“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, June 08, 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 – Advanced Micro Devices, Inc. (NASDAQ:AMD) Calls

Thursday, June 11, 2020

** OPTION TRADE: Buy AMD OCT 16 2020 60.000 CALLS at approximately $5.80 (Up to $6.20).

Place a pre-determined sell at $11.60.

Also include a protective stop loss of $2.35.

The futures, at the time of writing, are down a lot – therefore you should be able to buy in at a lot less then recommended! Play it smart!

Preamble.....

The Santa Clara, Calif.-based company Advanced Micro Devices, Inc. (NASDAQ:AMD), a global semiconductor company, helped the “Mentorship Program” members make 77% on an options call trade earlier this year before the pull-back occurred.

But now, it appears that AMD is ready to take-off again. Most of AMD's channel partners posted strong sales growth during April. As it turns out, five of the six above-mentioned AMD partners saw their sales grow by over 20% during April on a year on year basis. The one that registered a sales decline, TUL Corp, has been struggling with sales in the past several months anyway so we need not relate its financial performance with AMD's.

And, AMD's AIB and foundry partners registered robust sales growth during April which comes across as excellent news for the chipmaker and its shareholders. Most of these firms registered a robust 20%-plus revenue growth during April. So, it is expected that AMD's supply chain is healthy.

AMD is not a vertically integrated business. Its chips are manufactured by foundry partners - such as Taiwan Semiconductors (TSM) - and assembled in the form of usable GPUs by its add-in board partners - such as Gigabyte, MSI, ASRock and TUL Corp. among others. So, tracking their monthly sales figures can provide us with leading insights about the health of AMD's supply chain and its extent of sales during ongoing quarters.

AMD's Q2 usually spans from April through June. This essentially means the strong April sales numbers seen above are likely going to drive the chipmaker's second quarter results

Earnings…..

On April 28, AMD matched Wall Street's earnings target for the first quarter and beat views on sales. But its guidance for the second quarter was lighter than analysts' estimates.

The chipmaker earned an adjusted 18 cents a share on sales of $1.79 billion in the March quarter. On a year-over-year basis, AMD earnings jumped 200% while sales climbed 40%.

For the second quarter, AMD expects to generate sales of $1.85 billion, based on the midpoint of its outlook. It did not give a target for earnings per share. Wall Street had predicted AMD earnings of 21 cents a share on sales of $1.92 billion in the June quarter. In the year-earlier period, AMD earnings were 8 cents a share on sales of $1.53 billion.

Analysts Outlook…..

Sanford C. Bernstein reaffirmed a “hold” rating on shares of Advanced Micro Devices in a research report on Thursday, April 16th.

Loop Capital upped their target price on Advanced Micro Devices from $54.00 to $60.00 and gave the company a “buy” rating in a report on Friday, May 1st.

BidaskClub downgraded Advanced Micro Devices from a “buy” rating to a “hold” rating in a research note on Tuesday.

JPMorgan Chase & Co. raised their target price on Advanced Micro Devices from $45.00 to $52.00 and gave the company a “neutral” rating in a report on Wednesday, April 29th.

Finally, Atlantic Securities raised Advanced Micro Devices from a “neutral” rating to an “overweight” rating and raised their target price for the company from $37.00 to $60.00 in a report on Friday, March 6th.

One research analyst has rated the stock with a sell rating, seventeen have assigned a hold rating and nineteen have issued a buy rating to the company’s stock. The company currently has an average rating of “Hold” and an average price target of $52.00.

So…..

While both component and system demand were relatively strong at online vendors, offline channel sales were weaker-than-expected as many retail locations across China were closed for much of the quarter. PC demand in the rest of the world was strong, offsetting the softness in China.

But this market dynamic may be behind us. Fact of the matter is that more and more countries are coming of their coronavirus-led lockdowns (such as India) and brick-and-mortar PC parts stores are gradually reopening across the globe. This development, in my opinion, should bolster offline sales for AMD and other similarly impacted firms in the coming weeks and months.

AMD has a current ratio of 2.21, a quick ratio of 1.68 and a debt-to-equity ratio of 0.16. The stock has a fifty day moving average of $53.90 and a two-hundred day moving average of $48.38. The firm has a market capitalization of $66.04 billion, a P/E ratio of 135.49, a price-to-earnings-growth ratio of 1.59 and a beta of 2.14. Advanced Micro Devices, Inc. has a one year low of $27.43 and a one year high of $59.27.


