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Top Trades for Tue, 09 May 2017 14:29 – Watch List Update

OK, who do we like on the Watch List?  

BMY (3/5) – Last July, BMY took a huge hit because Opdivo (late-stage cancer) failed in trials and the stock collapsed.  On Jan earnings, they missed estimates by 0.03 but earned 0.63 per $60 share so on track for $2.50 and a p/e of 24.  There were, however, still extra expenses as they try to get Opdivo back on track (for wider acceptance – it's already being used for some cancers) and I think their guidance of $3/share will ultimately hold up.  Too bad we missed them at $46, now $57.26 but volatility is good for put prices and we can sell 2019 $50 puts for $5.20 for a net $44.80 entry (below the lows) and that can be paired with the $50 ($11.50)/60 ($6.25) bull call spread at $5.25 so net 0.05 on the $10 spread and ALL BMY has to do to make a $9.95 return (up 19,900% return on you nickel!) is make it back over $60 in two years.  

Same place so still good (no, I'm not redoing all the numbers!  

ESRX – even cheaper!  

ESRX (2/17) – Another beaten-down Pharma that is worth owning.  They made $2.5Bn last year, up from $2Bn the year before and they did $1.4Bn in the last two Qs so pacing towards $3Bn yet you can buy this company for $42Bn (trailing p/e 17) at $70.   We can promise to buy them for $65 and get paid $8 to do it, which is net $57 which is 18.5% off the current price.  In the LTP, I'm just going to do those but you can be aggressive and add the $60 ($17.50)/75 ($9) bull call spread for $8.50 and then it's net 0.50 for the $15 spread that's $10 in the money to start.  ESRX was added to the Long-Term Portfolio (LTP) on 2/17, selling 5 2019 $65 puts for $7.50 ($3,750) to start

FCX – Even cheaper!  

FCX (3/5) – This os one I picked last year at $4 and now they are $13.20 but I still like them!  They might actually make $1/share this year and much more if copper and gold tick up in price and yes, I'd rather buy them at $10 so no hurry here but you can already sell the 2019 $10 puts for $1.65, which nets you in at $8.35 or, if you want to be more aggressive, you can sell the $12 puts for $2.60 for net $9.40.  I think I'd be more aggressive on the puts and sell perhaps 10 ($2,600) and use that to buy 20 $10 ($5.50)/17 ($2.50) bull call spreads for $3 ($6,000) so net $3,400 on $14,000 worth of longs if all goes well.

GE (3/5) – Forever $30 but talk about a safe place to park your money!  They even pay a 3.2% dividend (0.89) while you wait for something to happen – and it won't.  GE is a $262Bn company that pays no taxes ($464M refund last year on $9Bn in earnings!) and has tons of money overseas – what's not to love?  Even better, you can sell the 2019 $28 puts for $2.50 and use that free money to buy the $25 ($6.10)/30 ($3.05) bull call spread for $3.05 and that's net 0.55 on the $5 spread for a near 10-bagger if GE simply holds $30.  There's anothe interesting way to play this one and that's to effecively buy it by selling the 2019 $32 calls for $4.40 for a net $27.60 entry and then buy the $28 calls ($4.20) for a net 0.20 credit and then just sell 1/2 of the April $30s (0.75).  That way, you are collecting 0.375 per long and each time you collect $1.70 (4-5 quarters) you can spend it to roll the long calls lower (the 2019 $25 calls are $6.10) to lock in the gains and work towards a lower, cheaper spread – it's just more work that way.  

GILD (2/17) – Still priced like they are going BK even though they made $18Bn last year and should make $13Bn this year but that's still cheap when the whole company is $91Bn (p/e 7).  This is a huge conglomerate with a 20-year pipeline and one drug went generic on them – there will be others.  Selling the 2019 $60 puts for $6.30 is like free money, netting you in for $53.70 (23% off) and the $62.50 ($13.20)/77.50 ($6.85) bull call spread is $6.35 so net a nickel for the $15 spread is a very nice upside potential of $14.95 if GILD simply makes $77.50 by Jan, 2019.

LB (2/17) – Victoria's Secret, Pink, Bath and Body Works…  Girls need bras and they like candles and perfume too!  So, assuming there will be girls in our future, paying $16.2Bn for a company dropping $1.2Bn to the bottom line is a p/e of 13.5 for a company that historically has grown 20% a year (flat this year).  You can sell the 2019 $42.50 puts for $4 and that may as well be free money (net $38.50 entry is 25% off) so it can be paired with the $50 ($11.50)/$65 ($5) bull call spread and you know we must love this one because we're willing to pay net $2.50 for the $15 spread!  

