11:00pm (EST)
1. Market Summary
2. Bebe Stores (BEBE) – A Sleeper in Retail
3. Earnings
4. Weekly Wrap Portfolio Update
5. 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
“The slight pullback we got in the prior week was short and sweet but it still doesn’t mean we can’t get another one. The bulls have impressed us with their test to our fluff targets of Dow 13,000; S&P 1,375; and Nasdaq 3,000 and we are bullish for 2012 (new subscribers, see 2/5/12 Weekly Wrap for upside targets). However, we are always looking over our shoulder for a bear attack and a lot of people who have been out of the market are now starting to come back in. Barron’s calling for Dow 15,000 didn’t help matters.
This makes us nervous but we will go with the flow.” (END)
The bulls got back-to-back victories after winning a shortened week while the bears did their best to break short-term support. Following a choppy week that started off well, the market traded in a tight range before gaining ground. Friday’s close wasn’t spectacular but it was enough to at least keep the momentum going which is what we predicted by last week’s aforementioned comments.
With February drawing to a close, March is setting up to be a harbinger as the market looks to break out of a 4-week trading range. After looking at the long-term charts last week, we will take a look at the short-term picture to see what events or catalysts will shake, rattle, or roll the market this week.
The Dow fell 2 points, or 0.01%, to settle at 12,983 on Friday. The blue-chips held short-term support at 12,800 all week as the low came in Thursday at 12,914. The index flirted with the 13,000 level in the back half of the week and reached a peak of 13,013. The fluff target we gave once the 12,800 level was cleared is Dow 13,000-13,200 and our upside target of Dow 13,500 would come into play if this level is cleared on a close this week. Support is trying to move up to 12,900 from 12,800 but 12,600 could come quickly on a break below these levels. From there, a drop to 12,350 would be in the cards. The Dow began the week at 12,950 and added 33 points, or 0.3%, by the time we finished. For 2012, the index is up 765 points, or 6.3%.
The S&P 500 added 2 points, or 0.2%, to finish at 1,365. The index traded to a high of 1,368.92 and nearly kissed the 52-week high of 1,370 set back in May 2011. The impressive part about last week is how the bulls held 1,350 which frustrated the heck out of the bears and keeps 1,375-1,400 in play. A break below 1,350 would get 1,325-1,300 back on the radar. The S&P 500 started Monday at 1,361 and gained 4 points, or 0.4%, over the 4-day week. For the year, the index is showing a gain of 108 points, or 8.6%.
The Nasdaq popped 7 points higher, or 0.2%, to close at 2,963. Tech traded to a high of 2,970.88 on Friday and is just 1% away from crossing our 3,000 target that we gave after Thanksgiving if 2,800 were cleared. A close above this level would bring 3,250 into the picture. The low for the week came at 2,922 which was higher than the previous week’s low of 2,911 which was hit in back-to back sessions. At the time we said to our market Valentine, a “short-term double bottom or double top”? Support has moved up from 2,800-2,750 to 2,900 but a break below these levels could lead to a drop down to 2,650, or the 200-day MA. For the week, the Nasdaq added a dozen points, or 0.4% and for 2012, the index is showing a gain of 358 points, or 13.8%.
The S&P Volatility Index ($VIX, 17.31, up 0.51) was flat for the week as the bears had trouble clearing 20. We have been critical of the 20-22.50 area and said a move above these levels would confirm a pullback. The bears pushed 18.94 on Tuesday and Wednesday (double top or double short-term double bottom?) and Thursday’s high was 18.97 before the VIX finished under 17. Friday’s slight gain was meaningless and the low was 16.42. We reminded you the VIX hit a low of 16.10 and 16.11 at the beginning of the month and we have been mentioning the mid-teens as a resting point before a break to low double-digits (12-10) later in the year. Same story for this week.
The Russell 2000 gave back 2 points, or 0.3%, to finish at 827. The index kissed a high of 830.87 on Friday and 831 on Tuesday’s opening pop and had trouble clearing 830 on a close once again. Thursday’s close of 829.23 was lower than the previous week’s close of 829.96. At the beginning of the month, the index was at 792 and peaked at 833 three sessions later. Again, basically a 4-week range. We have been mentioning a close above the 830 level would get 850-875 into the mix but a break below 800 would be dangerous. The index fell 2 points, or 0.2%, for the week but is still showing a sweet 86 point gain for 2012, or 11.6%.
