“Armchair Trader Series”  Recommendations
- Week Beginning -
Monday, January 01, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy


Option Trade - JD.Com Inc. (ADR) (NASDAQ:JD) Calls

Friday, January 05, 2018

** OPTION TRADE: Buy the JD MAR 16 2018 45.000 CALL at approximately 2.00. Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.

Chinese e-commerce giant JD.Com Inc. (ADR) (NASDAQ:JD) has been on a relative tear of late, rising more than 62% in 2017 alone. And consensus estimates for EPS growth portend strong tailwinds starting the first quarter of 2018, which should boost the stock to new highs.

Much like Amazon, JD.com has invested heavily in its infrastructure. And this high capex spending has hurt its earnings over the years. But the result is that the company actually owns the inventory for sale on its websites -- unlike Chinese giant Alibaba Group (NYSE: BABA ).

The company has also mimicked Amazon by creating a warehouse and logistics network that no other competitor can come close to touching. Therefore, the good news is that its spending is really starting to produce results.

JD.com has generated $50 billion worth of revenue over the course of the past twelve months. It may be smaller than Alibaba, but recently-forged alliances and its nimble nature may prove to not only bear fruit, but prove to be a stumbling block for Alibaba.

The most recent JD stock news to this end is an investment, along with one from Tencent Holdings Ltd (OTCMKTS:TCEHY), in smaller Chinese e-commerce Vipshop Holdings Ltd – ADR (NYSE:VIPS).

JD.Com is estimated to report earnings on March 01, 2018. Based on 3 analysts' forecasts, the consensus EPS forecast for the quarter is $-0.03. The reported EPS for the same quarter last year was $-0.18.

JD.Com Inc has a 52 week low of $25.28 and a 52 week high of $48.99. The company has a debt-to-equity ratio of 0.30, a quick ratio of 0.79 and a current ratio of 1.12. The firm has a market cap of $58,980.59, a P/E ratio of -376.51 and a beta of 1.38.

Influencing Factors

JD.Com has grown its customer accounts by 808% since 2012 to more than 266.3 million (about 82% of the U.S. population). At the same time, the average number of purchases has grown by nearly 595%.

But an even more important reason for bullishness on JD.com is the continuing growth in the Chinese middle class. According to a study by consulting firm McKinsey & Company , 76 percent of China's urban population will be considered middle class by 2022. That means 630 million Chinese (twice the population of the United States) will be in the middle class, or 45% of the entire Chinese population. And that doesn't include an additional 9% of the nation that will be considered affluent by Chinese standards.

This has propelled JD.com to forge symbiotic relationships with other companies, such as Tencent ( TCEHY ). The Tencent deal opened up access to popular apps like WeChat and Mobile QQ messaging. The relationship is so strong the company reports that 25% of its first-time users come from these apps. And JD.com proactively committed Tencent to a non-compete agreement through 2022.

Also, JD.com recently acquired the online Chinese grocery business of Wal-Mart (NYSE: WMT ). The deal to acquire Yihaodian gave Wal-Mart a 5% stake in JD.com, which has since grown to 10.1%.

Analysts and Hedge Funds Opinions

Stifel Nicolaus started coverage on JD.Com in a research report on Wednesday, December 13th. They issued a “buy” rating and a $48.00 price target for the company.

Also, several other equities analysts have recently commented on the company…..

  • BidaskClub upgraded JD.Com from a “sell” rating to a “hold” rating in a research report on Thursday, December 21st.
  • Vetr lowered JD.Com from a “strong-buy” rating to a “buy” rating and set a $44.44 price objective for the company. in a research report on Thursday, September 28th.
  • JPMorgan Chase & Co. lowered their price target on JD.Com from $52.00 to $50.00 and set an “overweight” rating for the company in a research report on Wednesday, November 15th.
  • Nomura increased their price target on shares of JD.Com from $49.00 to $52.00 and gave the stock a “buy” rating in a research report on Tuesday, November 14th.
  • Finally, Wells Fargo & Co increased their price target on shares of JD.Com from $50.00 to $52.00 and gave the stock an “outperform” rating in a research report on Tuesday, November 14th.