M (2/17) – We like M for a recovery story and, if not, as a real estate story.  They have 900 big-box stores and a $9Bn market cap so $10M per store is not a lot to pay and, at $9Bn, it's a good size to be acquired by a foreign company looking to have a presence in the US.  Meanwhile, they made $1Bn last year and maybe $900M this year so not like SHLD, who are losing $1.5Bn a year AFTER selling off land and brands yet still, for some reason, hold a $1Bn valuation.  Anyway, back to M.  The 2019 $25 puts can be sold for $3.10 and the $28 ($6.70)/$35 ($3.85) bull call spread is $2.85 so a net 0.25 credit on the $7 spread is the way to go.  

PSA (3/5) – I generally don't like $226.61 stocks but this one pays an $8 dividend and is a good value at $220, so I am interested.  $200 should be a very solid floor so not much risk in selling Sept $210 puts for $9 because your worst case is owning them at net $201 and, if they head higher – $9 by Sept is far ahead of the dividend anyway.  I like this space as they are a REIT but no single tenant can break them and more people renting apartments means more need for extra storage space (plus retirees who can't let go of their stuff when they downsize). 

QCOM (3/5) – This is a big deal for me as I've always liked BRCM better than QCOM but BRCM is now AVGO and hasn't been cheap in ages.  QCOM, on the other hand, at $56.44 is "only" $83Bn and they made $5.7BN last year so a 14.5 p/e is very cheap for tech and yes, QCOM is in a down cycle for their chips but then they will be in an up cycle so now is when we buy.   It makes them much more attractive that we can sell the 2019 $50 puts for $6.35 for a net $43.65 entry.  In our LTP, we jumped right in on the dip on 2/10 and sold the $55 puts for $10.50 and I would like those better but they already dropped to $8.50 so now I like the lower ones better for just $2 less.  The high volatility of the stock has also made the $50 ($10.75)/$65 ($4.40) bull call spread at $5.35 a good bargain but we're waiting and seeing in the LTP with just 5 short puts for the moment.

TGT (2/17) – At $65.55 they earn $5+ per share so p/e about 13 is very reasonable.  Having trouble passing on inflationary prices but that's just a cyclical thing and this is a great opportunity to own them cheap.  The 2019 $55 puts can be sold for $5.20 – that's great as a stand-alone sale as it nets you in for 23% off.   You can pair it with the $60 ($10)/$72.50 ($5) bull call spread and the whole thing is net free(ish) with a nice $12.50 upside.  

So that's 10 left that are playable and 11 that took off already.  

And now we can add a few more:

GCI (5/9) – Gannett's earnings were not as awful as feared and $8.31 has dropped their market cap to under $1Bn ($940M) but last Q they dropped $33M to the bottom line and they should earn about $1 per share this year and next.  They also pay an 0.64 dividend (7.6%) with no cash-flow issues.  

  • Gannett (NYSE:GCI) is up 7.9% and reaching its highest point since early February after posting Q1 earnings where it beat on top and bottom lines and raised EBITDA guidance for the full year.

    Revenues grew more than 17%; excluding unfavorable exchange-rate changes and $1.8M in exited operations, they grew 19.3%. Digital revenues of $234.7M made up 30.3% of operating revenue.

    Net cash flow from operations of about $31.1M, vs. a year-ago $17.3M. Cash balance at quarter's end was $89.5M.

    Revenue by segment: Publishing, $694.9M (up 5.6%); ReachLocal, $77.6M (new); Corporate and Other, $968,000 (down 30.3%).

    It's boosted EBITDA guidance for the full year to $355M-$365M, up $30M at the midpoint. It's reiterated guidance for revenues of $3.15B-$3.22B, and sees capex of $65-$75M (excluding real estate); depreciation/amortization of $150M-$155M; and effective tax rate of 28-32%.

 

So, in the LTP, let's pick up 2,000 shares at $8.30 ($16,600) and cover them with 20 short Oct $7.50 calls at $1.10 ($2,200) and sell 20 short Oct $7.50 puts for 0.60 ($1,200) so we net into 2,000 shares for $13,200 ($6.60) so we're not going to mind being called away at $7.50 (+18%) and the dividend is over 10% while we wait.  Worst case would be owning 4,000 at avg $7.05 – also not bad!  

FMCC (5/9) – At $2.60 they seem silly cheap to me.  They are currently turning most of the cash over to the Government but are in court fighting to retain more.  $2.60 is an $8.4Bn valuation yet they made $8Bn last year!  No options.  

SEE (5/9) – Just reported a quarter that took a loss on a unit they sold for $3.2Bn but CONSERVATIVE financials did not include sales for the unit or profits so they missed expectations and, of course, they wrote down whatever they could to avoid taxes and that made them look bad.  Good solid long-term company otherwise and the big dip let's you sell Jan $40 puts for $2, so let's sell 10 of those in the LTP so we can keep an eye on them.

 


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