We came into February a little nervous because it is, historically, the worst month for stocks during “seasonal” bull runs from November through April. We also said the pullback wouldn’t come until the first FULL week of February and the market did decline 1%, but even we are surprised by the strength the bulls are showing and the inability by the bears to at least crack support.
There are 2 days left for February and the Dow is up 350 points for the month after ending January at 12,632. However, to put things in perspective, the index reached our 12,800 target we gave back in November on January 26 after trading to an intraday high of 12,842. It has taken a month for the blue-chips to reach our fluff target of 13,000 which is what we mean when we say we are in a 4-week range.
The S&P 500 was at 1,312 to start February and struggled with our 1,350 target for 2 weeks before clearing this level for good. The index had reached a high of 1,333 in late January and has yet to hit our 1,375-1,400 fluff zone.
The Nasdaq hit our 2,800 target a little earlier than the other indexes on January 23 and the high for the month was 2,834. We called for a run to 2,800-3,000 back in November and Tech has done a remarkable job of holding 2,900 since the beginning of February. The Nasdaq reached a peak of 2,970 last week but it too has fallen just shy of triggering our next upside target.
If we do clear our “fluff” targets, the market could setup something like this. For the next 2 weeks we get a run past and up to our fluff targets, then the market pulls back into April which is when 1Q earnings season starts. By then, companies will start to report and they have already lowered the bar with lousy 4Q numbers which will be winding down into March.
We also said last week the bulls are looking for the next catalyst to keep the momentum and besides earnings, we think M&A activity could heat up come Spring time, maybe sooner.
We wouldn’t be surprised to see Apple (AAPL, $522.41, up $6.02) lead the way and we have mentioned how they should buy Twitter, but we have changed our mind and now think they should go after Adobe Systems (ADBE, $33.41, up $0.44). This way, they can fix what they think is wrong with Flash the way they want. Currently, the iPhone and iPad do not support Adobe’s products because Steve Jobs refused to accept Adobe’s perceived flaws. It’s time to bury that hatchet and move on because it can be really frustrating when you want to watch certain things on your Apple product and can’t. By the way, Apple’s TV box is sold out in Best Buys’ (BBY, $24.99, down $0.20) up and down the East Coast. It’s only $99 but retailers can’t seem to keep them in stock.
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Key of Technicals Used In Following Articles
2. Bebe Stores (BEBE) – A Sleeper in Retail
Bebe Stores (BEBE, $9.02, up $0.03) is doing great when it comes to appealing to women.
The company markets its products under the bebe, BEBE SPORT, bbsp, and 2b bebe brand names. As of January, Bebe operated 256 retail stores, and its online store at bebe.com. The brick-and-mortar locations cover the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Japan, and Canada, as well as 60 international licensee operated stores in Southeast Asia, the United Arab Emirates, Israel, Russia, Mexico, and Turkey.
On our visit to a nearby Bebe, we noticed that the store was bright, spacious, well-organized, and had a friendly atmosphere, all important aspects to draw in shoppers. The customer service was very nice, which is big in this day and age. Beat music, popular among younger generations, played in the background. On inspection of the clothing, the pants are typically tight and the length is shorter, which is trendy and appealing to a lot of women but the store sells clothing from size 00 to size 10.
The company’s two specific competitors who sell very similar items and targeting a similar age group and older group are Cache and Arden B. Arden B was located next to the Bebe store we visited. It sold similar clothing, jewelry, and handbags, but we would say that the clothes were more conventional and less trendy. Also, the jewelry designs were not as flashy as Bebe’s and the store was not as bright and friendly. Cache was even more reserved and carrying more high-end clothing. Definitely, the Bebe store stood out to us versus the competition.
The company is gearing up for the release of its spring 2012 collection. Its limited time sale of 10% off if one spends more than $100, 20% off if one spends more than $200, and 30% off if one spends more than $300 may help boost sales.
