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 - Microsoft Corporation (NASDAQ:MSFT) Calls
Tuesday, January 30, 2018
** OPTION TRADE: Buy the MSFT MARCH 16 2018 97.500 CALL at approximately $2.40. Place a pre-determined sell at $4.80.
Also include a protective stop loss of $0.95.
Microsoft Corporation (NASDAQ:MSFT), the tech titan, will report earnings tomorrow, Wednesday, January 31, 2018, after the market closes. The consensus earnings estimate is $0.86 per share on revenue of $28.35 billion and the Earnings Whisper number is $0.90 per share. Consensus estimates are for year-over-year earnings growth of 3.61% with revenue increasing by 17.68%.
The software giant continues to earn respect for solid growth in its cloud computing businesses, such as Azure and Office 365.
In recent years, demand for personal computers-and related software-has fallen around the world. This has forced Microsoft to move to a "freemium" model with Windows 10, to focus instead on monetizing compatible apps and services. Microsoft saw its More Personal Computing sales grow a lackluster 0.9% to hit $9.4 billion last quarter.
Also, Microsoft has evolved through the aggressive growth of its Azure division. Azure is Microsoft’s cloud computing platform that builds, deploys, and manages applications and web services through the company’s own network of data centers. This unit has been growing at a nearly triple-digit rate over the past year or so.
In its upcoming second-quarter, Microsoft is expected to post More Personal Computing revenues of $12.012 billion.
Short interest has decreased by 9.6% since the company's last earnings release while the stock has drifted higher by 11.6% from its open following the earnings release to be 23.7% above its 200 day moving average of $76.02. Overall earnings estimates have been revised higher since the company's last earnings release.
Microsoft Co. has a 1 year low of $62.75 and a 1 year high of $95.45. The company has a quick ratio of 3.06, a current ratio of 3.12 and a debt-to-equity ratio of 0.91. The firm has a market capitalization of $724,550.00, a PE ratio of 31.73, a PEG ratio of 2.21 and a beta of 0.99.
Influencing Factors
Microsoft operates under three primary business segments: Productivity & Business Processes, Intelligent Cloud, and More Personal Computing.
Microsoft will report Productivity & Business Processes revenues of $8.877 billion, which would represent year-over-year growth of about 20.3%. Last quarter, Microsoft reported revenues of $8.238 billion in this unit, up about 23.7% year-over-year. Year-over-year comparisons will benefit from the company’s acquisition of LinkedIn, which closed in Dec. 2016.
Microsoft will report Intelligent Cloud revenues of $7.501 billion. This would represent growth of about 9.3% from the $6.861 billion witnessed in the year-ago period. In the previous quarter, Microsoft reported growth of 8.5% in this unit. Expect Azure to continue to be a key growth catalyst for the segment.
Microsoft's acquisition of Avere Systems, a start-up specializing in data storage systems, will help strengthen and increase the use of its Azure public cloud. The company's cloud services are a major contributor to its revenue stream. Per the company's first-quarter fiscal 2018 results, server product and cloud services revenues went up 17% year over year, with Azure revenues soaring 89%.
Microsoft is also gaining from its increasing traction in blockchain technology. Its collaboration with Bank Hapoalim for the use of blockchain technology for digital bank guarantees is aiding Azure to penetrate the cloud market.
Adoption remains strong as evident from the growing customer base. Azure has been selected by the likes of Costco, Symantec, Bank of America Corporation, TD Bank and Sumitomo Mitsui Banking Corporation.
Data center expansion continues with Azure now in 42 regions globally, more than any other cloud provider.
The company’s More Personal Computing unit currently sits at $12.012 billion, which would represent modest year-over-year growth of 1.60%. This segment has struggled recently, primarily due to the aforementioned slump in global PC demand. But the estimate is calling for an improvement from the 0.9% growth rate Microsoft witnessed last quarter, which could mean that the company saw a strong holiday shopping period.
As well, strong Office 365 and Windows 10 adoption are other growth drivers. The launch of a plethora of products - Microsoft Teams in Office 365 for Education, Microsoft 365, Microsoft Relationship Sales solution and ISV Cloud Embed - is anticipated to drive installed base. Moreover, Microsoft continues to add features to Windows 10 that makes it more attractive for consumers as well as enterprises.
Recently, the company released updates for Windows to prevent malware attacks from exploiting Meltdown Vulnerability in Intel x86-64 processors. This software update is part of a series of updates that will shield against the newly discovered processor bug in Intel, AMD and ARM chipsets.
Microsoft is also one of the largest providers of gaming hardware.
The acquisition of AltspaceVR and launch of mixed reality headsets are evidence of its advancements in the fields of virtual reality and augmented reality. Moreover, strategic partnerships with Amazon Inc's AMZN Alexa and Red Hat are positives for the company's growth prospects.
