll.
The new effort will create the Alibaba DAMO Academy, short for Discovery, Adventure, Momentum and Outlook. The academy will set up labs in China, USA, Russia, Israel and Singapore and fund collaborations with universities. They plan to explore AI, IoT, quantum computing, visual computing, machine learning and network security.
Long Jan $70 call @ $3.05, see portfolio graphic for stop loss.
ABBV - AbbVie - Company Profile
AbbVie has a new cannabis-based drug called Marinol, which helps alleviate nausea or vomiting for chemotherapy patients and AIDS patients that have lost their desire to eat.
Original Trade Description: November 6th.
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.
Next expected earnings January 26th.
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.
ABBV reported earnings of $1.41 that beat estimates for $1.39. Revenue of $7 billion missed estimates for $7.04 billion. They raised full year guidance from $5.44-$5.54 to $5.53-$5.55. They guided for 2018 earnings of $6.37 to $6.57. Analysts were expecting $5.53 for 2017 and $6.56 for 2018. The company raised its quarterly dividend by 11% to 71 cents.
AbbVie previously guided for sales of Humira to exceed $18 billion in 2020. In their earnings call they raised that guidance to $21 billion in 2020. Sales of Humira hit $4.7 billion in Q3 to put it on track for $18 billion two years earlier than prior guidance. That is just one drug. At the same time, they are projecting non-Humira sales to reach $35 billion in 2025. That is a risk adjusted assumption that some drugs will fail in trials. Without any failures they are projecting $47 million. The risk-adjusted number would put AbbVie in 9th place by revenue. The nominal number would put them in fifth place.
The company recently announced a deal with Amgen to resolve patent problems on Humira and push biosimilar competition well into the future. The company's confident 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.
In September 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.
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. 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.
Long Feb $95 call @ $3.75, see portfolio graphic for stop loss.
BOTZ - Robotics & AI ETF - Company Profile
No specific news. New record high close on Wednesday.
Original Trade Description: October 24th
The Global X Robotics & Artificial Intelligence ETF seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. The ETF seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Indxx Global Robotics & Artificial Intelligence Thematic Index.
The ETF has 28 stocks including NVDA, ISRG, TRMB, BRKS, IRBT, MZOR, Toshiba and Cyberdyne.
The ETF is somewhat slow moving since it just began trading in September. Volume has increased significantly to 2.59 million shares on Monday.
The key to this ETF and this position is that the stock rarely goes down and the options are cheap. There have only been 3 periods of decline in 2017 and each drop was only about 60 cents. The ETF is rising steadily since April but has recently been accelerating. If this continues, even allowing for some declines, that would equate to a nice gain by June and the option costs $1.45 at the money. This is not going to set the world on fire like a Facebook or Netflix but it should be dependable, stable gains. Obviously, past performance is no guarantee of future results.
Long June $24 call @ $1.45. See portfolio graphic for stop loss.
CERN - Cerner - Company Profile
No specific news. Cerner has not rebounded from their post earnings drop but shares are not falling either. The stock is consolidating before it picks a direction.
Original Trade Description: October 30th
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 missed estimates for 62 cents. Revenue of $1.28 billion missed estimates for $1.29 billion. They guided for the current quarter for earnings of 60-62 cents and revenue of $1.3-$1.35 billion. They raised full year guidance to earnings of $2.52-$2.68 per share, up from $2.46-$2.54 on revenue of $5.5 to $5.7 billion, up from $5.15-$5.25 billion.
Cerner said they missed the Q3 estimates because several large contracts did not close in Q3 as expected and would now close in Q4. Fourth quarter bookings are expected to be a record $1.75-$2.0 billion, because of that contract slippage. This means Q4 earnings are going to be strong.
Expected earnings January 25th.
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.
Shares dropped from $71 to $63 on the earnings miss but are already starting to rebound sharply. The share drop means there is less risk in CERN in case the market finally decides to pause for a few days.
I am using the March options so we will have some Q4 earnings expectations in the premium when we exit before the event.
Long Mar $70 call @ $2.28, see portfolio graphic for stop loss.
DIA - Dow SPDR ETF - ETF Profile
We entered the DIA put in anticipation of a retracement of of some of the 1,685 points gained since late September. So far, it has not worked out but the Dow has slowed its gains and suffered several intraday declines. Wells Fargo said today they are expecting a 120-150 point drop in the S&P at any time and definitely if the tax reform conversation turns negative. There is a monster air pocket under the Dow and a sudden negative headline could turn into a disaster.
Original Trade Description: October 24th
The SPDR Dow Jones Industrial Average ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the Dow Jones Industrial Average. The DJIA is the oldest continuous barometer of the U.S. stock market, and the most widely quoted indicator of U.S. stock market activity.
I am going to make this as simple as possible. The Dow is extremely overbought. It is due for a rest. There are 8 Dow components left to report earnings this week. Volatility will occur but we do not know in which direction. Since all the Dow gainers are already up strongly over the last several weeks, there is a good chance we could see some declines.
This is highly speculative. I am using the December options to give us some time for this to play out. Once a real decline begins, we will take profits rather quickly and I do not intend to hold this very long.
Long Dec 1st Weekly $232 put @ $2.25, see portfolio graphic for stop loss.
DLTR - Dollar Tree - Company Profile
No specific news. Shares holding at 52-week high levels. Earnings date changed to Nov 21st.
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 21st.
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.
Long Jan $87.50 call @ $3.30, see portfolio graphic for stop loss.
TSN - Tyson Foods - Company Profile
Tyson reported earnings of $1.43 that beat estimates for $1.38. Revenue of $10.15 billion beat estimates for $9.95 billion. Annual earnings rose to $4.79 on revenue of $38.26 billion. The company said a steady demand for its products plus a big decline in feed costs produced record earnings. Feed costs declined $65 million in the quarter and $80 million for the year after 4 years of bumper crops lowered prices. Tyson lowered guidance for 2018 feed costs by $100 million. Beef sales rose 9.5% and chicken sales 8.0%. The company guided for 2018 revenue of $41 billion, ahead of estimates for $40.36 billion. The company also said they acquired Original Philly Holdings, a leading producer of raw and fully cooked Philly-style sandwich steak and cheesesteak appetizer products. This company will be folded into Tyson's prepared foods division. Shares spiked to a new 11-month high and almost a record high.
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.
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.
Long Jan $70 calls @ $2.50, see portfolio graphic for stop loss.
Prices Quoted in Newsletter
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