11:00pm (EST)
1. Market Summary
2. USEC (USU) – Time to Buy Back into Nuclear
3. MagicJack VocalTec (CALL) – Getting Bigger
4. Earnings
5. Weekly Wrap Portfolio Update
6. Week Ahead
(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.)
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1. Market Summary
“If the market starts Monday off in the red, we will need to see if support holds and if Wall Street is buying the dip. If we start green, watch resistance at the 52-week highs and some “fluff” to new highs.” (END)
These were our last comments before we signed off last Sunday night.
It was nice to prove the talking heads wrong, again. If we had a nickel for every Wall Street pro that went on record and said we would get a pullback last week and the week before, and the week before that, well, we would have $3.55.
We were amazed at how many of the bigwigs in the business were calling for a test to support but the charts just haven’t been saying that. Yes we seem to be topping and the market has been in a tight range for 2 weeks but the bulls are still pushing resistance and in some case, smashing through it.
The official numbers for January were impressive and after a slow start to the week, the bulls were able to extend their gains into February after another failed attempt by the bears to slow the momentum.
The Dow and S&P 500 finished January with gains of 3.4% and 4.4%, respectively, while the Nasdaq and Russell 200 hit 8% pops.
Monday’s start was ugly as the major indexes dropped 1% at the open on continued Greece worries. There was an afternoon rally off the lows which nearly got the bulls back to even but the bears won the session after holding camp all day.
The bulls started Tuesday’s action with another push towards resistance but got blindsided shortly after the open by a few lackluster economic reports. The bears saw daylight and took advantage of the news but once again they were unable to crack support.
We thought Wednesday’s action was going to favor the bears following Amazon.com’s (AMZN, $187.68, up $5.96) disappointing earnings results but China came out with good news before the bell and said PMI was up while Germany chimed in and said manufacturing activity expanded for the first time in 6 months. There were also rumors floating that progress was being made (again) in Greece’s debt talks and that a deal was close but we saw how that went. FaceBook’s also made a big splash by filing for its upcoming IPO (Initial Public Offering).
Thursday’s action was a battle as both the bulls and bears jockeyed for position ahead of Friday’s marquee report on Nonfarm Payrolls. The bulls had the upper hand early but traders starting getting nervous after lunch which allowed the bears to even things up before the bell.
The bulls had a slight lead for the week heading into Friday’s session and at 8:30am, or an hour before the bell, the deal was sealed. The train left the station and the fat lady was singing as the unemployment rate dropped to 8.3%. Call it smoke, call it mirrors, but the rally left Wall Street speechless as the hedge fund managers scrambled to play catch-up
The Dow soared 157 points, or 1.2%, to finish at 12,862 on Friday. The blue-chips went out near their high after trading up to 12,869 while the low for the week came in at 12,529 on Monday. We were watching the drop below 12,600 to and we said to it would be important the bulls bought the dip or they faced a bear test to 12,350-12,000. The Dow came within a stone’s throw of tripping the 52-week high of 12,876 and 13,000 is still in play. We went on record last week and called for a run to 13,500 over the near-term and as you can see from the 10-year chart, the Dow could hit 14,000 in 2012. The trend will change on a break below 12,000 and a bear market would be in store on break below 11,500. The Dow added 202 points for the week, or 1.6%, after starting at 12,660 on Monday. For the year, the blue-chips are up 645 points, or 5.3%.
The S&P 500 jumped 19 points, or 1.5%, and settled at 1,345. The index fell to a low of 1,300 on Monday but went out at its high on Friday. The S&P failed to clear our 1,350 top-end target which would lead the way for a run to 1,375-1,450 over the near-term. A break above these levels could lead to our 2012 target of 1,550-1,600 for the S&P. As you can see from the 10-year chart, a close below 1,300 would get 1,250 back into play and a possible bear market would emerge on a trip below 1,200. The S&P began the week at 1,316 and gained 29 points, or 2.2%, by Friday. For 2012, the index is showing an advance of 88 points, or 6.9%.
The Nasdaq zoomed 46 points, or 1.6%, and ended at 2,905. Tech made it five-straight winning weeks and we have been saying the bulls had their eyes on the 52-week high of 2,887 and, if cleared, the Nasdaq would make a push to 3,000. If the momentum continues we could see the “fluff” we have been talking about push the Nasdaq to 3,250 over the near-term. For 2012, our price target is 3,750-4,000 for Tech. Should the bears wake up anytime soon, they will try to get the action below 2,800-2,750. A continued move down to 2,600 would get us nervous and we would turn bearish on a break below 2,500. The Nasdaq was at 2,816 before the bell on Monday and soared nearly 90 points, or 3.2%, for the week. YTD, the index is higher by 300 points, or 11.5%.
The S&P Volatility Index ($VIX, 17.10, down 0.88) traded above 20 on Monday’s pullback in the morning but was able to close below this level by the bell. Over the last 3 months we have called the VIX’s drop to a “T” and we have been showing you 3-year charts on the drop from 30 to 22.50 to 15, and now, possibly 12.. Below is a 10-year chart which shows the same thing but on a continued rally, the low teens would come into play. Given the strength of the rally since Christmas, it’s only natural ALL of Wall Street and the talking heads have been calling for a pullback, but as you can see, the VIX could come down to 12-10 if the bulls keep pushing higher. We would look for signs of a pullback if the VIX closes above 22.5 and a trend change on a break above 25 but the bears have a lot of work to do. The two blue lines show the breakdown out of an apex in a symmetrical triangle. We know that sounds a little technical but this was the chart we were looking at this week as we stayed long and strong.