Five investment analysts have rated the stock with a hold rating and sixteen have assigned a buy rating to the company’s stock. The stock has an average rating of “Buy” and a consensus price target of $51.36.

Institutional investors that have recently made a change to their positions in the stock….

  • Yiheng Capital LLC lifted its stake in JD.Com by 5.8% in the 3rd quarter. The institutional investor owned 1,095,504 shares of the information services provider’s stock after acquiring an additional 60,000 shares during the period. Yiheng Capital LLC owned 0.08% of JD.Com worth $41,848,000 as of its most recent filing with the Securities and Exchange Commission.
  • State of New Jersey Common Pension Fund D boosted its stake in shares of JD.Com by 11.5% in the third quarter.
  • State of New Jersey Common Pension Fund D now owns 678,507 shares of the information services provider’s stock worth $25,919,000 after buying an additional 70,102 shares during the last quarter. Rovida Advisors Inc. purchased a new stake in shares of JD.Com in the third quarter worth about $43,403,000.

Harvey’s Options Volatility Indicator

Summary

JD.com delivered year-over-year revenue growth of 43% -- almost twice the growth of Amazon.com. Better yet, it's not all top-line growth, either.

JD.com is the dominant player in the world's second largest economy. Its business plan promises to provide a tailwind for years to come.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the JD MAR 16 2018 45.000 CALL at approximately 2.00. Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.


Option Trade - JPMorgan Chase & Co. (NYSE:JPM) Calls

Tuesday, January 02, 2018

** OPTION TRADE: Buy the JPM MAR 16 2018 110.000 CALL at approximately 2.30. Place a pre-determined sell at $4.60.

Also include a protective stop loss of $0.90.

JPMorgan Chase & Co. (NYSE:JPM), which is engaged in investment banking and financial services, is expected to report earnings on Friday, January 12, 2018, before the market opens. The report will be for the fiscal Quarter ending Dec 2017. Based on 8 analysts' forecasts, the consensus EPS forecast for the quarter is $1.69. The reported EPS for the same quarter last year was $1.71.

It has been a roller coaster ride for the finance sector in 2017. Though the year began on an optimistic note with high expectations from President Trump's electoral promises, it lost some steam in the middle only to regain the bullish trend at the end.

Nonetheless, the sector showed resilience given the hawkish stance by the Fed (three rate hikes in 2017) and gradually improving U.S. economy. Further, the new tax act drove the finance stocks. Also, progress on the lesser banking regulation front cheered investors.

Now, JPMorgan, along with the rest of the financial sector, is poised to benefit from the implementation of the Trump tax cuts in 2018, and it is expected that the stock will break out in the run up to its earnings announcement.

JPM’s stock has been consolidating throughout the month of December, with horizontal resistance at ~$108.50 and an up-trending support level. This type of consolidation range if the stock breaks above resistance, will form a bullish continuation pattern called an “ascending triangle” and could easily push the stock up to $112.50.

In 2017 alone, JPMorgan was up almost 24% on the back of an improving economy despite challenges that hurt trading revenue like a lack of yield volatility in Q2 and Q3.

JPMorgan outperformed financial ETFs like the Financial Select Sector SPDR ETF (XLF) which posted a 20% gain for the year; an incredible return for an ETF. JPM also beat the KBW PowerShares Bank ETF (KBWB), the KBW PowerShares Regional Banking Portfolio ETF (KBWR) and the SPDR S&P 500 ETF (SPY).

JPMorgan Chase has a market capitalization of $371,052.50, a price-to-earnings ratio of 15.41, a PEG ratio of 2.32 and a beta of 1.22. JPMorgan Chase & Co. has a 1-year low of $81.64 and a 1-year high of $108.46. The company has a quick ratio of 1.03, a current ratio of 1.03 and a debt-to-equity ratio of 1.37.

