“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, June 11, 2018

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



Option Trade - - MKS Instruments, Inc. (NASDAQ: MKSI) Calls

Friday, June 15, 2018

** OPTION TRADE: Buy the MKSI JULY 20 2018 110.000 CALL at approximately $2.30 TO $2.60. Place a pre-determined sell at $4.60.

Also include a protective stop loss of $0.95.

MKS Instruments, Inc. (NASDAQ: MKSI), a semiconductor company based in United States, saw significant share price volatility over the past couple of months on the NasdaqGS, rising to the highs of $125.45 and falling to just below $100. This high level of volatility allows us the opportunity to enter into the stock, and potentially buy a call option at an artificially low price.

MKS Instruments posted better-than-expected results in three of the last four quarters, while reporting in-line earnings in one, delivering an average positive earnings surprise of 4.11%. As well, its shares have rallied 52.8% in the past year, outperforming 39.8% growth of the industry. Also, the stock's yield comfortably surpassed 27.1% increase of the Computer and Technology sector.

MKS Instruments' sincere efforts for deleveraging its balance sheet and thus reducing interest expenses have been working in its favor. Also, commitment toward rewarding its shareholders through dividend payments has kept shareholders' interest alive in the stock. Notably, the company announced 11% growth in its quarterly dividend rate in May 2018.

Influencing Factors

MKS Instruments is riding on robust expansion in semiconductor business, which constitutes a significant portion of its sales. Notably, in the last reported quarter, sales to semiconductor customers increased 26% year over year to $313 million.

MKS Instruments is well positioned to gain from double-digit growth in the semiconductor business, which is growing on the back of increasing demand for data storage and data processing applications.

The company's investments in dielectric etch have paid off as significant growth in its key design wins led to increased orders. The company noted that investments in conductor etch are beginning to generate design wins and are expected to drive future sales.

As well, the company's Newport acquisition is helping it expand its total addressable market opportunities into growing markets like industrial technologies, life and health sciences and research and defense.

MKS Instruments stands to benefit from growing innovation in photonics and laser processing. Also note that the company is winning orders in the laser business.

And, the company anticipates the laser materials processing market will be worth around $4.5 billion by 2022.

Looking Ahead…..

In the quarters ahead, MKS Instruments is poised to gain from healthy demand from the manufacturers of semiconductor devices and capital equipment’s. Also, healthy demand from other advanced markets in the semiconductor space as well as industrial markets will be a boon. A solid product portfolio, focused research and development unit, and technical expertise add to the company's appeal. Also, the company has more than 1,500 patents worldwide.

Wall Street analysts forecast that MKS Instruments will announce earnings of $2.22 per share for the current quarter. Four analysts have made estimates for MKS Instruments’ earnings. MKS Instruments posted earnings of $1.41 per share during the same quarter last year, which suggests a positive year-over-year growth rate of 57.4%. The firm is expected to announce its next earnings report on Tuesday, July 24th.

On average, analysts expect that MKS Instruments will report full-year earnings of $8.42 per share for the current fiscal year, with EPS estimates ranging from $8.20 to $8.59. For the next financial year, analysts expect that the company will report earnings of $9.14 per share, with EPS estimates ranging from $8.70 to $9.50. Zacks’ EPS calculations are a mean average based on a survey of sell-side research analysts that that provide coverage for MKS Instruments.

Analysts and Hedge Funds Opinions

On Jun 13, MKS Instruments MKSI was upgraded by Zacks to a Strong Buy. The upgrade reflects the fact that the company is benefiting from increasing demand in the semiconductor and advanced markets.

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

  • Cowen initiated coverage on MKS Instruments in a report on Monday, May 14th. They set an “outperform” rating and a $135.00 price target on the stock.
  • BidaskClub raised MKS Instruments from a “buy” rating to a “strong-buy” rating in a report on Friday, March 9th.
  • Benchmark started coverage on MKS Instruments in a report on Thursday, May 31st. They set a “buy” rating and a $140.00 target price for the company.
  • Deutsche Bank increased their target price on MKS Instruments to $140.00 and gave the company a “buy” rating in a report on Thursday, March 22nd.
  • Finally, Zacks Investment Research raised MKS Instruments from a “hold” rating to a “buy” rating and set a $127.00 target price for the company in a report on Friday, April 6th.

Shares of MKS Instruments have been assigned a consensus rating of “Buy” from the eight analysts that are presently covering the firm. One investment analyst has rated the stock with a hold recommendation, six have assigned a buy recommendation and one has assigned a strong buy recommendation to the company. The average 12-month price objective among brokers that have updated their coverage on the stock in the last year is $133.75.

