“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 01, 2019

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


"Trading Capital Management"

Option Trade – Dow Chemical (NYSE:DOW) Calls

Thursday, April 04, 2019

** OPTION TRADE: Buy the DOW JUN 21 2019 60.000 CALL at approximately $1.25. Place a pre-determined sell at $2.50.

Also include a protective stop loss of $0.50.

Recently, Dow Chemical (NYSE:DOW) was spun off from DowDuPont, with the former trading as a component of the price-weighted Dow Jones Industrial Average.

Shares of the new Dow Jones Industrial Average member Dow Inc., trading under the ticker symbol "DOW," has started to move upwards, after the materials science company was spun off from previous Dow component DowDuPont Inc. (DWDP). The spinoff was effective as of 5 p.m. Eastern on April 1.                                                     

"Today's announcement completes our first step toward creating three strong, independent growth companies set to be industry leaders focused on driving innovation and delivering long-term value for shareholders," said Ed Breen, chief executive officer of DowDuPont. "Dow begins its next chapter as a more focused, disciplined and market-oriented company, and I am excited for the tremendous opportunities ahead for its employees, shareholders, and customers."

Analysts have been on the move with this stock….

  • Dow Chemical is now covered by analysts at Macquarie. They set an "outperform" rating and a $65.00 price target on the stock. 16.1% upside from the current price of $56.01.
  • Dow Chemical is now covered by analysts at HSBC Holdings plc. They set a "hold" rating and a $53.00 price target on the stock. 5.4% downside from the current price of $56.01.
  • Dow Chemical is now covered by analysts at UBS Group AG. They set a "buy" rating and a $70.00 price target on the stock. 25.0% upside from the current price of $56.01.
  • Dow Chemical is now covered by analysts at Citigroup Inc. They set a “buy" rating and a $67.00 price target on the stock. 19.6% upside from the current price of $56.01.

Dow, a materials science-focused company with divisions in packaging, infrastructure and consumer care, will replace DowDuPont in the 30-stock average. It will also trade in the S&P 500 as Brighthouse Financial Inc. (BHF) is removed from the broader benchmark.

Dow was spun from its larger parent, a creation of the $130 billion merger between Dupont and Dow, as part of a plan to create three separate companies focusing on agriculture, specialty products and plastics. Cortvea, DowDuPont's agriculture unit, will separate on June 1.

"Today marks the beginning of a new and exciting chapter for Dow," said CEO Jim Fitterling. "The changes we have made to Dow's portfolio, cost structure and mindset are significant. The new Dow is a more focused and streamlined company with a clear playbook to deliver long-term earnings growth and value creation for all stakeholders."

DowDuPont shareholders were offered 1 Dow share for every 3 of their own holdings, with the option of a cash payment in lieu, from the December 2015 split.

Option Trade – Zscaler Inc (NASDAQ: ZS) Calls

Wednesday, April 03, 2019

** OPTION TRADE: Buy the ZS JUN 21 2019 75.000 CALL at approximately $5.60. Place a pre-determined sell at $11.20.

Also include a protective stop loss of $2.25.

Cloud security company Zscaler Inc (NASDAQ: ZS) has been closing at all-time highs and is expected to continue its upward trajectory.

Shares of Zscaler soared 22% to close at a record $60.57 after the company’s results and outlook came in better than analysts expected last month. And, is now sitting around the $70.00 mark waiting for its next leg-up.

Revenue growth accelerated and adjusted profits were pushed into positive territory, with costs rising more slowly than the top line. The company's approach to security seems to be resonating with its customers, and it sees multiple tailwinds that should drive long-term growth.

CEO Jay Chaudhry explains the company's advantage…..

“Imagine 80% of luggage passing through airport security unchecked. You can't, because that would be unacceptable. But this is exactly what happens when organizations attempt to use next-gen firewalls to protect users. Zscaler is natively designed as a full SSL proxy, which means our customers can inspect encrypted traffic without impacting user experience, leading to better security and renewed businesses.”

Chaudhry also talks about the company's competition and growth opportunities: "These imitators can't scale, leave gaps in security, are expensive, and deliver poor user experience. With multiple tailwinds, such as SaaS adoption, SD-WAN and app migration to public clouds, we believe the market is coming to us."

"We are seeing success in disrupting the traditional network security market, with a globally distributed cloud security platform that consistently applies policies and protections no matter the device or location," Jay Chaudhry said in a statement. “We are increasingly viewed as a strategic foundation to our customers' network and security transformation towards a cloud and mobile first world."

Many other analysts are also optimistic about Zscaler…..

  • Needham analyst Alex Henderson, who has a strong buy on Zscaler and raised his price target to $65 from $47.50, said the company’s Private Access service, which lets organizations provide secure access to internal applications and services, “continues to impress.” He noted it accounts for 15% or so of bookings, impressive for a new product, and that it could account for 40% to 45% of revenue over the next five years.
  • Wedbush analyst Daniel Ives, who has an outperform rating and upped his price target to $68 from $53, said the party is just getting started for Zscaler.“Last night, Zscaler delivered a Picasso-like quarter highlighted by total revenue growing 65% and billings accelerating 74% year-over-year, crushing Street expectations as the company is hitting profitability much earlier than the Street expected,” Ives said.
  • Guggenheim analyst Imtiaz Koujalgi, who has a neutral rating and raised his price target to $45 from $40, said he was staying on the sidelines with Zscaler given the price of the stock.“ Topline growth was healthy, with revenue growth accelerating, and the company is also showing good leverage in the model,” Koujalgi said. “There are very few companies that are growing 50+% with positive margins and cash flows.” Billings, however, were helped by an increase in upfront multi-year billings, Koujalgi said, and on an adjusted basis, could be interpreted as slowing down in momentum.

Of the 16 analysts that cover Zscaler, seven have buy ratings, seven have hold ratings, and two have sell ratings. Of those, six hiked their price targets on Zscaler to an average target of $50.67.

Zscaler is scheduled to issue its next earnings report on Wednesday, June 5th…..

  • Wall Street brokerages expect Zscaler to post $0.06 earnings per share (EPS) for the current. Four analysts have issued estimates for Zscaler’s earnings, with estimates ranging from ($0.02) to $0.32. Zscaler reported earnings per share of ($0.02) in the same quarter last year, which suggests a positive year-over-year growth rate of 400%.
  • As well, Wall Street brokerages predict that Zscaler will post $69.47 million in sales for the current quarter. Four analysts have made estimates for Zscaler’s earnings, with the lowest sales estimate coming in at $66.40 million and the highest estimate coming in at $74.75 million. Zscaler posted sales of $49.16 million in the same quarter last year, which would indicate a positive year over year growth rate of 41.3%.

With rapid revenue growth and improving profitability, the company has a strategy that is clearly working. The cybersecurity market should provide plenty of growth opportunities in the coming years, giving Zscaler a long runway.