The Russell 2000 added 18 points and closed at 831 on Friday. We have talked about how the move above 750 at the beginning of the year would lead to a run at 800 and this level was cleared on Wednesday. The index now appears set for a run at 875-900 over the near-term and for 2012, there is a chance the Russell 2000 makes a run at 1,000. A break below 800 and then 750 would be bearish and a trend change would occur on a fall below 700. For the week, the index jumped 14 points, or 1.8%, and easily went unnoticed by the talking heads and pros. For the week the Russell 2000 added 32 points, or 4%. YTD, the index is higher by 90 points, or 12.2%.
We showed you the 15-year chart last week of the PowerShares QQQ Trust (QQQ, $62.05, up $0.84) and how the break above $60 was significant. We also showed this in our video (for those of you who have our trading course) and how to play the options on it.
Although we have called for a pullback in February, and this will be the first full week, we won’t mind being wrong for another week or two.
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Key of Technicals Used In Following Articles
|
Ascending Triangle |
Bullish stock pattern, the upper trendline is flat while the lower (support) trendline is sloping upward. It usually forms during a consolidation period. |
|
Bollinger Band
|
Bands plotted two standard deviations away from a simple moving average, the closer the price to the upper band, the more overbought the stock is, and the closer the price to the lower band, the more oversold the stock is. |
|
Descending Triangle |
Bearish stock pattern, the lower (support) trendline is flat while the lower trendline is sloping downward. It usually forms during a consolidation period. |
|
Moving Average |
Average price over a length of time, it is used to spot trends. |
|
MFI (Money Flow Index) |
Increases when money flowing into a stock (positive money flow) is increases with respect to money flowing out of the stock (negative money flow), an MFI of 100 would mean that there is no money flowing out of a stock and only money flowing into the stock. General consensus says an MFI of 80 is overbought and an MFI of 20 is oversold.
|
|
RSI (Relative Strength Index)
|
Momentum oscillator that measures the speed of directional price movement, general consensus says an RSI of 70 is overbought and an RSI of 30 is oversold.
RS = Relative Strength U = Up Days EMA = Exponential Moving Average D = Down Days n = number of days in period |
|
Stochastic %K and %D |
An oscillation in closing prices, the %K is the change in closing price with respect to past high and low of a period, usually 14 days. The %D is the average of the %K values for a past period, usually 3 days. A bearish signal is given when %K crosses below the %D in overbought territory, defined as reading above 80. A bullish signal is given when %K crosses above the %D in oversold territory, defined as reading below 20. |
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W%R (William’s%R) |
Change in high price to closing price with respect to past high and low of a period, usually 14 days, a reading above 20 is considered overbought territory, and a reading below 80 is considered oversold territory. |
|
Support/Resistance |
These predetermined levels are used to predict when prices will reverse. |
2. USEC (USU) – Time to Buy Back into Nuclear
The Fukushima nuclear meltdown in Japan raised many concerns about the safety of nuclear energy. Germany has made a bold, and perhaps futile, move to end all nuclear power production in the country by 2022 and Iran may both help and hurt the need for it but we may have no choice but to use nuclear fuel. As a nuclear fuel provider, USEC (USU, $1.68, down $0.01) may still have a bright future and investors can snap it up on the cheap.
The $200 million company based in Bethesda, Maryland supplies low enriched uranium (LEU) to nuclear power plants in the United States and internationally. The company is divided into four units: United States Enrichment Corporation, American Centrifuge, USEC Government Services, and NAC International.
Revenue in the figure above are in millions. One concern is that the revenue made from each component declined from 2010 to 2011, correlating with the sharp drop in share price. Over the past 12 months, USEC used $70 million in cash while it booked a net loss of $36 million. Hence, it is not surprising that the market is a little bearish on the stock.
However, future prospects seem bright. If oil price surges and Iran continues to threaten to close the Strait of Hormuz, uranium prices will likely follow, providing a bullish trigger for the stock. Also, it is rumored that the company could get a $3.5 billion contract from the Department of Energy, far larger than its current market cap. The only drawback, USEC faces skepticism for partnering with Russian company TENEX, whose parent is believed to be supplying nuclear fuel to Iran. This could hurt the chances of the company receiving the contract.
As for the industry, we doubt that nuclear energy will go away anytime soon. Nuclear energy provides about 20% of the United States’ energy needs. It would be hard to replace this large source. Wind and solar energy still make up a tiny fraction of domestic energy usage. Even if we do add wind turbines and solar panels, the total energy produced is less than that created by nuclear fuel. Thus, Germany’s mission may prove futile. In addition, China announced plans to increase its nuclear capacity eight-fold before the end of the decade, while India plans to increase its nuclear power production thirteen-fold. Chinese Prime Minister, Wen Jaibao, highlighted the country’s intentions to focus on nuclear energy and limit its use of coal. Nuclear energy is a cleaner source than coal, producing no emissions. By 2030, China plans to have enough reactors to generate more power than all 104 reactors in the United States.
We see what followed the Fukushima disaster as an overreaction. The reactor was outdated, used a method not used by 97% of worldwide reactors, and was not built next to a large fresh water source. The reactor was 40 years old and the water source was one of the main problems. Had the plant used seawater to cool down the nuclear fuel rods earlier instead of later, the disaster might have been much less severe. The plant held off using seawater, since the salt would make the fuel rods useless.