Harvey’s Options Volatility Indicator

Summary

The buyout of Newport Corporation, sturdy demand for innovative products and superior customer relationships are responsible for driving the company's top line.

MKS Instruments, Inc. has a twelve month low of $65.90 and a twelve month high of $128.28. The company has a debt-to-equity ratio of 0.20, a quick ratio of 3.24 and a current ratio of 4.49. The stock has a market cap of $5.47 billion, a PE ratio of 17.72, a P/E/G ratio of 0.89 and a beta of 0.96.


Option Trade - - salesforce.com, inc. (NYSE:CRM) Calls

Wednesday, June 13, 2018

** OPTION TRADE: Buy the CRM AUG 17 2018 140.000 CALL at approximately $4.00. Place a pre-determined sell at $8.00.

Also include a protective stop loss of $1.60.

Software-as-a-service (SaaS) stocks, particularly those providing platforms and applications to help businesses are quite the flavour at the present time. The market seems head over heels for these stocks. Cloud-based customer relationship management company salesforce.com, inc. (NYSE:CRM) definitely fits this category.

The company has been regularly notching new all-time highs, which is an impressive feat for a company that now sports a $100 billion market cap.

The stock is up nearly 50% in the last year alone and more than 600% over the past decade.

Yet even after these torrid gains, much more growth still lies ahead for this hard-charging juggernaut.

Salesforce says that the global CRM applications market will grow to $123 billion by 2021, up from $72 billion today. Within this enormous market, Salesforce is the clear leader. The company was recently named the No. 1 CRM provider for the fifth straight year by IDC. Moreover, Salesforce's leadership is broad-based: It's No. 1 in sales, No. 1 in service, and No. 1 in marketing, among other areas. And while Salesforce is already the most dominant force in the global CRM industry, it's continuing to aggressively press its advantage.

Salesforce gained more market share than the rest of the 20 largest CRM suppliers combined in 2017, according to IDC. In turn, Salesforce's share of the global CRM applications market rose to 19.6%, nearly three times that of its closest rival.

Influencing Factors

One of the biggest factors driving Salesforce's surging stock price is the company's better-than-expected financial results. In its most recent quarter, Salesforce produced revenue of $3 billion, up 25% year over year, generating adjusted earnings per share of $0.74. Both numbers exceeded the company's own ambitious forecast, while soaring past analysts' consensus estimates as well.

Even more importantly, this wasn't an isolated incident. The company has exceeded analysts' revenue growth targets in each of the past 12 successive quarters -- not an easy feat for any company.

Saleforce also significantly raised its full-year guidance, saying it now expects fiscal 2019 revenue in a range of $13.075 billion to $13.125 billion, which would represent year-over-year growth of between 24% and 25%. This revised guidance was 3.75% higher than the forecast the company provided just three months ago, while also exceeding analysts' expectations for the year of revenue of $12.75 billion.

The company's consistent ability to beat expectations has resulted in a lot of love from the investing community, with analysts lavishing Salesforce with upgrades and ever-increasing price targets. John DiFucci with Jefferies upgraded the stock to buy, saying the company is reaping the benefits of its strategic relationships with enterprise customers, and he believes this strong momentum could continue for years to come.

The company plans on doubling its revenue to $20 billion by 2022, and it has even more ambitious targets beyond that. It's looking to achieve $40 billion by 2028, and $60 billion by 2034. Salesforce goes even further, with a goal of adding an additional $20 billion in revenue every six years going forward.

Salesforce was recently named a leader in Gartner’s (NYSE: IT) Magic Quadrant for the CRM Customer Engagement Center for the 10th consecutive year running.

Salesforce has long used innovation to keep rivals at bay, and the company isn't afraid to add selective tack-on acquisitions to increase its capabilities. The most recent, Mulesoft, is a platform that allows companies to pull data from disparate sources and applications, breaking apart the traditional information silos, and allowing the data to be integrated for analysis.

Earlier this year, Salesforce bought enterprise e-commerce company Cloudcraze, as well as Attic Labs, gaining control of its open-source decentralized database tool Noms, which helps users replicate and edit information across multiple devices simultaneously.

Analysts and Hedge Funds Opinions

Stock analysts at Wedbush reduced their Q2 2019 earnings per share estimates for shares of salesforce.com in a research note issued on Wednesday, May 30th. Wedbush analyst S. Koenig now forecasts that the CRM provider will post earnings of $0.14 per share for the quarter, down from their previous estimate of $0.28. Wedbush has an “Outperform” rating and a $150.00 price objective on the stock. Wedbush also issued estimates for salesforce.com’s Q3 2019 earnings at $0.19 EPS, Q4 2019 earnings at $0.21 EPS, FY2019 earnings at $1.00 EPS, Q1 2020 earnings at $0.19 EPS, Q2 2020 earnings at $0.27 EPS, Q3 2020 earnings at $0.34 EPS, Q4 2020 earnings at $0.37 EPS and FY2020 earnings at $1.18 EPS.

