“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 23, 2020

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

ALSO

"Trading Capital Management"



Option Trade – Micron Technology, Inc. (NASDAQ: MU) Calls

Friday, March 27, 2020

** OPTION TRADE: Buy MU JUL 17 2020 45.000 CALL at approximately $5.50.

Place a pre-determined sell at $11.00.

Also include a protective stop loss of $2.20.

Preamble.....

I have just published an article Micron Technology Stock Gets A Boost On Rising Datacenter Chip Demand!which basically explains why the recommended trade.

But for Your Information.....

Micron Technology, Inc. (NASDAQ: MU) reported second-quarter fiscal 2020 on Wednesday, March 25, 2020, after the market closed, and despite the business disruptions caused by the coronavirus outbreak, MU reported stronger-than-anticipated results.

The company’s fiscal second-quarter non-GAAP earnings per share of 45 cents beat the Consensus Estimate by 18.4% and surpassed its guided range of 35 cents (+/- 6 cents) as well.

Also, quarterly revenues of $4.8 billion outpaced the consensus mark of $4.6 billion. The memory chip maker’s revenues also came in line with the higher-end of management’s guided range of $4.5-$4.8 billion.

Now, Micron Technology stock sees solid third-quarter revenue as the need to work from home due to the coronavirus outbreak restrictions is boosting demand for data center and notebook services.

The chipmaker forecasts third-quarter revenue to be in the range of $4.6 billion to $5.2 billion, and gross margin to be in the range of 31%, plus or minus 150 basis points.

“Micron delivered solid second quarter results and revenue at the high end of the guidance range, despite the unfolding COVID-19 pandemic,” said Micron Technology President and CEO Sanjay Mehrotra. “We will emerge from this challenging time well-positioned to capture the robust long-term demand opportunities for memory and storage.”

Mehrotra said data center business in China was boosted by increased gaming, e-commerce and remote-work activities as the country locked down many cities and regions to combat the outbreak.

The company is moving supply from smartphone to service the strength in data center markets, Mehrotra said, adding the demand could lead to supply shortages.

Analysts Are Upbeat.....

Wall Street analysts are upbeat on Micron Technology stock. Out of the 19 analysts covering Micron’s shares, 17 have a Buy rating, 1 has a Hold rating, and 1 has a Sell rating, adding up to a Strong Buy consensus rating. The average price target of $67.64 provides investors with a potential 59% gain in the stock in the coming 12 months.

Here are some of the analysts’ movements towards Micron Technology stock.....

Bank of America provided a double upgrade to Buy from Underperform (PT Affirmed at $60).

JPMorgan maintained an Overweight Rating (PT $65)

"While the full impact of Covid-19, especially on the back half of the year, is not clear, we expect the demand environment to be mixed with continued strength in cloud data center and gaming offset by weaker trends in consumer products such as PCs, smartphones, and autos, at least in the near term," analyst Harlan Sur wrote.

Webush maintains an Outperform Rating (PT Raised to $65 from $51)

"While we are still positive on Micron, the future has become more opaque.....we expect pricing will be better than we have modeled, allowing MU to exceed our estimates," analyst Matt Bryson wrote.

Deutsche Bank affirms Buy Rating (Lowers PT to $60 from $65)

"We have lowered our price target from $65 to $60 to account for potential demand destruction from Covid-19,” wrote analyst Sidney Ho.

Moving Forward.....

Micron was one of the first large U.S. companies to report in the coronavirus environment on Wednesday after the close.

It is led by a very strong management team focused on increasing shareholder returns.

And, right now Micron Technology stock is a terrific bargain opportunity.

In our present work-from-home environment, Micron's customers have increased demand for storage solutions in the cloud, and employees and students have increased their demands for home and enterprise notebooks, hence there is some pull into this quarter's performance. 

Demand for storage and memory solutions are only going to increase over time.  As consumers and businesses continue to consume content and data, the demand for storage will provide a very long secular tailwind for Micron.

Demand for 5G capable smartphones, servers, cloud, automotive industry, consumer electronics, gaming, and IoT (Internet of Things), are not going to suddenly taper off.

