“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, May 04, 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 – Nike Inc (NYSE:NKE) Calls

Friday, May 08, 2020

** OPTION TRADE: Buy NKE JUL 17 2020 95.000 CALLS at approximately $2.70.

Place a pre-determined sell at $5.40.

Also include a protective stop loss of $1.10.

Preamble.....

Nike Inc. (NYSE: NKE), a seller of athletic footwear and athletic apparel worldwide, is the leader in the shoe and sports apparel industry and continues to innovate, raking in sales with its celebrity-endorsed and technologically advanced products. With $39 billion in annual sales, it has a good lead over its competitors, it's almost uncatchable, and it's still growing.

In the company's recently completed third quarter, revenue increased 5% despite the closure of stores in China, its biggest growth market. And during the current fourth quarter, with retail outlets around the globe currently closed, the Chinese stores have reopened, giving Nike a chance to partially balance out losses.

Earnings of 78 cents per share improved 14.7% from the prior-year quarter and surpassed the Consensus Estimate of 54 cents. Earnings mainly benefited from robust top-line growth across geographies, offset by the impacts of the virus outbreak on its business in Greater China.

Revenues increased 5.1% to $10,104 million and beat the Consensus Estimate of $9,871 million. On a currency-neutral basis, revenues grew 7%. The outperformance was driven by solid momentum across EMEA, APLA and North America, offset by the impact of the outbreak in Greater China. Further, the company’s top line benefited from 13% currency-neutral growth in NIKE Direct, with digital growth of 36%.

Gross profit rose 3% to $4,473 million, while gross margin contracted 80 basis points (bps) to 44.3%. The decline was mainly attributed to the impacts of COVID-19 on the company’s China business, higher rebates to wholesale partners and increased costs for factory cancellations to manage future inventory. The coronavirus outbreak in China resulted in lower sales mix in Greater China, which is the company’s high-margin geography. Additionally, gross margin was impacted by adverse currency rates and incremental tariffs in North America.

Influencing Factors.....

Nike has been in the process of developing a strong direct-to-consumer business that it's been nurturing to support the company's operations. Once retail operations get back up to speed, Nike is ready to renew that transformation. In the meantime, its robust digital initiatives that include several mobile apps in addition to its e-commerce platform are bringing in needed revenue to help it maintain operations.

Online Shopping Traffic.....

Nike Inc. was the global leader in March with 139 million visitors to its site. Despite having to close brick-and-mortar stores in the United States and other countries due to [the] coronavirus, Nike has not only managed to gain momentum, but has massively driven traffic to the brand’s official web site.

The success, based on marketing efforts, saw a mass increase of Nike lovers flock to the official site. This is especially interesting when taking into account that in terms of traffic, Nike was at the bottom of the list in comparison to rival clothing and apparel brands a few months back in January and February. Yet now these figures highlight that they’re leading the pack in March.

Analysts.....

BTIG Research started coverage on Nike in a research report on Tuesday, April 28th. They set a “buy” rating and a $108.00 price target on the stock.

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

  • Deutsche Bank reaffirmed a “neutral” rating and issued a $84.00 price objective on shares of Nike in a research note on Wednesday, April 29th.
  • Needham & Company LLC reduced their target price on Nike from $105.00 to $80.00 and set a “buy” rating for the company in a report on Monday, March 23rd.
  • Goldman Sachs Group set a $102.00 price objective on shares of Nike and gave the stock a “buy” rating in a research note on Thursday, April 23rd.
  • Finally, Stifel Nicolaus reaffirmed a “buy” rating and set a $110.00 price objective on shares of Nike in a research report on Thursday, February 6th.

Four investment analysts have rated the stock with a sell rating, six have issued a hold rating and twenty-eight have issued a buy rating to the company. Nike presently has an average rating of “Buy” and an average price target of $98.18.

Moving Forward.....

NKE is projected to report earnings of $0.19 per share, which would represent a year-over-year decline of 69.35%. The most recent consensus estimate is calling for quarterly revenue of $8.43 billion, down 17.21% from the year-ago period.

For the full year, the Consensus Estimates are projecting earnings of $2.66 per share and revenue of $39.28 billion, which would represent changes of +6.83% and +0.41%, respectively, from the prior year.

So…..

Nike stock is down about 14% year to date, which makes it a good time to buy, as it has great future prospects for continued growth, the price has already bounced back from earlier coronavirus-induced lows and should keep climbing.

Nike’s 50-day simple moving average is $82.38 and its 200 day simple moving average is $92.67. The firm has a market cap of $138.72 billion, a price-to-earnings ratio of 32.68, a P/E/G ratio of 2.68 and a beta of 0.75. The company has a debt-to-equity ratio of 0.69, a quick ratio of 1.20 and a current ratio of 1.90. Nike Inc has a 52 week low of $60.00 and a 52 week high of $105.62.


