“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 22, 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

ALSO

"Trading Capital Management"



Option Trade – Texas Instruments Incorporated (NASDAQ:TXN) Calls

Thursday, April 25, 2019

** OPTION TRADE: Buy the TXN OCT 18 2019 120.000 CALL at approximately $6.75. Place a pre-determined sell at $13.50.

Also include a protective stop loss of $2.80.

Semiconductor stock Texas Instruments Incorporated (NASDAQ:TXN), headquartered in Dallas, Texas, an original equipment manufacturer of analog, mixed signal and digital signal processing (DSP) integrated circuits, was a big winner when recommended on December 04 , 2018; and has now provided us with another opportunity to profit from its latest earnings report.

Semiconductor veteran Texas Instruments reported results after the closing bell on Tuesday, covering the first quarter of TI's 2019 fiscal year. Sales and profit fell dramatically compared to the year-ago period, but both management and analysts had been expecting an even steeper drop.

The semiconductor manufacturer has posted slowing chip sales in recent quarters, and said Tuesday it does not expect demand for chips to improve in 2019. Meanwhile, its shares reached a 52-week high during the session after beating earnings estimates by 13 cents in the last quarter.

On the Tuesday earnings call, Texas Instruments reported its second consecutive quarter of declining sales. The host said the chip cycle typically lasts as many as five quarters before turning around.

Following Texas Instruments’ conference call, the stock rose $6 before giving up those gains and more after CFO Rafael Lizardi did not give that “all clear.”

Now is the moment to buy call options on Texas Instruments!

Shares of Texas Instrument closed Wednesday at $118.43, up more than 25% from the start of the year.

About Texas Instruments …..

Texas Instruments Incorporated designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing. The Analog segment offers power products to manage power requirements in various levels using battery management solutions, portable components, power supply controls, point-of-load products, switches and interfaces, integrated protection devices, high-voltage products, and mobile lighting and display products.

The Report…..

Texas Instruments reported first-quarter 2019 earnings of $1.26 per share, which came within management's guided range of $1.03-$1.21.

Excluding discreet tax benefit of 4 cents from the reported figure, earnings of $1.22 per share comfortably surpassed the Consensus Estimate of $1.13. However, the reported figure decreased 6.7% year over year and 0.8% on a sequential basis.

The company delivered revenues of $3.59 billion, beating the Consensus Estimate of $3.48 billion. Further, the figure came within the company's guided range of $3.34-$3.62 billion. However, the figure was down 5% from the year-ago quarter and 3.3% sequentially.

Decline in demand in the reported quarter affected the company's Analog and Embedded Processing businesses, in turn the top line.

Notably, shares of the company have plunged 1.69% in the after-hours trading. This can primarily be attributed to sluggishness in demand for chips in the semiconductor industry. The trend is anticipated to persist in the days ahead.

Nevertheless, the company's focus on innovation of product portfolio is evident from its growing research and development (R&D) spending. This continues to be a key catalyst. Moreover, the company remains confident on its portfolio strength, efficient manufacturing strategies and optimized capital allocation in growth areas. Additionally, Texas Instruments continues to increase investments in the automotive and industrial markets which are expected to yield good returns.

All these endeavors have aided the company in winning shareholders' confidence.

Future Outlook…..

For second-quarter 2019, the company expects revenues between $3.46 billion and $3.74 billion. The Consensus Estimate for revenues is pegged at $3.68 billion.

Earnings are expected in the range of $1.12-$1.32 per share. The guidance includes an estimated $10 million discrete tax benefit. The Consensus Estimate for earnings is pegged at $1.25.

Management Remarks…..

In his prepared remarks for the earnings call, CFO Rafael Lizardi explained how this quarter's slow sales fit into TI's cyclical business patterns.

“We believe that after 10 quarters of year-on-year growth, the weakness we're seeing is primarily due to the semiconductor cycle. We have just completed our second quarter of year-on-year declines for TI. If you look at history, cycles are always different, but typically the industry would have four to five quarters of year-on-year declines before year-on-year growth resumes.”

In other words, there should be some life left in this market downturn. Lizardi made it clear that he isn't trying to predict exactly how the market cycle will work out since it's mostly out of the company's own control. The pattern he highlighted here is more of a historical backdrop.