Bebe recently reported 2nd quarter (12/11) earnings earlier this month and beat expectations by a penny. It was the third-straight quarter the company has beat analyst’s expectations. Revenue at stores open at least a year rose 9.6% during the 2nd quarter, indicating that the company is growing healthily. For the 1st and 2nd quarters, the first half of its fiscal year, revenue at stores open at least a year increased 8.4%, with total revenue gaining 8.5% to $257.1 million.
Quarter-over-quarter revenue or net sales has seemed to stay about the same over the past three fiscal years with a slow and steady increase. Cost of revenue (cost of sales) seem to be rising at a slower rate than revenue, meaning gross margin (the difference between revenues and cost of revenue) is slowly increasing, a positive sign. Cost of sales includes merchandise, occupancy, distribution, and production costs.
Operating expense, which includes selling and advertising costs, has stayed about flat. Thus, operating income (the difference between gross margin and the operating expense) is also slowly growing. Year-over-year revenue has been growing every quarter since 2010.
Revenue (net sales) seems to peak around December, which makes sense, because of Christmas season. Although earnings also peak around December, it is not as obvious. Still we can expect a sales and earnings decline for the 3rd (3/12), which is what analysts predict. Analysts’ estimates for and 4th (6/12) quarter revenue and earnings are also shown in both graphs. When revenue declined in 3/10, the price peaked and started to fall. It is possible this could happen again. However, the year-over-year graphs show that analysts’ estimates seem conservative even after the current beat. The slopes for the 3rd and 4th quarters are either flatter than that of corresponding quarters or about the same slope. Thus, we think the company will meet or beat analysts’ expectations going forward, giving investors more reason to push shares higher.
The company is about the average size for an apparel store. It has the highest price/sales, trailing PE, and forward PE ratio among its listed competitors and the industry. Price/book is about average, while PEG is slightly higher than the industry average. Operating margin, profit margin, cash flow/revenue is one of the lowest in the group. The company makes only 7.7 cents of cash flow for every $1 of revenue it takes in. The market cap/revenue, which is very close to its price/revenue/share, is the highest in the group, meaning the shares carry a price about 1.5 times its revenues/share. The EV/EBITDA is the second highest in the group, while the return on assets and return on equity are the lowest in the group. All these indicate that the shares may be slightly overpriced.
However, its revenue growth and gross margin is among the highest in the group, a positive sign that could justify its valuation. The current ratio (current assets/current liabilities) is at 5.41, by far the highest in the group. Thus, the company has better liquidity than some of its top competitors. The company also has no debt; a feat matched only by competitor Wet Seal, the owner of Arden B. The short interest is the second lowest in the group, meaning many investors do not think the price will fall. The fact that the change in short interest is the highest negative number in the group shows that short investors are covering.
One of the other discoveries we found is that 56% of the company is held by insiders, a large enough number that may signify that insiders see hidden value in Bebe. The 38% institutional holding shows that institutions also agree that the stock has value. Bebe is also hosting an Analyst and Investor Day in mid-March to discuss recent developments and management’s focus in the coming quarters.
At $9.06, the stock is even below its low target of $10.00 made by 6 analysts recorded by Thomson/First Call. Mean target of $11.05, medium target is $10.65, and the high target is $14.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.7, unchanged from a week ago.
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|
Current Month |
Last Month |
Two Months Ago |
Three Months Ago |
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Strong Buy |
3 |
3 |
3 |
3 |
|
Buy |
3 |
3 |
3 |
3 |
|
Hold |
1 |
2 |
2 |
2 |
|
Underperform |
0 |
0 |
0 |
0 |
|
Sell |
0 |
0 |
0 |
0 |
Our 6-12 month target is $15 as we see the company benefiting from current fashion trends and an improved balance sheet.
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3. 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, 2/24/12).