Analysts and Hedge Funds Opinions
Microsoft had its price objective boosted by JPMorgan Chase & Co. from $78.00 to $87.00 in a research note issued to investors on Thursday morning. JPMorgan Chase & Co. currently has a neutral rating on the software giant’s stock. The analysts noted that the move was a valuation call.
Also, several other equities analysts have recently commented on the company…..
Two research analysts have rated the stock with a sell rating, nine have given a hold rating and twenty-nine have given a buy rating to the company’s stock. The company presently has a consensus rating of Buy and a consensus price target of $99.22.
Institutional investors that have recently made a change to their positions in the stock….
Harvey’s Options Volatility Indicator
Summary
It's safe to say CEO Satya Nadella's transformation efforts are paying off in a big way. Microsoft absolutely crushed 2017 and is picking up right where it left off so far this year. Microsoft stock hit an all-time high on January 23.
But even with its stellar run, the basis for so much bullishness is warranted, which bodes well for the up-coming report. Microsoft's cloud sales get much of the attention, and for good reason. However, the really good news is that cloud-related sales won't be the only growth driver in the months and years ahead.
Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..
** OPTION TRADE: Buy the MSFT MARCH 16 2018 97.500 CALL at approximately $2.40. Place a pre-determined sell at $4.80.
Also include a protective stop loss of $0.95.
Option Trade - Alibaba Group Holding Ltd (NYSE:BABA) Calls
Monday, January 29, 2018
** OPTION TRADE: Buy the BABA MARCH 16 2018 220.000 CALL at approximately $5.40. Place a pre-determined sell at $10.80.
Also include a protective stop loss of $2.15.
The Chinese e-commerce goliath Alibaba Group Holding Ltd (NYSE:BABA), an online and mobile commerce company, will report earnings on Thursday, February 01, 2018, before the market opens. The consensus earnings estimate is $1.65 per share on revenue of $12.00 billion and the Earnings Whisper number is $1.74 per share. Consensus estimates are for year-over-year earnings growth of 20.44% with revenue increasing by 56.47%.
Stock analysts at Oppenheimer boosted their FY2018 EPS estimates for shares of Alibaba Group in a note issued to investors on Wednesday. Oppenheimer analyst J. Helfstein now expects that the specialty retailer will earn $4.51 per share for the year, up from their prior forecast of $4.34. Oppenheimer currently has a “Buy” rating and a $220.00 target price on the stock. Oppenheimer also issued estimates for Alibaba Group’s Q4 2018 earnings at $0.97 EPS.
In the second quarter, Alibaba's core commerce business saw revenues increase by 63% year-over-year to $7 billion or approximately 83% of its overall revenue. In Q2 2018, Alibaba generated $433 million in international commerce retail revenue, a 115% increase from the same quarter a year earlier.
Alibaba had $447 million in cloud computing revenue in Q2 2018 with a small operating loss. If Alibaba could narrow that deficit to about four times the revenue while turning a profit, that too would make a big difference to Alibaba's stock price.
Alibaba continued to deliver significant growth in 2017, and overall earnings estimates have been revised higher since the company's last earnings release.
Wall Street analysts are lifting their price targets on Alibaba. China Renaissance analyst Ella Ji is exceedingly confident on the Chinese e-commerce giant ahead of its print. The analyst raised her price target on BABA to $230 (from $200), while reiterating a Buy rating on the stock.
Ji commented, “We expect a robust top line, but weaker y/y margin performance. Investment and exploration of new retail models should continue to overhang its 2018 margins, together with drags from Cainiao and elevated traffic acquisition cost and content cost. Yet, we stay positive on BABA’s performance in the long-term, expecting 1) there will be stronger monetization opportunities once its investment in new retail is ready for scalable franchise models, and 2) the consolidation of Cainiao potentially creates another layer of value to merchants on BABA’s platform. Our financial forecasts are also updated to reflect Cainiao’s consolidation, healthy revenue expectation, FX, and conservatism on margins.”
Alibaba Group has a 52-week low of $100.02 and a 52-week high of $205.23. The company has a debt-to-equity ratio of 0.21, a current ratio of 1.71 and a quick ratio of 1.71. The firm has a market cap of $525,600.00, a P/E ratio of 55.17, a price-to-earnings-growth ratio of 1.49 and a beta of 2.52.
Influencing Factors
Alibaba was up 95% in the 2017; which is quite impressive given that BABA stock has a $500 billion market cap behind it.
Alibaba stock outperformed its U.S.-based competitors Amazon.com, Inc. (NASDAQ: AMZN ) and Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ), by 33% and more than 50% respectively, in the past 12 months. And it's significantly cheaper than AMZN stock and only slightly more expensive than GOOGL stock using its price-to-earnings ratio as a yardstick.