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

Monday, May 04, 2020

** OPTION TRADE: Buy JD SEP 18 2020 43.000 CALLS at approximately $4.10.

Place a pre-determined sell at $8.20.

Also include a protective stop loss of $1.65.

Preamble.....

This is a precarious time to be investing in China. But many Chinese stocks, particularly in the technology and service sectors, look attractive if you're willing to deal with some volatility.

Even before the coronavirus outbreak, which originated in Wuhan province, relations between China and the West were strained. The U.S. and China have been engaged in a tit-for-tat trade war for most of the Trump presidency, and there is widespread fear in Western capitals that 5G telecom equipment manufactured by Huawei is capable of state espionage.

Trade tensions alone were reason enough to make many investors wary of Chinese stocks. Then the COVID-19 pandemic happened, exposing the risks of a globalized supply chain.

Going forward, a lot of companies might be reconsidering the merits of cheap Chinese manufacturing and opt to stay closer to home. But the truth is that China has long evolved past the smokestack stage of development. The country is a major technology and digital entertainment hub, even if the vast majority of its products and services are destined for domestic use.

But, one of the best Chinese stock in the market right now is e-commerce giant JD.Com Inc. (ADR) (NASDAQ:JD), often referred to the Chinese Amazon.com, despite the fact that its larger competitor, Alibaba, is often called the same.

Online retailers have been gaining ground on traditional retailers for more than two decades. The virus lockdowns only accelerated the process.

JD.com is essentially China's home-grown version of Amazon. JD.com boasts 32 million active users and sells virtually everything you can think of: electronics, clothes, appliances, food and more.

JD.com is a pioneer in rapid delivery, offering next-day and often same-day shipping for many of its products. And via its JD Logistics arm, the company allows outside companies to piggyback on its sprawling empire of fulfillment centers and state-of-the-art warehouses.

The coronavirus started to really wreak havoc on China early this year, but you'd never know it by looking at JD.com's stock price. JD, which we called one of the top tech stocks for 2020, is up 24% year-to-date and at its highest level since 2018.

Secondary Listing On the Hong Kong Stock Exchange…..

JD.com is looking to raise approximately $3 billion via a secondary listing on the Hong Kong Stock Exchange.

This will be the largest equity market transaction on the Hong Kong Stock Exchange so far in 2020.

JD.com's listing will give investors in Hong Kong and China a chance to invest in one of the fastest-growing e-commerce stocks in the world. With annual revenue of approximately $80 billion in 2019, JD.com is a technology heavyweight.

The upcoming listing will help JD increase its brand value in Asia and other international regions, supporting continued growth.

Influencing Factors.....

JD's free cash flows look has doubled or tripled their cash profits in five years.

JD's slim profit margins give the company a huge opportunity. It doesn't take much of a change to those paper-thin margins to drive a big difference in the company's total earnings and cash flows. This has been a core focus for JD in recent years, and you should expect the company to continue its quest for wider profit margins.

Analysts.....

Both Morgan Stanley and Bernstein have upgraded JD from hold to buy recently. Bernstein analyst David Dai also boosted his price target from $41 to $52, arguing that JD’s EPS can double in the next three years.

The analyst explains “JD is a 100% China play. In the worst period of COVID-19 in China, JD outperformed peers. Now while the rest of the world is experiencing what China had 2 months ago, things in China are already turning the other direction.”

As a result, he raised JD’s estimated revenue growth to 18% this year and 20% next year, and net margin to expand to 2.4% by 2021.

Stifel analyst Scott Devitt wrote JD.com likely had great results for the quarter ended in March. Stifel made no change in its ratings—maintaining a Hold on JD.com.

“[W]e believe macro concerns remain,” the Stifel note concluded, “but view e-commerce as well positioned to gain share of retail dollars with the potential for more permanent shifts in consumer buying behavior in certain categories in favor of online players.”

JD.com currently shows a bullish Strong Buy consensus from the Street with a $50 average analyst price target (15% upside potential).

Moving Forward.....

In the future, JD could grow its business across multiple fronts. To start with, it could accelerate its retail business's growth in smaller cities, after posting some good results lately in these markets.

Beyond its traditional retail business, it could expand its logistics, finance, and healthcare ventures, which as a group grew at rapid 63%  in 2019. Meanwhile, it could also leverage its growing scale to improve its operating margin, which would improve its profitability over time.

So…..

JD.com has a 50 day simple moving average of $41.72 and a 200-day simple moving average of $37.56. The company has a quick ratio of 0.58, a current ratio of 0.99 and a debt-to-equity ratio of 0.18. The stock has a market capitalization of $62.88 billion, a P/E ratio of 34.48 and a beta of 0.89. JD.Com Inc has a 52 week low of $25.48 and a 52 week high of $47.98.