Analysts…..

Analysts ratings changes yesterday…..

  • Texas Instruments had its price target raised by analysts at Bank of America Corp from $114.00 to $122.00. They now have a "neutral" rating on the stock. 3.9% upside from the current price of $117.46.
  • Texas Instruments had its price target raised by analysts at Morgan Stanley from $100.00 to $106.00. They now have an "equal weight" rating on the stock. 9.8% downside from the current price of $117.46.

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

Rosenblatt Securities reiterated their buy rating on shares of Texas Instruments in a research report published on Monday morning. Rosenblatt Securities currently has a $120.00 target price on the semiconductor company’s stock.

“We see management guiding 2Q19 and position 2019 within the context of a continuation of a muted demand environment consistent with a down-cycle.”, the firm’s analyst commented.

  • BMO Capital Markets restated a “buy” rating and issued a $120.00 price target on shares of Texas Instruments in a research report on Thursday, January 24th.
  • Finally, Deutsche Bank boosted their price target on shares of Texas Instruments from $100.00 to $110.00 and gave the company a “hold” rating in a research report on Wednesday.

Finally…..

TXN traded up $2.05 during trading hours on Wednesday, hitting $118.43. The stock had a trading volume of 12,828,336 shares, compared to its average volume of 5,715,299. The company has a market capitalization of $111.16 billion, a PE ratio of 21.85, and a PEG ratio of 2.20 and a beta of 1.17.

Texas Instruments Incorporated has a one year low of $87.70 and a one year high of $119.32. The company has a debt-to-equity ratio of 0.48, a quick ratio of 2.38 and a current ratio of 3.27.


Option Trade – Cimarex Energy Co (NYSE: XEC) Calls

Tuesday, April 23, 2019

** OPTION TRADE: Buy the XEC JUN 21 2019 75.000 CALL at approximately $2.00. Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.

The energy space is currently performing a lot better than expected. While pundits predicted that the supply glut of 2018 and sluggish demand outlook for 2019 are likely to keep pressurizing oil and gas prices at least for the first half of the year, as a matter of fact, the prices are moving in favor of the producers.

The primary reasons behind the same are OPEC+ production cuts,Venezuelan sanctions and crisis, political tension in Libya, and resilient demand. The first quarter of the year is already over and the WTI is strengthening against all odds. The American benchmark got off to a strong start this year, up 37% from $46.31 to $63.46 per barrel level at present.

Oil prices are set to rise in the United States as the summer driving season commences.

Russia and OPEC (which includes Saudi Arabia) will continue to cut crude production to bolster support.

And optimism continues to rise about a trade deal between the United States and China.

Cimarex Energy Co (NYSE: XEC), an oil exploration and production company based in Denver, Colorado, has extensive production in the Permian Basin and Mid-continent fields. The firm produced 251,000 barrels of oil per day in the fourth quarter of 2018.

Last year, the company’s stock plunged thanks to a sharp decline in oil prices during the third and fourth quarters of 2018. But things are about to turn around – and quickly – for this stock…..

…..there is no place hotter for oil price right now than the Permian Basin in West Texas, where Cimarex has extensive operations.

About Cimarex Energy…..

Cimarex Energy Co. operates as an independent oil and gas exploration and production company primarily in Oklahoma, Texas, and New Mexico. As of December 31, 2018, it had a total proved reserves of 591.2 million barrels of oil equivalent, consisting of 1.59 trillion cubic feet of natural gas; 146.5 million barrels (MMBbls) of oil; and 179.4 MMBbls of natural gas liquids primarily located in the Permian Basin and Mid-Continent regions.

Why Cimarex Energy…..

Cimarex has increased daily production by 17% annually over the last three years.

And it’s about to make an even bigger splash in the Permian this year. According to the company’s Q4 report, it plans to invest 85% of its capital expenditures into the Permian.

As it expands, the firm will become a takeover target in this red-hot region. It wouldn’t be a surprise at all to see Exxon buy Cimarex out completely to keep up with Chevron.

Cimarex’s stock is cheap compared to its industry rivals, too. XEC stock trades at a price/earnings ratio of just 8.08 – less than half the industry average of 19.06.

Its price-to-book ratio is also only 1.93, which is much lower than its peer-average of 3.30.