MONDAY
21Vianet Group (VNET, $12.74, up $1.17), A123 Systems (AONE, $1.95, down $0.09), Achillion Pharmaceuticals (ACHN, $10.72, up $0.22), Acme United (ACU, $9.90, down $0.10), Allied Nevada Gold (ANV, $35.34, up $0.50), Balchem (BCPC, $35.64, up $0.18), Calgon Carbon (CCC, $15.54, down $0.16), Career Education (CECO, $11.93, up $0.41), Chemtura (CHMT, $14.53, down $0.03), Cooper Tire and Rubber (CTB, $15.66, up $0.05), Cray (CRAY, $7.83, down $0.05), CVR Energy (CVI, $29.76, down $0.01), Dendreon (DNDN, $14.86, up $0.42), Dril Quip (DRQ, $76.26, down $0.35), Employers Holdings (EIG, $18.18, down $0.28), Erie Indemnity (ERIE, $77.57, up $0.26), Great Plains Energy (GXP, $20.81, up $0.09), Gulf Island Fabrication (GIFI, $34.03, Flat), Human Genome Sciences (HGSI, $8.47, up $0.01), Lowes Companies (LOW, $27.16, up $0.10), Metropolitan Health Networks (MDF, $8.71, down $0.17), Michael Baker (BKR, $26.41, down $0.26), Mindray Medical International (MR, $28.96, up $0.09), Quaker Chemical (KWR, $42.80, down $0.40), Redwood Trust (RWT, $12.14, up $0.07), Salix Pharmaceuticals (SLXP, $46.11, down $0.34), Southwestern Energy (SWN, $35.21, down $0.19), Standard Motor Products (SMP, $25.46, down $0.03), Sykes Enterprises (SYKE, $17.10, down $0.39), Teavana Holdings (TEA, $24.45, up $0.22), Terreno Realty (TRNO, $14.44, up $0.08), Titanium Metals (TIE, $14.99, up $0.01), Tower Group (TWGP, $23.63, up $0.10), Universal Health Services (UHS, $43.91, up $0.71), Visteon (VC, $53.56, down $0.74), Western Gas Partners (WES, $44.91, up $0.33), Zagg (ZAGG, $9.72, up $0.23)
TUESDAY
AboveNet (ABVT, $70.98, down $1.31), Amedisys (AMED, $11.99, up $0.48), Aqua America (WTR, $22.55, down $0.06), Assured Guaranty (AGO, $17.71, up $0.01), Autozone (AZO, $359.80, up $1.30), Big 5 Sporting Goods (BGFV, $8.88, down $0.14), Carrizo Oil & Gas (CRZO, $27.77, down $0.38), CDI (CDI, $15.85, down $0.14), Collective Brands (PSS, $17.38, down $0.22), Diana Shipping (DSX, $9.22, up $0.05), Dreamworks Animation (DWA, $19.45, down $0.08), Ecolab (ECL, $62.69, up $0.52), Entercom Communications (ETM, $7.40, down $0.18), FirstEnergy (FE, $44.07, up $0.07), Fresh Del Monte Produce (FDP, $25.13, down $0.19), Gladstone Commercial (GOOD, $18.41, up $0.03), HollyFrontier (HFC, $33.89, down $1.31), Integrys Energy Group (TEG, $54.41, up $0.15), Kodiak Oil & Gas (KOG, $10.75, up $0.26), LSB Industries (LXU, $35.66, down $0.32), Magellan Health Services (MGLN, $48.80, down $0.03), Northwest Natural Gas (NWN, $48.24, down $0.45), OM Group (OMG, $29.90, down $0.75), Omega Protein (OME, $9.01, up $0.03), Par Pharmaceutical Companies (PRX, $37.28, up $0.28), Pozen (POZN, $4.52, down $0.08), Rosetta Resources (ROSE, $52.78, up $0.77), Scientific Games (SGMS, $12.09, down $0.03), Sonic Automotive (SAH, $16.62, up $0.02), South Jersey Industries (SJI, $54.33, down $0.29), Systemax (SYX, $20.56, up $0.01), Tech Data (TECD, $57.26, up $0.99), Teletech Holdings (TTEC, $17.55, down $0.01),Tenet Healthcare (THC, $5.78, up $0.16), Universal Display (PANL, $45.31, up $0.61), Verisk Analytics (VRSK, $42.00, up $0.25), ViroPharma (VPHM, $31.74, up $0.61), Vitamin Shoppe (VSI, $43.15, down $1.29), Warnaco Group (WRC, $59.20, up $0.42), Xylem (XYL, $27.26, down $0.52)
WEDNESDAY