Another catalyst that could drive the stock higher is its earnings report, which will be released after the close on Tuesday, February 21. The graphs below show the trend in revenue, total cost of sales, earnings, and analysts’ estimates.
The year-over-year earnings graph does not look pretty as every year experienced an earnings decline. The good news is that the gross profit, the difference between revenue and total costs of sales, has stayed about the same over the last two years. Plus, the gross profit seems to be getting wider. As for upcoming revenue and earnings’ estimates for the 4th quarter (12/11), it is hard to say. From the year-over-year graphs, 4th quarter revenue trend seems to contradict the 4th quarter earnings trend. Analysts see earnings declining at a slower pace while revenue suddenly plunges after the previous year’s increase but the current year’s 4th quarter slope matches the 3rd quarter. Thus, we think earnings could meet or slightly beat analysts’ expectations.
CCJ = Cameco DNN = Denison Mines UEC = Uranium Energy
URRE = Uranium Resources Industry = Industrial Metals & Minerals
|
|
USU |
CCJ |
DNN |
UEC |
URRE |
Industry |
|
Market Cap ($million) |
204.94 |
9380.00 |
680.85 |
303.81 |
88.38 |
19.25 |
|
Price/Sales |
0.11 |
4.46 |
6.85 |
96.65 |
— |
6.09 |
|
Price/Book |
0.16 |
1.98 |
1.35 |
4.93 |
3.37 |
— |
|
Trailing PE |
— |
24.24 |
— |
— |
— |
10.77 |
|
Forward PE |
8.40 |
17.86 |
— |
20.10 |
— |
— |
|
PEG |
-0.60 |
2.42 |
— |
— |
— |
0.74 |
|
Revenue Growth (%) |
-33.70 |
25.60 |
-57.30 |
— |
— |
19.70 |
|
Gross Margin (%) |
6.67 |
42.76 |
-10.16 |
-288.91 |
— |
49.31 |
|
Operating Margin (%) |
-2.22 |
17.87 |
-41.35 |
-776.20 |
— |
-0.22 |
|
Profit Margin (%) |
-1.90 |
18.72 |
-23.61 |
-769.70 |
— |
— |
|
Current Ratio |
1.50 |
3.65 |
7.70 |
5.90 |
1.73 |
— |
|
Cash Flow/Revenue |
0.053 |
0.275 |
-0.170 |
-7.099 |
— |
— |
|
Market Cap/Revenue |
0.109 |
4.510 |
6.806 |
97.375 |
— |
0.942 |
|
Market Cap/Cash |
1.738 |
7.882 |
12.905 |
12.781 |
16.336 |
— |
|
Debt/Revenue |
0.327 |
0.500 |
0.002 |
0.346 |
— |
— |
|
EV/Revenue |
0.37 |
4.43 |
6.28 |
90.10 |
— |
— |
|
EV/EBITDA |
146.26 |
15.03 |
288.09 |
-12.29 |
-9.31 |
— |
|
Return on Assets (%) |
-0.67 |
3.14 |
-3.60 |
-22.29 |
-20.12 |
— |
|
Return on Equity (%) |
-2.65 |
7.47 |
-3.80 |
-38.97 |
-43.00 |
— |
|
Short Interest (%) |
16.954 |
2.530 |
1.133 |
15.358 |
15.422 |
— |
|
Change Short (%) |
0.467 |
0.325 |
-0.049 |
-0.301 |
-0.202 |
— |
Source: Numbers calculated from Yahoo Finance
Despite having negative operating margin, profit margin, return on assets, and return on equity, the number is better than the average of the listed competitors. The company’s cash flow/revenue means that it makes 5.3 cents of cash flow for every $1 of revenue it takes in, better that most of the listed competitors. What is most impressive is that the market cap/revenue, EV/revenue, debt/revenue, and market cap/cash are all low. The company has about 10 times more revenue than its market cap. Revenue/share (not listed in the table) is $10.19, far higher than the current price of $1.68. Both debt and EV are about 1/3 that of revenue and cash on hand is more than half its market cap. The high short interest could also be positive for the shares by forcing more investors to cover if the stock goes higher. The only major concern is that the current ratio (current assets/current liabilities) is rather low at 1.5. The graph bellow shows that the difference between the current assets and current liabilities has stayed about the same, meaning the current ratio will likely not change much. However, if it decreases below 1, the company will have a hard time paying its current liabilities without issuing new stock.
At $1.68, the stock is below its target of $1.75 made by the lone analyst recorded by Thomson/First Call. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 3.0, unchanged from a week ago.
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
0 |
0 |
0 |
0 |
|
Buy |
0 |
0 |
0 |
0 |
|
Hold |
2 |
3 |
4 |
3 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
The last assent, shown as a purple line in the chart above, caused the stock to rise 50 cents in 30 days or about 1.67 cents per day. If shares keep rising at a similar pace, it will take about 25 days for the price to reach $2.10 resistance level. There are options available on this stock but we would rather own shares than play the options if we do make an investment.
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3. MagicJack VocalTec (CALL) – Getting Bigger
We have all heard the commercial for Magic Jack which plugs into your computer but is the product really that great and can one profit by buying MagicJack VocalTec (CALL, $17.46, down $0.08)?
The company sold over 365,000 of its new MagicJack Plus devices between November 20th and December 20th, the most ever for the device in a 30-day period. Sales for the 4th quarter are estimated around $55-60 million, which would make for a very strong quarter. Usually we would not recommend an Israeli company given the continuing turmoil in the Middle East, but with these strong sales, the stock may reach higher levels on momentum and after announcing a share buy-back program of up to $55 million. Cash and cash equivalents is expected to reach $50 million next month, the most in its history.