Micron Technology stock derives close to 65% of its total revenue from its DRAM segment. DRAM is faster, denser and more expensive. But given the number of gigabytes per dollar it stores, DRAM becomes fairly inexpensive for companies that require extensive storage solutions.

And, since DRAM is manufactured by just three companies globally, it is still able to command huge premiums.

So…..

There is huge potential for Micron Technology stock going forward!

It is expected that Micron Technology stock will be worth a $90 billion market cap versus $50 billion presently, or at least 60% higher.

The demand for memory in servers, cloud, 5G, machine learning, and autonomous vehicles is only going to increase, it is not going down.

During this downturn, Micron is still expected to be profitable, which is a vastly improved situation compared the last downturn of 2016.

Given a more normalized environment such as it had in 2018-2019, with steady DRAM prices, Micron could return to making $9 billion of free cash flow.


Option Trade – STMicroelectronics NV (NYSE: STM) Calls

Wednesday, March 25, 2020

SHORT-TERM TRADE…..

** OPTION TRADE: Buy STM APR 17 2020 20.000 PUT at approximately $1.70.

Place a pre-determined sell at $3.40. But be prepared to sell at a less profit.

Also include a protective stop loss of $0.70.

LONGER-TERM TRADE.....

** OPTION TRADE: Buy STM JUL 17 2020 22.500 CALL at approximately $1.50.

Place a pre-determined sell at $3.00.

Also include a protective stop loss of $0.60.

Preamble.....

This is meant to be a two-tiered trade based on an Option Put for the short-term; despite the massive amount of money to be injected into the U.S. by the U.S. Administration this does not alleviate the Coronavirus problem at this stage.

By July the COVID-19 situation, hopefully, will be rectified and stock on a roll again; therefore, the expectation that STM will move upwards; thus, the Option Call.

The Information.....

Swiss chipmaker STMicroelectronics NV (NYSE: STM), that develops, manufactures, and markets semiconductor products, has been moving upwards solidly for the past few days.

STMicroelectronics is a French-Italian multinational electronics and semiconductor manufacturer headquartered in Geneva, Switzerland. It is commonly called ST, and it is Europe's largest semiconductor chip maker based on revenue.

STMicroelectronics last released its earnings results on Thursday, January 23rd. The semiconductor producer reported $0.43 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.37 by $0.06.

The company had revenue of $2.75 billion for the quarter, compared to analyst estimates of $2.69 billion. STMicroelectronics had a net margin of 10.80% and a return on equity of 15.33%. The firm’s quarterly revenue was up 4.0% on a year-over-year basis.

During the same period in the prior year, the firm earned $0.46 EPS. On average, research analysts expect that STMicroelectronics NV will post 1.49 EPS for the current fiscal year.

Prior to the virus outbreak STMicroelectronics had blazed a path higher over the previous five months to encroach on levels not seen for years.

At-the-time, while still holding near these highs, STM had consolidated their gains; and had then pulled back to its 30-day moving average. This trendline had proven to act as support over the past three years, and most recently acted as a "springboard" for the shares at the start of the fourth quarter.

Influencing Factors…..

STMicroelectronics has.....

  • well-performing products,
  • high-value products,
  • been witnessing growing contract wins in areas of braking, body control and engine management,
  • robust microcontrollers, sensors, power, analog and other connectivity products.
  • seen increasing usage of electronic applications in cars, especially smart cars and autonomous vehicles, which is a positive for the company’s growth in the automotive market, and
  • expanding design wins for silicon carbide products.

Analysts Take…..

STMicroelectronics was upgraded by stock analysts at ValuEngine from a “sell” rating to a “hold” rating in a research note issued to investors on Tuesday.

Several equities analysts have recently commented on the company…..

  • Robert W. Baird upgraded STMicroelectronics from an “underperform” rating to a “neutral” rating and lifted their price objective for the stock from $20.00 to $30.00 in a research note on Friday, January 24th.
  • Canaccord Genuity started coverage on STMicroelectronics in a research note on Wednesday, December 18th. They issued a “buy” rating on the stock.
  • Cowen lifted their price objective on STMicroelectronics from $31.00 to $35.00 and gave the stock an “outperform” rating in a research note on Friday, January 24th.
  • Jefferies Financial Group started coverage on STMicroelectronics in a research note on Monday, January 6th. They issued a “hold” rating and a $30.00 price objective on the stock.
  • Finally, Craig Hallum dropped their price objective on STMicroelectronics from $32.00 to $24.00 and set a “buy” rating on the stock in a research note on Thursday, March 19th.