Accretive Health (AH, $25.20, up $0.96), Aircastle (AYR, $13.94, down $0.21), California Water Service (CWT, $18.86, up $0.02), Carter’s (CRI, $43.61, up $0.07), Comfort Systems USA (FIX, $12.08, down $0.24), Costco Wholesale (COST, $84.40, down $0.37), Cumberland Pharmaceuticals (CPIX, $7.88, up $0.08), DigitalGlobe (DGI, $15.76, down $0.14), Dot Hill Systems (HILL, $1.42, up $0.01), Edison International (EIX, $42.23, up $0.33), Finisar (FNSR, $22.76, down $0.12), Greif (GEF, $50.87, down $0.08), HiSoft Technology International (HSFT, $12.08, up $0.02), ICF International (ICFI, $27.44, down $0.36), Joy Global (JOY, $90.65, down $0.83), LHC Group (LHCG, $17.29, down $0.16), Nacco Industries (NC, $103.65, down $0.67), Northern Oil and Gas (NOG, $25.59, up $0.78), Oxford Resource Partners (OXF, $14.00, up $0.07), Quad Graphics (QUAD, $13.21, down $0.08), Sabra Health Care REIT (SBRA, $14.43, down $0.12), Safeguard Scientifics (SFE, $17.59, down $0.31), Sodastream International (SODA, $44.46, up $2.67), Sothebys (BID, $40.14, up $1.28), Staples (SPLS, $15.28, down $0.08), Starwood Property Trust (STWD, $20.04, up $0.08), Tootsie Roll Industries (TR, $23.84, down $0.09)
THURSDAY
Addus Homecare Corp (ADUS, $3.68, up $0.02), Amerisafe (AMSF, $23.40, down $0.40), Ascena Retail Group (ASNA, $37.79, down $0.71), Big Lots (BIG, $43.60, down $0.10), Consolidated Communications Holdings (CNSL, $19.05, up $0.09), Darling International (DAR, $16.46, up $0.18), Dialogic (DLGC, $0.87, down $0.01), DineEquity (DIN, $51.99, down $0.23), Einstein Noah Restaurant Group (BAGL, $14.72, down $0.23), Esterline Technologies (ESL, $66.76, up $0.27), Foot Locker (FL, $28.52, down $0.20), H&E Equipment Services (HEES, $18.31, up $0.02), Inventure Foods (SNAK, $4.10, down $0.08), James River Coal (JRCC, $6.30, down $0.17), Kenneth Cole Productions (KCP, $15.49, up $2.42), Kroger (KR, $23.54, up $0.56), Martha Stewart Living Omnimedia (MSO, $4.41, down $0.04), Perficient (PRFT, $12.16, up $0.06), Republic Airways Holdings (RJET, $5.07, down $0.07), Shenandoah Telecommunications (SHEN, $10.36, down $0.08), Spectrum Pharmaceuticals (SPPI, $14.25, up $0.54), Tutor Perini (TPC, $16.51, Flat), Vanguard Natural Resources (VNR, $27.80, up $0.08), Wendy’s Company (WEN, $5.07, down $0.01), Winthrop Realty Trust (FUR, $11.65, down $0.08)
FRIDAY
Arbor Realty Trust (ABR, $4.77, Flat), Cadence Pharmaceuticals (CADX, $4.20, down $0.02), Genesco (GCO, $66.19, up $0.69), Hercules Technology Growth Capital (HTGC, $10.42, down $0.06), Monarch Casino and Resort (MCRI, $10.67, down $0.02), Santarus (SNTS, $5.03, up $0.02), Valhi (VHI, $58.90, up $1.25), X-Rite (XRIT, $4.55, down $0.10)
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4. Weekly Wrap Covered Call Portfolio Update (Closing prices as of 2/24/12)
We have 18 open trades with the possibility of closing 10 next month. After that we will see where we are at.
Closed Trades for 2012 (12-0): DAR +20%, TIVO +5%, MGM +22%, ZNGA +13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%.
Bebe Stores (BEBE, $9.06, up $0.04)
Original Entry Price: $9.00 (2/22/12)
Lowered Price from Selling Options: Waiting for shares to reach $10
Exit Target: $8
Return: 1%
Stop Target: None
Action: We are going to wait for shares to trade above $10 before we sell a call option. Our 2012 price target is $15 and we like the turnaround story.