The stock is a “Strong Buy” because shares are ready to break out soon.

In fact, XEC broke out and gained more than 4.4% last Friday. But there’s no sign that Cimarex is set to slow down anytime soon.

The energy giant has a potential upside of 52% to $105 per share.

Higher oil prices mixed with greater pipeline capacity in the Permian Basin make XEC stock one of the top oil companies to rebound in the year ahead.

Other Factors…..

Long-term debt to capitalization of Cimarex Energy stands at 30.9%. The figure is significantly lower than the industry average of 43.5%.

Cimarex Energy's operations are geographically diversified being located in Oklahoma, Texas and New Mexico. Its exploration and production activities primarily take place in two areas: the Permian Basin and the Mid-Continent region. Both these prolific regions are famous for cheap production costs.

Cimarex Energy's daily production volumes totalled 221,946 Boe/d, of which 57.7% was liquids. This positions the company to gain tremendous profit from the improving oil prices.

Cimarex Energy outpaced estimates in three of the trailing four quarters, with average earnings surprise of 12%.

Cimarex Energy has seen six positive estimate revisions in the past few weeks and its Consensus Estimate for 2019 has been upwardly revised from $5.70 per share to $5.75.

Cimarex Energy currently has a trailing 12-month EV/EBITDA ratio of 4.95, which is below EQT Corp's 5.24. Hence, Cimarex Energy stocks have considerable room to improve in the near future.

Last Earnings Report…..

Cimarex Energy reported fourth-quarter 2018 earnings per share of $1.98, which surpassed the Consensus Estimate of $1.75 and improved from the year-ago $1.47.    

Total revenues of $624.1 million exceeded the Consensus Estimate of $615 million. The figure also beat $551 million registered in fourth-quarter 2017.

The strong fourth-quarter results were aided by an increase in oil equivalent production backed by ramped up activities in the Permian Basin and Mid-Continent.

Next Earnings Report….Tuesday, May 14th…..

Investment analysts at US Capital Advisors boosted their Q3 2020 earnings per share estimates for Cimarex Energy in a research report issued to clients and investors on Wednesday, March 27th. US Capital Advisors analyst C. Horwitz now forecasts that the oil and gas producer will post earnings per share of $1.98 for the quarter, up from their prior forecast of $1.72. US Capital Advisors also issued estimates for Cimarex Energy’s Q4 2020 earnings at $2.02 EPS.

Also, Equities research analysts predict that Cimarex Energy will announce sales of $573.09 million for the current fiscal quarter. Nineteen analysts have issued estimates for Cimarex Energy’s earnings. The lowest sales estimate is $510.80 million and the highest is $708.99 million. Cimarex Energy reported sales of $567.13 million in the same quarter last year, which would suggest a positive year over year growth rate of 1.1%.

Analysts…..

Morgan Stanley set a $109.00 price objective on Cimarex Energy and gave the stock a “buy” rating in a research report on Tuesday, January 29th.

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

  • Williams Capital set a $104.00 target price on Cimarex Energy and gave the stock a “buy” rating in a report on Tuesday, January 22nd.
  • Susquehanna Bancshares raised Cimarex Energy from a “neutral” rating to a “positive” rating and boosted their target price for the stock from $74.00 to $88.00 in a report on Friday, February 8th.
  • MKM Partners assumed coverage on Cimarex Energy in a report on Wednesday, December 5th. They issued a “buy” rating and a $108.00 target price for the company.
  • Finally, Ifs Securities reissued a “market perform” rating on shares of Cimarex Energy in a report on Sunday, February 3rd.

One research analyst has rated the stock with a sell rating, thirteen have given a hold rating and eleven have assigned a buy rating to the company’s stock. The stock currently has a consensus rating of “Hold” and a consensus target price of $108.16.

Finally…..

XEC traded up $1.15 during trading on Monday, hitting $70.45. The stock had a trading volume of 1,509,812 shares, compared to its average volume of 1,436,371. The company has a market capitalization of $7.11 billion, a PE ratio of 9.52 and a beta of 1.33. Cimarex Energy Co has a one year low of $55.62 and a one year high of $103.91. The company has a debt-to-equity ratio of 0.45, a current ratio of 2.01 and a quick ratio of 1.93.