MagicJack is a USB device that utilizes VoIP technology which allows you to make free calls within the United States and Canada for $19.99/year. That is cheaper than traditional phone services and while computer to computer VoIP calling is generally free through several services, this allows one to call others to their phone. The drawback is that voice may not be as clear depending on where you live and your internet provider. The other drawback is that if the power goes out, you cannot call or get emergency calls.
At $17.46, the stock is below its target of $19.00 made by the 1 analyst recorded by Thomson/First Call. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.0, unchanged from a week ago.
|
|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
|
Strong Buy |
0 |
0 |
0 |
0 |
|
Buy |
1 |
1 |
1 |
1 |
|
Hold |
0 |
0 |
0 |
0 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
Oppenheimer recently initiated an “Outperform” rating on the stock in late January with a $24 price target.
The company reported earnings of 14 cents and 34 cents in the 2nd and 3rd quarters, respectively, a surprise of 40.0% and 126.7%, respectively. Analysts, however, expect the company to report a loss of 9 cents in the 4th quarter. However, with sales seeming robust, the company could shatter those expectations when it reports. The graphs below show the trend in revenue.
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4. Earnings
The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter. If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are as of Friday’s close, 2/3/12).
Special Update: For those who have our option trading manual, How to Trade Options on Momentum Stocks, we will be starting something new this week. We have always bolded the stocks we are watching for possible option earnings trades but we will try to be specific for which stock we might list options on in the Daily for possible triple-digit returns.
MONDAY
Advent Software (ADVS, $27.94, up $0.48), Anadarko Petroleum (APC, $84.34, up $2.18), Arlington Asset Investment (AI, $23.70, up $0.41), Associated Estates Realty (AEC, $16.72, up $0.24), Astronics (ATRO, $33.41, up $0.30), Bankrate (RATE, $24.76, up $0.27), Barrett Business Services (BBSI, $19.10, up $0.50), Beacon Federal Bancorp (BFED, $14.10, Flat), Black Diamond (BDE, $8.18, up $0.30), Boardwalk Pipeline Partners (BWP, $27.55, Flat), Cambrex (CBM, $8.24, down $).08) Changyou.com (CYOU, $29.09, up $1.46), Coinstar (CSTR, $49.66, down $0.31), Cubic (CUB, $51.05, up $3.29), Dun and Bradstreet (DNB, $84.97, up $0.26), Entercom Communications (ETM, $8.28, up $0.30), Evolution Petroleum (EPM, $9.35, up $0.34), Gamco Investors ( GBL, $51.71, up $2.56), Genomic Health (GHDX, $29.34, up $0.71), Gorman Rupp (GRC, $34.39, up $1.91), Green Plains Renewable Energy (GPRE, $11.45, down $0.17), Hasbro (HAS, $35.86, up $0.72), HCA Holdings (HCA, $26.46, up $1.19), Healthcare Services Group (HCSG, $19.26, up $0.29), Humana (HUM, $90.12, down $0.16), Immunomedics (IMMU, $3.84, up $0.07), Innophos Holdings (IPHS, $50.93, down $0.02), Kenexa (KNXA, $27.19, up $1.60), Kindred Healthcare (KND, $13.31, up $0.35), Koss (KOSS, $5.66, down $0.09), Landauer (LDR, $59.87, up $1.05), Lazard (LAZ, $28.89, up $0.12), Leapfrog Enterprises (LF, $6.00, down $0.01), Lincare Holdings (LNCR, $26.30, up $0.09), Loews (L, $38.61, up $0.61), Medley Capital (MCC, $11.45, up $0.18), Mercury General (MCY, $45.01, up $0.72), Momenta Pharmaceuticals (MNTA, $16.55, up $0.35), Mueller Industries (MLI, $46.88, up $2.08), Natural Resource Partners (NRP, $27.14, down $0.38), NCR (NCR, $18.98, up $0.15), Otter Tail (OTTR, $22.45, up $0.36), Owens And Minor (OMI, $31.17, up $0.34), Parke Bancorp (PKBK, $6.20, down $0.13), PDF Solutions (PDFS, $6.66, up $0.25), Pioneer Natural Resources (PXD, $104.39, up $1.73), Pioneer Southwest Energy Partners (PSE, $26.88, up $0.10), PMC Sierra (PMCS, $6.85, up $0.12), Post Properties (PPS, $46.18, up $0.80), Regal Beloit (RBC, $61.63, up $1.96), SeraCare Life Sciences (SRLS, $3.27, up $0.04), Sohu.Com (SOHU, $63.05, up $1.68), Stepan (SCL, $86.61, up $0.22), Sysco (SYY, $30.90, up $0.27), Textainer Group Holdings (TGH, $31.67, up $0.28), Torchmark (TMK, $47.67, up $0.94), Towers Watson and Company (TW, $60.74, up $1.00), UDR (UDR, $26.46, up $0.37), Veeco Instruments (VECO, $27.17, up $1.34), Viasat (VSAT, $49.67, up $1.14), Winner Medical Group (WWIN, $2.97, down $0.01), Yum Brands (YUM, $63.84, up $0.06)
We are watching call and put options on CSTR, CYOU, HAS, specifically.