What's even more impressive is the fact that BABA stock isn't finished growing as yet. As a matter of fact, CEO Jack Ma expects revenue growth to exceed 45% in 2018.
Alibaba stock isn't 'like' any other U.S. online firm. It is more diversified than AMZN and GOOGL. Not only does Alibaba have cloud computing, it's also an online platform for retailers and runs a distribution network and has a significant presence in mobile media.
As well, it's the biggest and the best of class in China. That is a big deal because it means it has got to this point with the Chinese government's approval. You can't expect to build a business in China, especially on this scale without the government's approval.
Also, China is an enormous market with far more potential organic growth than the U.S. and Europe, Alibaba stock isn't stopping at its border.
Alibaba is a big company that knows how to think small to make it big – such as the UC Browser that's lighter and better suited for cheaper phones and less reliable connectivity. It already has 430 million global users and that will grow for many years to come.
And now, Alibaba recently reported that the company began talking to Kroger Co (NYSE: KR ), the biggest grocer in the U.S. by revenue. This would be an incredible opportunity for BABA stock to enter the U.S. market, supporting KR efforts to build out an online operation that could take on AMZN and Wal-Mart Store Inc (NYSE: WMT ).
Analysts and Hedge Funds Opinions
Jefferies Group reaffirmed a “buy” rating and issued a $240.00 price target on shares of Alibaba Group in a research note on Tuesday.
Also, several other equities analysts have recently commented on the company…..
Alibaba Group has earned a consensus recommendation of “Buy” from the thirty-nine analysts that are currently covering the company. One analyst has rated the stock with a sell recommendation, two have given a hold recommendation, thirty-two have assigned a buy recommendation and two have issued a strong buy recommendation on the company. The average price target among brokers that have issued ratings on the stock in the last year is $217.15.
Institutional investors that have recently made a change to their positions in the stock….
Harvey’s Options Volatility Indicator
Summary
BABA has a Strong Buy analyst consensus
rating with 16 back-to-back buy ratings in the last three months. Meanwhile the
average analyst price target of $217.15 suggests the stock still has upside
potential of just over 9% from the current share price.
Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..
** OPTION TRADE: Buy the BABA MARCH 16 2018 220.000 CALL at approximately $5.40. Place a pre-determined sell at $10.80.
Also include a protective stop loss of $2.15.
Option Trade - QUALCOMM, Inc. (NASDAQ:QCOM) Puts
Monday, January 29, 2018
** OPTION TRADE: Buy the QCOM MARCH 16 2018 62.500 PUT at approximately $1.10. Place a pre-determined sell at $2.20.
Also include a protective stop loss of $0.45.
QUALCOMM, Inc. (NASDAQ:QCOM), U.S. mobile chipset giant, continues to see its’ woes increase by the month, and this is likely to be shown when it reports for the fiscal Quarter ending Dec 2017, after the market closes on Wednesday, January 31st. Based on 6 analysts' forecasts, the consensus EPS forecast for the quarter is $0.77. The reported EPS for the same quarter last year was $1.06.
It is also expected that QUALCOMM will announce $5.95 billion in sales for the current fiscal quarter. The lowest sales estimate is $5.80 billion and the highest is $6.11 billion. QUALCOMM reported sales of $6.00 billion in the same quarter last year, which indicates a negative year-over-year growth rate of 0.8%.
QUALCOMM has a market cap of $102,690.00, a PE ratio of 41.53, a PEG ratio of 1.93 and a beta of 1.39. QUALCOMM, Inc. has a 1-year low of $48.92 and a 1-year high of $69.28.
Influencing Factors
QUALCOMM has many problematic issues that it is trying to deal with –
Analysts and Hedge Funds Opinions
ValuEngine lowered shares of QUALCOMM from a “buy” rating to a “hold” rating in a report on Tuesday, January 16th.
Also, several other equities analysts have recently commented on the company…..
Eighteen analysts have rated the stock with a hold rating and twelve have assigned a buy rating to the company’s stock. The company has an average rating of “Hold” and a consensus target price of $67.37.
Institutional investors that have recently made a change to their positions in the stock….
Insider news……
Over the last 90 days, insiders sold 72,633
shares of company stock worth $4,659,677.
Harvey’s Options Volatility Indicator
Summary
Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..
** OPTION TRADE: Buy the QCOM MARCH 16 2018 62.500 PUT at approximately $1.10. Place a pre-determined sell at $2.20.
Also include a protective stop loss of $0.45.
Enjoy Relaxed or Fast-Paced Trading? Choose your Membership Style...
Whether you prefer to take a laid-back approach to your trading,
or to charge ahead in your options trading,
Stock Options Made Easy Armchair Trader and Cut-to-the-Chase Trader Memberships put everything you need to succeed at your fingertips for just $39 or $79 per month.