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

  • Wedbush reaffirmed an “outperform” rating and issued a $150.00 target price (up from $140.00) on shares of salesforce.com in a report on Wednesday, May 30th.
  • UBS Group set a $144.00 target price on shares of salesforce.com and gave the stock a “buy” rating in a research report on Wednesday, May 30th.
  • Royal Bank of Canada raised their target price on shares of salesforce.com to $146.00 and gave the stock an “outperform” rating in a research report on Wednesday, May 30th.
  • Stifel Nicolaus lifted their price target on shares of salesforce.com from $142.00 to $150.00 and gave the company a “buy” rating in a report on Wednesday, May 30th.
  • Finally, BMO Capital Markets lifted their price target on shares of salesforce.com from $133.00 to $147.00 and gave the company an “outperform” rating in a report on Wednesday, May 30th.

Six analysts have rated the stock with a hold rating and forty-seven have given a buy rating to the company’s stock. The stock currently has a consensus rating of “Buy” and a consensus target price of $133.75.

Harvey’s Options Volatility Indicator

Summary

All told, CRM is the fastest-growing enterprise software category, and Salesforce has the most impressive growth within it. And while Salesforce is clearly the most dominant force in the global CRM industry, it has long runways for growth still ahead. As such, Salesforce's stock appears likely to continue its ascent in the coming years.

salesforce.com has a market capitalization of $98.33 billion, a PE ratio of 302.80, a price-to-earnings-growth ratio of 5.35 and a beta of 1.26. salesforce.com has a fifty-two week low of $84.89 and a fifty-two week high of $137.50. The company has a debt-to-equity ratio of 0.29, a quick ratio of 1.29 and a current ratio of 1.29.


Option Trade – MINDBODY Inc (NASDAQ: MB) Calls

Monday, June 11, 2018

** OPTION TRADE: Buy the MB SEPT 21 2018 40.000 CALL at approximately $2.70 to $3.00. Place a pre-determined sell at $5.40.

Also include a protective stop loss of $1.10.

MINDBODY Inc (NASDAQ: MB), a developer of cloud-based business management software and payments platform for the wellness services industry, reported first-quarter earnings on May 08, but the shares took a 17.6% drop the day after the numbers were released.

In the three weeks prior to the report the stock had rallied 20%; and the two days just before the quarter was reported the stock traded at its best level ever. However, the sell-off took it down to a low just under $35. But, it has since bounced 14% and is now attempting to break through resistance around $40. If it’s successful, we’ll see some fresh buying activity. This is where we come in with this options trade.

Lowered 2018 guidance was the major blow, and investors were quick to sell. It is very likely that the first-quarter results were skewed by a number of acquisitions that hurt the fundamentals in the short term but will be the catalyst that drives MB’s long-term success.

The company spent $183 million on acquisitions over the last three years, which is almost equal to the amount of sales it did in all of 2017.

Mindbody also has a platform to enable small business owners to run their business but focuses on a niche set of customers. Mindbody serves boutique fitness, salon and spa, and integrative health establishments. These businesses bring a unique set of challenges including privacy of health data and scheduling appointments and classes.

Its platform's capabilities have grown to include everything from mobile bookings, staff management, payments, marketing tools, and more. One feature that's been recently added is the ability to dynamically price its available inventory of classes to attract new clients and maximize the number of participants in each class.

The company has been successful serving this customer set and has over 58,000 customers on its platform, which racked up $2.1 billion in payments in Q4-2017, a 23% year-over-year increase. Mindbody has a huge market opportunity of 4.2 million wellness businesses around the world that's growing at over 10% annually, so the company has plenty of room to grow by helping these niche small businesses succeed.

Influencing Factors

Mindbody has been busy with acquisitions in the last three years, scooping up five different wellness-focused tech companies. These buyouts have helped enhance and extend Mindbody's platform for small business owners to run their salons, spas, fitness studios, and integrated health facilities.

The first two companies Mindbody acquired, Fitness Mobile Apps and Healcode, have helped the company strengthen its platform. Both businesses had been developing software functionality for thousands of Mindbody's customers before being acquired. Having this functionality under one roof provides customers with more of a one-stop shop when setting up the company's software to run their businesses.