Tuesday
Acadia Realty Trust (AKR, $22.17, up $0.47), Albany Molecular Research (AMRI, $3.04, up $0.01), Atmos Energy (ATO, $32.80, up $0.18), Badger Meter (BMI, $34.53, up $1.01), Becton Dickinson (BDX, $79.91, up $0.53), Blue Nile (NILE, $40.70, up $0.55), Buffalo Wild Wings (BWLD, $70.30, up $1.52), Cardiovascular Systems (CSII, $10.02, up $0.60), Coca-Cola (KO, $68.08, up $0.25), Colfax (CFX, $33.26, up $1.60), Compass Minerals International (CMP, $73.51, up $0.56), Corporate Executive Board (EXBD, $41.55, up $1.77), Douglas Emmett (DEI, $21.58, up $0.47), DST Systems (DST, $51.15, down $0.13), Forward Air (FWRD, $36.85, up $1.29), Gartner (IT, $38.83, up $0.52), Gaylord Entertainment (GET, $29.57, up $0.88), Gentiva Health Services (GTIV, $7.65, up $0.07), Harman International Industries (HAR, $44.71, up $0.79), Hartford Financial Services Group (HIG, $19.37, up $0.85), Higher One Holdings (ONE, $17.44, up $0.46), Highwoods Properties (HIW, $33.66, up $0.42), Horace Mann Educators (HMN, $16.10, up $0.10), K12 (LRN, $23.23, up $0.66), Knoll (KNL, $17.34, up $0.98), Learning Tree International (LCI, $5.24, up $0.15), Life Technologies (LIFE, $49.57, up $0.71), Littelfuse (LFUS, $53.72, up $ 1.51), Louisiana Pacific (LPX, $8.97, up $0.13), Martin Marietta Materials (MLM, $84.29, up $1.04), National Financial Partners (NFP, $16.20, up $0.26), NetGear (NTGR, $43.18, up $3.17), Omega Healthcare Investors (OHI, $21.32, up $0.33), OpenTable (OPEN, $52.00, up $1.60), Panera Bread (PNRA, $154.96, up $4.63), Perrigo (PRGO, $93.66, up $0.53), Pike Electric (PIKE, $8.60, up $0.30), Primerica (PRI, $24.90, up $0.09), Ralcorp Holdings (RAH, $89.34, up $0.77), Renaissancere Holdings (RNR, $74.97, up $0.29), Silicon Graphics International (SGI, $14.43, up $0.53), Solera Holdings (SLH, $49.75, up $0.46), Transdigm Group (TDG, $107.83, up $1.77), Valueclick (VCLK, $18.42, up $0.32), Vishay Intertechnology (VSH, $12.74, up $0.15), Walt Disney (DIS, $40.00, up $1.09), Western Union (WU, $19.73, up $0.55)
We are watching call and put options on BWLD, DIS, NILE, WU, specifically.
WEDNESDAY
Akamai Technologies (AKAM, $33.64, up $1.31), American Capital Mortgage Investment (MTGE, $19.70, up $0.10), Andersons (AND, $14.18, up $0.11), Apartment Investment and Management (AIV, $25.02, up $0.29), Biomed Realty Trust (BMR, $19.33, up $0.15), BJS Restaurants (BJRI, $54.27, up $2.45), Brandywine Realty Trust (BDN, $11.18, up $0.52), Callidus Software (CALD, $7.14, down $0.23), Cascade Microtech (CSCD, $3.63, Flat), Cincinnati Financial (CINF, $33.41, up $0.36), Cognizant Technology Solutions (CTSH, $73.35, up $0.73), Copa Holdings (CPA, $71.59, up $1.79), Coventry Health Care (CVH, $31.02, down $0.04), CVS Caremark (CVS, $43.51, up $0.85), DynaVox (DVOX, $3.84, up $0.04), Equifax (EFX, $39.64, up $0.54), FEI (FEIC, $46.48, up $0.64), General Cable (BGC, $34.54, up $2.44), Ingersoll Rand (IR, $37.52, up $1.26), Ingram Micro (IM, $19.53, up $0.27), IntercontinentalExchange (ICE, $122.32, up $2.67), iRobot (IRBT, $37.01, up $1.06), Kimco Realty (KIM, $18.89, up $0.37), Knightsbridge Tankers (VLCCF, $14.98, up $0.12), Matrix Service (MTRX, $12.53, up $0.46), Matrix Service (MTD, $183.86, up $3.84), Moody’s (MCO, $38.50, up $1.04), O’Reilly Automotive (ORLY, $82.83, up $1.29), Orchids Paper Products (TIS, $18.74, up $0.04), PennantPark Investment (PNNT, $10.60, up $0.07), Prudential Financial (PRU, $59.87, up $1.55), Ralph Lauren (RL, $155.97, up $2.97), Reynolds American (RAI, $39.75, down $0.03), Select Comfort (SCSS, $27.04, up $1.40), Temple Inland (TIN, $31.88, down $0.03), Time Warner (TWX, $38.19, up $1.01), TripAdvisor (TRIP, $35.38, up $0.50), TriQuint Semiconductor (TQNT, $6.70, up $0.21), Trueblue (TBI, $17.22, up $0.52), Virgin Media (VMED, $24.34, up $0.29), Visa (V, $107.03, up 0.97), Whole Foods Market (WFM, $76.25, up $0.65)
We are watching call and put options on AKAM, IRBT, ORLY, TRIP, V, WFM, specifically.