Pizza Inn (PZZI, $4.40, down $0.02)
Original Entry Price: $4.50 (2/22/12)
Lowered Price from Selling Options: No options available
Exit Target: $8
Return: -2%
Stop Target: None
Action: Shares should find support at $4 on a continued pullback and there is risk down to $3 if things get ugly. Our longer-term target is $6 but shares could hit $8 if the company can manage its growth. We cannot sell options on this position, yet, because there are none listed. Once shares can maintain stability above $5 the exchanges might take a look.
magicJack VocalTec (CALL, $18.44, down $0.32)
March 20 call (CALL120317C00020000, $0.55, down $0.10)
Original Entry Price: $17.43 (2/7/12)
Lowered Price from Selling Options: $16.78
Exit Target: $20+
Return: 10%
Stop Target: None
Action: Shares traded down to $18 to start the week but rebounded on Wednesday to trade to $19.48. Short-term support is at $17 and our near-term target is $25 on a multi-year breakout. We showed you the 10-year chart last week, below is a 2-year chart.
We recommended buying the stock at $17.43 on 2/7/2012 and for every 100 shares to sell the March 20 calls for 65 cents. This lowered the cost basis to $16.78.
If shares are called-away by mid-March at $20 the trade makes 19%.
OCZ Technology Group (OCZ, $8.67, up $0.18)
Original Entry Price: $9.60 (2/7/12)
Lowered Price from Selling Options: Waiting for shares to reach $10
Exit Target: $12+
Return: -10%
Stop Target: None
Action: Shares traded down to $8.28 on Thursday and are in danger of falling below the uptrend line. A break below $8 would be bearish but we are looking for another run back above $10 which is where we will start writing call options. There is a huge short-interest in the stock but we like the company’s business. A move above $9.50 could trigger a squeeze this week.
We recommended buying the stock at $9.60 on 2/7/2012.
Arena Pharmaceuticals (ARNA, $1.84, up $0.06)
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: 33%
Stop Target: None
Action: Arena got a big pop on the Vivus news (see below) and traded up to $2.11 on Thursday. Arena has its own obesity drug called Lorcaserin which some analysts say is safer than Qnexa and could be approved in June.
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, $14.00, down $0.27)
March 15 call (MGM120317C00015000, $0.15, down $0.05)
Original Entry Price: $13.77 (2/2/12)
Lowered Price from Selling Options: $13.32
Exit Target: $15
Return: 5%
Stop Target: None
Action: MGM announced a great quarter last week but shares fell below $14 on the news and closed there on Friday. Shares have been on a parabolic run so last week’s pullback was healthy. There is further risk down to $13 but our-near-term target is $16. The 5-year chart from last week showed little resistance between $17 and $25 and the 52-week high is $16.05.
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%.
Patriot Coal (PCX, $8.10, up $0.16)
Original Entry Price: $8.91 (1/12/12)
Lowered Price from Selling Options: $8.51
Exit Target: $15
Return: -5%
Stop Target: None
Action: We will be looking to sell a March or April call option this week so look for a possible Trade Alert on Monday. Short-term support is at $8 but there is risk down to $7. Longer-term shares should reach $10 once they break the descending downward slope. Below is a 5-year chart for PCX.
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.
Bank of America (BAC, $7.88, down $0.14)
April 8 call (BAC120421C00008000, $0.45, down $0.10)
Original Entry Price: $6.75 (1/12/12)
Lowered Price from Selling Options: $6.35
Exit Target: $15
Return: 24%
Stop Target: None
Action: Shares went out at the low for the day (and week) on Friday and the first wave of support is at $7.50. There is further risk down to $7 which is where we would add to the position. We still believe a run to $9.50-$10 is coming over the next few months once $8.75 is cleared.
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 $8 the trade makes 26%.
Bank of America (BAC, $7.88, down $0.14)
March 6 call (BAC120317C00006000, $1.90, down $0.10)
Original Entry Price: $5.35 (12/22/11)
Lowered Price from Selling Options: $4.99
Exit Target: $7.50
Return: 58%
Stop Target: None
Action: This is our other BAC trade from December.