Five research analysts have rated the stock with a hold rating and ten have issued a buy rating to the company’s stock. The stock presently has an average rating of “Buy” and a consensus price target of $23.31.

So.....

STMicroelectronics NV has a 52 week low of $14.28 and a 52 week high of $31.98. The company has a quick ratio of 2.21, a current ratio of 3.03 and a debt-to-equity ratio of 0.27. The firm’s 50-day simple moving average is $26.27 and its 200 day simple moving average is $24.55. The firm has a market capitalization of $15.67 billion, a PE ratio of 15.36, and a P/E/G ratio of 2.21 and a beta of 1.40.


Trading Today…..Tuesday, March 24, 2020

Futures contracts tied to the major U.S. stock indexes surged in early trading Tuesday on hopes an agreement on a stimulus bill to rescue the economy from the coronavirus was close.

As of 6:30a.m ET., the Dow Jones Industrial Average futures jumped 930 points, or 5%, to hit so-called limit up levels. S&P 500 futures and Nasdaq futures were also up 5% and “limit up.” The S&P 500 SPDR ETF was up 5.1% in premarket trading.

Senator Charles Schumer and Treasury Secretary Mnuchin were close to a deal on a $2 trillion stimulus bill, according to reports, which cited a conference call Schumer had Monday evening with Democratic leaders. Negotiations on the bill were set to continue Tuesday morning.

The overnight moves followed yet another stormy day on Wall Street on Wednesday as investors swung back to pessimism and pushed the major indexes to new multiyear lows as a procedural vote in the Senate on a bill failed for the second time in 24 hours.

The Dow dropped 582.05 points, or 3%, to a new three-year low on Monday and remained on pace to clinch its worst calendar month since 1931. The S&P 500 dropped 2.9% to 2,237 and closed 34% below a record set last month as both indexes sank further into bear markets amid the COVID-19 outbreak.

After the Stimulus Bill…..

Obviously the investor/trader is confident that Congress will “one way or another” be able to come to terms on a coronavirus relief package, even as the economic stimulus bill before the U.S. Senate again failed a key procedural vote Monday.

But, the U.S. government will still have more work to do to stop the economic fallout from the coronavirus after it passes a massive stimulus bill.

There is a lot of doubt as to when the demand of the American consumers is likely to take place.

To make this possible there needs to be enough ventilators, gloves, ICU beds and enough testing to cover the whole population as the lack of these things is what makes this situation so dangerous.

While the economic relief package may put a short-term stop to the uncertainty and financial pain facing many Americans, the end of the COVID-19 crisis relies on the availability of medical supplies and equipment.

So.....

This does not appear to be a quick fix, so expect further volatility in the stock market.

“This market has been utterly dangerous since February,” wrote Fundstrat’s Tom Lee in a note Tuesday. “But there are glimmers of hope.”

Update.....at 7.11am....

The Senate deal has been blocked again!

The Senate’s package of economic support measures – whose sticker price has risen to $2 trillion – remained stuck, as the Democratic Party objected to the scope and perceived ease of federal aid to large companies.

House Speaker Nancy Pelosi on Monday announced a rival package worth $2.5 trillion that focus on handouts to families and small businesses.

As to Italy - the global epicenter of the pandemic at present, recorded the second straight day of declines in confirmed new cases and in deaths, prompting hopes that it could be near an inflection point.

Italian bond and stock markets bounced sharply after a report saying that Germany was willing to approve a loan from the European Stability Mechanism to combat the virus, with little or no conditionality as regards its fiscal policy.

However, German Economy Minister poured cold water on the idea of joint debt issuance by the euro zone. The Eurogroup meets later and is expected to discuss calls for such measures from countries such as Italy, Spain and Portugal.

Markets also have to look through an extremely negative set of business surveys showing the extent of the disruption to the world economy from the Covid-19 pandemic.

The Downtrend Begins…..

The futures have now on their way down again – will the stock market start in the green or will we expect more red?