THURSDAY
Aceto (ACET, $7.69, up $0.19), Activision Blizzard (ATVI, $12.28, up $0.10), Aeroflex Holding (ARX, $13.15, up $0.02), American Science and Engineering (ASEI, $71.20, down $0.52), Beacon Roofing Supply (BECN, $24.37, up $0.82), Belden (BDC, $40.33, up $1.06), Bunge (BG, $57.91, up $0.69), CBOE Holdings (CBOE, $26.54, up $0.31), Coca-Cola Enterprises (CCE, $27.49, up $0.31), Corn Products International (CPO, $56.02, down $0.27), Deltek (PROJ, $10.10, up $0.11), Dunkin Brands Group (DNKN, $28.76, up $0.89), Encore Capital Group (ECPG, $24.35, up $0.05), EnerSys (ENS, $30.73, up $0.59), Expedia (EXPE, $32.50, up $1.34), First Bancorp (FBP, $4.13, up $0.04), Flowers Foods (FLO, $19.41, up $0.03), Forrester Research (FORR, $35.96, up $0.67), Gardner Denver (GDI, $77.76, up $4.00), Group 1 Automotive GPI, $54.93, up $0.44), Hawaiian Electric Industries (HE, $25.98, up $0.03), Heartland Payment Systems (HPY, $24.99, up $0.40), Home Properties (HME, $60.89, up $0.72), International Flavors & Fragrances (IFF, $56.39, up $0.35), KKR & Company (KKR, $14.54, up $0.08), Kona Grill (KONA, $5.26, down $0.15), Lorillard (LO, $111.57, up $1.97), Lufkin Industries (LUFK, $77.93, up $1.82), Monolithic Power Systems (MPWR, $17.04, up $0.46), National Bankshares (NKSH, $31.16, up $1.79), Nuance Communications (NUAN, $29.42, up $0.48), Orbital Sciences (ORB, $15.10, up $0.20),PepsiCo (PEP, $66.66, up $0.26), Philip Morris International (PM, $76.62, up $0.78), Prestige Brands Holdings (PBH, $13.44, up $0.04), Republic Services (RSG, $30.04, up $0.39), Scripps Networks Interactive (SNI, $43.38, up $0.85), Sonoco Products (SON, $32.53, up $0.76), Stamps.com (STMP, $31.38, down $0.04), Teradata (TDC, $56.84, up $2.57), True Religion Apparel (TRLG, $36.18, down $0.04), Unilife (UNIS, $3.87, Flat), US Geothermal (HTM, $0.35, up $0.01), Zoltek Companies (ZOLT, $13.11, up $3.64)
We are watching call and put options on DNKN, LUFK, NUAN, PEP, PM, STMP, specifically.
FRIDAY
Aarons (AAN, $28.62, up $0.51), Alliant Energy (LNT, $42.97, up $0.22), Buckeye Partners (BPL, $63.62, up $0.16), Exide Technologies (XIDE, $3.74, up $0.13), FutureFuel (FF, $12.28, up $0.12), Granite City Food And Brewery (GCFB, $2.15, Flat), Laboratory Corporation of America Holdings (LH, $93.09, up $0.67), Mannkind (MNKD, $2.17, down $0.30), NYSE Euronext (NYX, $27.49, up $0.55), Rand Logistics (RLOG, $6.92, up $0.05), Snyder’s-Lance (LNCE, $23.48, up $0.01), Treehouse Foods (THS, $54.80, down $0.55)
We are watching call and put options on RLOG, THS, specifically.
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5. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 2/3/12)
Closed Trades for 2012 (7-0): SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%.
Arena Pharmaceuticals (ARNA, $1.87, down $0.01)
July 3 calls (ARNA120723C00003000, $0.55, flat)
Original Entry Price: $1.88 (2/2/12)
Lowered Price from Selling Options: $1.33
Exit Target: $3+
Return: 36%
Stop Target: None
Action: This is a play off of Vivus this month but Arena has its own obesity drug called Lorcaserin. Since this is a covered call, our gains will be capped at $3 but we may add another 500 shares on speculation. If we do we will send out a Trade Alert because owning 1,000 shares would still be under a $2,000 investment.
We recommended buying the stock at $1.88 on 2/2/2012 and for every 100 shares to sell the July 3 calls for 50 cents. This lowered the cost basis to $1.33.
If shares are called-away by mid-July at $3 the trade makes 117%.
MGM Resorts (MGM, $14.37, up $0.47)
March 15 call (MGM120317C00015000, $0.60, up $0.20)
Original Entry Price: $13.77 (2/2/12)
Lowered Price from Selling Options: $13.32
Exit Target: $15
Return: 8%
Stop Target: None
Action: This is our second MGM trade that we got into last week as our February trade will likely be called away. Shares have been on a surge and we have been targeting a run to $16 which is right at the 52-week high. Longer-term, we have a $20-$25 target for MGM. Support has moved up from $12 to $12.50.
We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents. This lowered the cost basis to $13.32.
If shares are called-away by mid-March at $15 the trade makes 13%.
MGM Resorts (MGM, $14.37, up $0.47)
February 14 call (MGM120218C00014000, $0.65, up $0.25)
Original Entry Price: $11.76 (1/12/12)
Lowered Price from Selling Options: $11.46
Exit Target: $12+
Return: 25%
Stop Target: None
Action: This is our other MGM trade. If shares hold $14, we will be called away from this position in 2 weeks.
We recommended buying the stock at $11.76 on 1/12/12.
On 1/25/12 we recommended selling the February 14 call option for $0.30 which lowered the cost basis to $11.46. If shares are called away at $14 in mid-February the trade will make 22%.