Influencing Factors

The situation will improve in 2018 for JPMorgan ……..

  • 2018 is expected to be better as investment banking is expected to continue improving. With gradual stability in the capital markets, global investment banking activities are strengthening. Per the latest Thomson Reuters data, JPMorgan holds the top spot in the overall investment banking league table for 2017.
  • With continued stabilization of the global economy and lower corporate taxes under the Trump regime, M&As and bond as well as equity underwritings will witness further rise next year. So, these are expected to support JPMorgan revenues in 2018.
  • The Finance sector is one of the biggest beneficiaries of the rate hike. With three rate hikes last year and three more projected for 2018, JPMorgan is bound to gain. This also signals an improving U.S. economy.
  • A big change in the form of expected stimulus from implementation of the tax act may alter the Fed stance about the pace of rate increases. Also, anticipated higher inflation may lead the central bank to move the interest rate higher at a faster pace as economic growth improves further.
  • In the rising rate environment, interest income for JPMorgan (a traditional bank) will continue to improve.
  • Potentially lesser regulations based on Trump's election promise of reduction in stringent regulations are a 'work in progress.' Though no time frame has been outlined for execution, the announcement of a bipartisan agreement has helped investors regain confidence.
  • JPM is expected to grow at an 8.53% annual rate. All else equal, JPM’s higher growth rate would imply a greater potential for capital appreciation.

Analysts and Hedge Funds Opinions

Buckingham Research raised JPMorgan Chase & Co. from a “neutral” rating to a “buy” rating in a report on Thursday, December 21st.

Also, several other equities analysts have recently commented on the company…..

  • Jefferies Group set a $111.00 price objective on JPMorgan Chase & Co. and gave the stock a “buy” rating in a report on Friday, October 13th.
  • BMO Capital Markets increased their price objective on JPMorgan Chase & Co. from $86.00 to $91.00 and gave the stock a “market perform” rating in a report on Friday, October 13th.
  •  Vetr raised JPMorgan Chase & Co. from a “hold” rating to a “buy” rating and set a $93.14 price objective for the company in a report on Wednesday, September 6th.
  • Finally, Royal Bank of Canada restated a “buy” rating on shares of JPMorgan Chase & Co. in a research report on Friday, December 8th.
  • Three analysts have rated the stock with a sell rating, fourteen have assigned a hold rating and seventeen have assigned a buy rating to the company.

Institutional investors that have recently made a change to their positions in the stock….

  • Howe & Rusling Inc. increased its position in JPMorgan Chase & Co. by 164.9% in the third quarter. The fund owned 117,383 shares of the financial services provider’s stock after buying an additional 73,068 shares during the quarter. Howe & Rusling Inc.’s holdings in JPMorgan Chase & Co. were worth $11,211,000 at the end of the most recent quarter.
  • Gamble Jones Investment Counsel lifted its holdings in shares of JPMorgan Chase & Co. by 0.6% during the second quarter. Gamble Jones Investment Counsel now owns 49,959 shares of the financial services provider’s stock valued at $4,566,000 after purchasing an additional 276 shares in the last quarter.
  • Perpetual Ltd fund owns 122,206 shares of the financial services provider’s stock worth $11,170,000 at the end of the most recent quarter.

Harvey’s Options Volatility Indicator

Summary

Consensus Estimate for JPMorgan has moved up marginally to $7.73 for 2018, over the last 60 days. Currently, the company has a long-term expected EPS growth rate of 6.7%.

Therefore, looking closely at the above-mentioned factors, shares of JPMorgan are expected to rebound in 2018.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the JPM MAR 16 2018 110.000 CALL at approximately 2.30. Place a pre-determined sell at $4.60.

Also include a protective stop loss of $0.90.

 





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