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, $22.13, up $3.40)
March 15 calls (VVUS12031700015000, $7.20, up $3.05)
Original Entry Price: $12.60 (1/12/12)
Lowered Price from Selling Options: $10.85
Exit Target: $15
Return: 104%
Stop Target: None
Action: Vivus soared in after-hours last Wednesday after a FDA Advisory panel voted 20-2 in favor of the company’s diet drug, Qnexa. Shares were halted all session long at Tuesday’s closing price of $10.55 but zoomed past $20 when they opened for trading. On Friday, shares reached a peak of $22.19. Our chart work was money as we said a run to $20 could come on good news. This is our 5th trade on Vivus and we as much as we want to establish another position, let’s wait until this position is closed and we will see where we are at. Our longer-term target has now moved up to $40 but the drug still needs an official approval from the FDA which could come in June.
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, $10.43, down $0.03)
March 11 call (AA120317C00011000, $0.10, flat)
Original Entry Price: $9.65 (1/12/12)
Lowered Price from Selling Options and Dividends: $9.37
Exit Target: $11
Return: 11%
Stop Target: None
Action: Alcoa held $10 all week and there is risk down to $9-$8.50 on a break below this level. Our near-term target is $12.50 and our 2012 target for Alcoa is $15 if shares can hold double-digits.
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.
On 2/1/12 the company paid a 3 cent dividend which lowered our cost basis to $9.37.
If shares are called away at $11 in mid-March the trade will make 17%.
Symantec (SYMC, $17.88, down $0.03)
March 17 call (SYMC120317C00017000, $1.00, down $0.05)
Original Entry Price: $15.60 (11/23/11)
Lowered Price from Selling Options: $14.60
Exit Target: $18
Return: 22%
Stop Target: None
Action: Shares were flat for the week but traded above $18 each day. There is risk down to $17.50 on a pullback, followed by $16, but a close above $18.50 gets $20 in play. The 52-week high is $20.50 and our 2012 target is $24 as you can see from this 10-year chart.
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, $12.52, down $0.34)
March 15 call (SZYM120317C00015000, 0.20, flat)
Original Entry Price: $11.16 (11/14/11)
Lowered Price from Selling Options: $9.66
Exit Target: $15
Return: 30%
Stop Target: None
Action: Solazyme got a big lift after reporting earnings last week as shares closed at $13 on Wednesday. Shares traded up to $13.67 on Thursday before fading into the close and pulling back again on Friday. We said last week would like to see a run past $13, or a break out of the bullish “symmetrical continuation triangle” which we got. This confirms the breakout but support is at $11 if shares retreat.
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, $8.11, up $0.04)
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: 3%
Stop Target: None
Action: Newpark closed below $8 to start the week and traded down to $7.40. The company recently reported earnings that beat expectations but it hasn’t been a catalyst. We said a close below $7.50 would be bearish but shares held this level and the fundamentals are intact.
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%.
Trades on HOLD: Rambus (RMBS, $7.52, down $0.10), Rare Element Resources (REE, $6.18, down $0.12), AKS Steel Holding (AKS, $8.10, up $0.05), DryShips (DRYS, $3.62, up $0.02)
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5. Week Ahead
This is a busy week for economic news starting with Monday’s Pending Home Sales at 10am (EST). At 10:30am, the Texas Manufacturing Survey will be released.
Tuesday starts with Weekly Chain Store Sales, the Richmond Fed Survey, Durable Goods, and the Case-Shiller 20-city Home Prices Index before the bell. After the open, the market will digest the latest Consumer Confidence numbers.
For Wednesday, we get MBA Mortgage Applications at 7am and 4Q Gross Domestic Product figures at 8:30am. The Chicago Purchasing Managers Index (PMI) is due out 15 minutes after the open followed by the weekly Crude Inventories figures at 10:30am. The Fed’s Beige Book will be the centerpiece of attention and is due out at 2pm.
Thursday brings the Initial and Continuing Claims report at 8:30am, along with the latest Personal Income numbers. Construction Spending and the ISM Manufacturing Survey figures will be released at 10 sharp.
Friday wraps up with New York ISM at 9:45am.