TiVo (TIVO, $11.23, up $0.42)
February 10 calls (TIVO120218C00010000, $1.25, up $0.35)
Original Entry Price: $10.29 (1/12/12)
Lowered Price from Selling Options: $9.54
Exit Target: $15
Return: 18%
Stop Target: None
Action: TiVo was steady all week and Friday’s 4% pop got shares out or their trading range. We said the 52-week high is $12.65 would be challenged if $11 was cleared but our gains are capped. Near-term support is at $10 which is where our strike price is. We may enter another TiVo position this week or next if it appears this one is a lock.
We recommended buying the stock at $10.29 on 1/12/2012 and for every 100 shares to sell the February 10 calls for 75 cents. This lowered the cost basis to $9.54.
If shares are called-away by mid-February at $10 the trade makes 5%.
Patriot Coal (PCX, $9.03, up $0.48)
February 10 calls (PCX120218C00010000, $0.15, up $0.05
Original Entry Price: $8.91 (1/12/12)
Lowered Price from Selling Options: $8.51
Exit Target: $15
Return: 6%
Stop Target: None
Action: Patriot had a good week despite reporting some lousy earnings. The company did try to offset weak demand by shutting down a plant but if the demand isn’t there it isn’t going to help coal prices. We said last week if $8 holds as support there could be a run to $10. There is risk to $7 on a pullback.
We recommended buying the stock at $8.91 on 1/12/2012 and for every 100 shares to sell the February 10 calls for 40 cents. This lowered the cost basis to $8.51.
If shares are called-away by mid-February at $10 the trade makes 16%.
Bank of America (BAC, $7.84, up $0.39)
April 8 call (BAC120421C00008000, $0.55, up $0.15)
Original Entry Price: $6.75 (1/12/12)
Lowered Price from Selling Options: $6.35
Exit Target: $15
Return: 23%
Stop Target: None
Action: This is for the second trade on BAC which we followed up with on 1/12/12 where we bought the stock at $6.75. Goldman Sachs downgraded Bank of America last Monday but shares held $7 and Goldman looks early on its call. We said a run to $8 would come if $7 held and, if $8 is cleared, pencil in $10 as there will be very little resistance.
We recommended buying the stock at $6.75 on 1/12/2012 and for every 100 shares to sell the April 8 calls for 40 cents. This lowered the cost basis to $6.35.
If shares are called-away by mid-April at $15 the trade makes 26%.
Bank of America (BAC, $7.84, up $0.39)
March 6 call (BAC120317C00006000, $1.90, up $0.40)
Original Entry Price: $5.35 (12/22/11)
Lowered Price from Selling Options: $4.99
Exit Target: $7.50
Return: 57%
Stop Target: None
Action: This is our other BAC trade.
We recommended buying the stock at $5.35 on 12/22/11.
On 1/4/12 we recommended selling the March 6 call option for $0.36 which lowered the cost basis to $4.99.
If shares are called-away by mid-March at $6 the trade makes 20%.
Vivus (VVUS, $12.47, up $0.14)
March 15 calls (VVUS12031700015000, $1.80, up $0.05)
Original Entry Price: $12.60 (1/12/12)
Lowered Price from Selling Options: $10.85
Exit Target: $15
Return: 15%
Stop Target: None
Action: Shares traded below $12 for much of the week but gained momentum on Thursday and Friday. The chart shows a breakout and blue-sky territory on a run past $13 but shares will easily reach $20 on approval of its obesity drug, Qnexa. We should get some news this month should on possible approval. A further delay or rejection will knock Vivus down to $5, or worse.
We recommended buying the stock at $12.60 on 1/12/12.
On 1/23/12 we recommended selling the March 15 calls for $1.75 which lowered the cost basis to $10.85.
If shares are called away at $15 in mid-March the trade will make 38%.
Alcoa (AA, $10.76, up $0.34)
March 11 call (AA120317C00011000, $0.40, up $0.15)
Original Entry Price: $9.65 (1/12/12)
Lowered Price from Selling Options: $9.40
Exit Target: $11
Return: 14%
Stop Target: None
Action: Prior resistance at $10 has held up well as shares continue to work their way to $11. Our near-term target is $13 and our 2012 target for Alcoa is $15-$17.50. Backup support is at $9 should $10 not hold on a pullback.
We recommended buying the stock again at $9.65 on 1/12/12.
On 1/23/12 we recommended selling the March 11 calls for $0.25 which lowered the cost basis to $9.40.
If shares are called away at $11 in mid-March the trade will make 17%.
Zynga (ZNGA, $13.39, up $1.01)
February 10 call (ZNGA120218C00010000, $3.60, up $0.90)
Original Entry Price: $9.37 (12/22/11)
Lowered Price from Selling Options: $8.87
Exit Target: $15
Return: 51%
Stop Target: None
Action: Zynga had a huge day on Thursday, rising 17% and to new 52-week highs. Friday was no different as shares soared to $14.44 intraday. We were trying to open another position last Thursday with the 3 other recommendations we sent out but shares gapped higher at the open and we didn’t want to chase.
We said if shares moved above $9.50 they could run and the action was insane as rumors started circulating the company could be FaceBook’s first “acquisition” once their IPO is out and the lockup period ends. FaceBook gets 30% of the company’s revenue and both need as other now that Wall Street will be getting quarterly updates.
We bought Zynga based on its relationship with FaceBook but we said the bigger picture would be the development of its Poker games. We wouldn’t be surprised to see all 50 states allow online gambling and with 800 million users, FaceBook and Zynga would have a nice setup for a friendly game of cards.