HealCode was started to provide customizable scheduling and other web "widgets" to Mindbody's customers, giving their websites a brand-consistent look and feel. Mindbody has since incorporated these branded web tools into its primary platform, giving its customers better tools to build their sites.

Even though improving its platform is critical to retain customers, CEO Rick Stollmeyer has said the number one job of Mindbody is to "help our customers bring more consumers in the door ", and the next two acquisitions did just that.

Lymber, described as an "Expedia for fitness and wellness studios" by former CEO Doug Hecht, uses dynamic pricing to help its customers sell unused class and appointment inventory. They can also charge more for ones that are in high demand. Mindbody estimates that 50% of its entire inventory goes unused and with the tools Lymber created, these classes go out in the "marketplace" for non-members to try out. Mindbody feels this try-and-buy approach will help fitness studios and other customers to attract new members.

FitMetrix is a set of software tools that caters to the high-end fitness boutique. Its software allows clients to reserve specific pieces of fitness equipment, displays workout class participants’ wearable’s data to enhance friendly competition, and has a suite of tools for personal trainers to track their clients. With only 1,000 Fitmetrix customers today, Mindbody sees an immediate opportunity to grow the use of these software tools among its existing customer base.

Mindbody's most recent and largest acquisition of a direct competitor in the salon and spa space, Booker Software, brings a number of benefits to the company. First, Booker adds 10,000 new customers in the salon and spa category, which is targeted to become 50% of Mindbody's overall customer base (up from 14% before the deal). This segment has tremendous growth opportunity with Mindbody's now 18,000 salons and spa customers only making up 12% of the 150,000 businesses globally.

Mindbody has spent nearly $183 million on these acquisitions in the last three years, a number, coincidentally, equal to its 2017 full year revenue. Even though that is a lot of money for this small-cap platform company, the capabilities and customers these acquisitions bring in will help improve Mindbody's key metrics, including revenue per subscriber and payments volume, ultimately helping to make the company's robust 26% to 29% revenue growth projection for 2018 a reality.

Analysts and Hedge Funds Opinions

Equities analysts predict that Mindbody Inc. will post ($0.08) earnings per share (EPS) for the current fiscal quarter. Seven analysts have issued estimates for Mindbody’s earnings. The lowest EPS estimate is ($0.09) and the highest is ($0.07). Mindbody posted earnings per share of ($0.01) in the same quarter last year, which would suggest a negative year over year growth rate of 700%. The firm is expected to issue its next quarterly earnings results on Wednesday, July 25th.

On average, analysts expect that Mindbody will report full-year earnings of ($0.17) per share for the current year, with EPS estimates ranging from ($0.20) to ($0.15). For the next year, analysts forecast that the business will report earnings of $0.02 per share, with EPS estimates ranging from ($0.07) to $0.09.

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

  • Morgan Stanley lifted their target price on shares of MINDBODY from $39.00 to $42.00 and gave the company an “equal weight” rating in a research report on Wednesday, May 9th.
  • KeyCorp reiterated an “overweight” rating and issued a $47.00 target price (up previously from $41.00) on shares of MINDBODY in a research report on Tuesday, March 13th.
  • ValuEngine upgraded shares of MINDBODY from a “hold” rating to a “buy” rating in a research report on Monday, April 2nd.
  • Craig Hallum restated a “buy” rating and set a $45.00 price objective (up previously from $40.00) on shares of Mindbody in a research report on Tuesday, March 13th.
  • DA Davidson set a $46.00 price objective on shares of Mindbody and gave the stock a “buy” rating in a research report on Wednesday, March 14th.
  • BidaskClub upgraded shares of Mindbody from a “hold” rating to a “buy” rating in a research report on Friday, February 23rd.
  • Summit Insights initiated coverage on shares of Mindbody in a research report on Wednesday, March 7th. They set a “buy” rating for the company.
  • Finally, KeyCorp restated a “buy” rating and set a $41.00 price objective on shares of Mindbody in a research report on Wednesday, February 21st.

One research analyst has rated the stock with a sell rating, three have issued a hold rating, eight have assigned a buy rating and two have given a strong buy rating to the stock.


Harvey’s Options Volatility Indicator

Summary

Mindbody is cementing itself as the leading provider of fitness and wellness software, and should continue to see plenty of upside in the months ahead.

Mindbody has a 12 month low of $21.57 and a 12 month high of $45.50. The firm has a market capitalization of $1.78 billion, a P/E ratio of -126.50 and a beta of -0.09. The company has a quick ratio of 8.10, a current ratio of 8.10 and a debt-to-equity ratio of 0.06.






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