Option Trade – Check Point Software Technologies Ltd. (NASDAQ: CHKP) Calls

Tuesday, June 09, 2020

** OPTION TRADE: Buy CHKP OCT 16 2020 125.000 CALLS at approximately $2.80 (Up to $3.20).

Place a pre-determined sell at $5.60.

Also include a protective stop loss of $1.15.

Preamble.....

Cybersecurity stocks got hammered earlier this year as the novel coronavirus pandemic and other macroeconomic factors sent the broad market packing.

In March, the market saw its worst day since 2008, and top cybersecurity companies such as Israel-based internet security systems provider Check Point Software Technologies Ltd. (NASDAQ: CHKP) bore the brunt. But conditions have changed, and the stock has since regained a lot of ground in the past three months.

This isn't surprising as cybersecurity companies are rising to the challenge to address the fallout from the COVID-19 outbreak. As organizations shift their employees to a work-from-home model, there has been an increase in the volume of cybersecurity threats. The Federal Bureau of Investigation reports that cyberattacks have quadrupled in the wake of the pandemic, creating a tailwind for cybersecurity companies such as Check Point.

About Check Point Software……

Check Point Software Technologies Ltd. develops, markets, and supports a range of products and services for IT security worldwide. The company offers a portfolio of network and gateway solutions, management solutions, and data and endpoint security solutions.

It provides Check Point Infinity Architecture, a cyber-security architecture that protects against 5th generation mega cyber-attacks across various networks, endpoint, cloud, and mobile; security gateways from platforms for small business and small office locations, high end and high demanding data centers, and perimeter environments; and Check Point SandBlast family for threat prevention and zero-day protections.

Influencing Factors…..

Check Point Software has enjoyed a nice bump in its business last quarter. Demand for the company's remote security solutions and network security gateways improved. CEO Gil Shwed provided a few instances of this shift on the latest earnings call:

“We helped [a] major global corporation expand employee remote access from 8,000 daily users to 80,000 users. In another case, it was 130,000 users that are now utilizing our VPN solution. We have many more examples like these across all industries: financial services, transportation, industrial, healthcare, and others”.

Check Point has a conservative operation. But that shouldn't count against Check Point Software as the company's transition to a subscription-based business model is gathering momentum. The company generated nearly $159 million in revenue from security subscriptions last quarter, an increase of 10% year over year. Revenue from software updates and maintenance also increased slightly to $217.5 million.

The legacy products and licenses business declined 2% year over year to $110.2 million, accounting for 22.6% of total revenue last quarter, compared to 23.9% a year ago. The transition could gain further momentum in the coming quarters as Check Point is now witnessing a faster transition to cloud-enabled solutions.

Check Point posted 8% earnings growth to $1.42 in its latest quarterly report, on April 27. That's in contrast to many companies that saw impaired earnings amid the Covid-19 market. Sales rose 3% to $486 million.

Hedge Funds.....

Diamond Hill Capital sees Check Point Software as one of the biggest winners of the stock market crash.....

"Information technology security company Check Point Software Technologies Ltd. outperformed during the broad market sell-off. The firm sells critical products and services, has a significant net cash balance, generates a substantial amount of recurring revenue, and we expect cash generation to be fairly resilient."

In Q4 2019, the number of bullish hedge fund positions on Check Point Software stock increased by about 25% from the previous quarter, so a number of other hedge fund managers seem to agree with CHKP's growth potential.

Moving Forward…..

As most of the world is under lockdown due to coronavirus, a change in demand pattern is expected. Check Point is still assessing the potential impacts of the pandemic-led disruptions on its business, and thus refrained from providing any formal guidance for the second quarter or 2020.

Nonetheless, some customers who are seeing a disproportionate economic impact are likely to be credit constrained in the second quarter. Check Point is evaluating suitable payment terms to ensure continued service. This is expected to partially affect the cash flow in the second quarter.

So…..

Check Point Software has a market cap of $16.24 billion, a PE ratio of 20.19, and a P/E/G ratio of 2.46 and a beta of 0.64. Check Point Software Technologies Ltd. has a 12-month low of $80.06 and a 12-month high of $120.99. The company’s 50 day moving average is $105.93 and its 200-day moving average is $108.39.