We told you the knucklehead that downgraded shares the prior week had no clue what he was talking about and you don’t need a Harvard degree to see this acquisition coming. Shares are in blue-sky territory and a bid north of $20 for Zynga could come from FaceBook but they better hurry. Should the “hype” fade and shares retreat, a break below $11 would be bearish.
We recommended buying the stock at $9.37 on 12/22/11.
On 1/4/12 we recommended selling the February 10 call option for $0.50 which lowered the cost basis to $8.87.
If shares are called-away by mid-February at $10 the trade makes 13%.
Darling International (DAR, $16.00, up $0.32)
February 15 calls (DAR120218C00012500, $1.05, up $0.35)
Original Entry Price: $13.23 (11/23/11)
Lowered Price from Selling Options: $12.53
Exit Target: $15
Return: 28%
Stop Target: None
Action: Darling continued its march higher and added nearly $1 for the week. Our near-term target of $16 came quickly and we should get called away in a few weeks if shares hold $15. Support is now at $14 following the breakout from $12.50. Our longer-term price target is $20 for shares of Darling.
We recommended buying the stock at $13.23 on 11/23/11 and for every 100 shares to sell the January 15 calls for 50 cents. This lowered the cost basis to $12.73.
On 1/25/12 we recommended selling the February 15 call option for $0.20 which lowered the cost basis to $12.53.
If shares are called away at $15 in mid-February the trade will make 20%.
Symantec (SYMC, $17.62, up $0.19)
March 17 call (SYMC120317C00017000, $0.95, up $0.05)
Original Entry Price: $15.60 (11/23/11)
Lowered Price from Selling Options: $14.60
Exit Target: $18
Return: 21%
Stop Target: None
Action: We said last week to look for shares to make a run at the 50-day MA of $17.62. Symantec could be setting up for a run to $18.50 over the near-term, $20 longer-term. Short-term support has moved up from $15.50 to $16.50.
We recommended buying the stock at $15.60 on 11/23/11 and for every 100 shares to sell the January 17.50 calls for 30 cents. This lowered the cost basis to $15.30.
On 1/23/12 we recommended selling the March 17 calls for $0.70 which lowered the cost basis to $14.60.
If shares are called away at $17 in mid-March the trade will make 16%.
Solazyme (SZYM, $11.87, up $0.25)
March 15 call (SZYM120317C00015000, 0.25, flat)
Original Entry Price: $11.16 (11/14/11)
Lowered Price from Selling Options: $9.66
Exit Target: $15
Return: 23%
Stop Target: None
Action: We were looking for a run past $12 last week after shares tested $11.90 twice during the prior week. If cleared, we should see another charge towards $13 which is where we would look for a breakout up to $15.
We recommended buying the stock at $11.16 on 11/14/11 and for every 100 shares to sell the December 12.50 calls for 60 cents. This lowered the cost basis to $10.56.
On 1/4/12 we recommended selling the January 12.50 call option for $0.50 which lowered the cost basis to $10.06.
On 1/25/2012 we recommended selling the March 15 call at $0.40 which lowered our cost to $9.66. If shares are called away at $15 in mid-March the trade will make 55%.
Newpark Resources (NR, $8.20, up $0.22)
March 12.50 call (NR120218C00012500, $0.20, flat)
Original Entry Price: $9.45 (7/27/11)
Lowered Price from Selling Options: $7.85
Exit Target: $10+
Return: 4%
Stop Target: None
Action: Newpark continues to frustrate us as shares traded down to $7.75 last Wednesday. The stock hit a 52-week high of $10.62 in mid-January but has given back 20% since. We said there was still risk down to $7 and resistance will be at $9.50 going forward.
We recommended buying the stock at $9.45 on 7/27/11 and for every 100 shares to sell the August 10 calls for 50 cents. This lowered the cost basis to $8.95.
On 9/15/11 we recommended selling the December 10 call option for $0.85 which lowered the cost basis to $8.10.
On 1/25/2012 we recommended selling the March 12.50 call at 25 cents which lowered our cost to $7.85.
If shares are called away at $12.50 in mid-March the trade will make 59%.
American Capital (ACAS, $8.51, up $0.14)
Original Entry Price: $9.73 (4/19/11)
Lowered Price from Selling Options: $8.38
Exit Target: $10+
Return: 2%
Stop Target: None
Action: We can write calls again now that American Capital has cleared $8. We may sell a March or April call once shares reach $9 to give us a bigger return.
We recommended buying the stock at $9.73 on 4/19/11 and for every 100 shares to sell the June 10 calls for 50 cents. This lowered the cost basis to $9.23.
On 7/1/11 we recommended selling the August 10 call option for $0.55 which lowered the cost basis to $8.68.
On 9/13/2011 we recommended selling the October 9 call at 30 cents which lowered our cost to $8.38.
Trades on HOLD: Rambus (RMBS, $7.56, up $0.27), Rare Element Resources (REE, $7.79, up $0.12), AKS Steel Holding (AKS, $8.79, down $0.25), DryShips (DRYS, $2.41, up $0.25)
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6. Week Ahead
Compared to last week’s flood of economic news, this week is a walk in the park.
There are no economic reports due out on Monday and Tuesday’s Consumer Credit update won’t be released until 3pm (EST), or an hour before the close.
Wednesday brings the usual updates on the MBA Mortgage Index along with Crude Inventories
Thursday’s news will be another round of Initial Claims and Continuing Claims before the bell, followed by Wholesale Inventories 30 minutes after the open.
Friday wraps up with the Trade balance figures, Michigan Sentiment, and the Treasury Budget later in the day.