“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, August 03, 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 – Newmont Corporation (NYSE: NEM) Calls

Thursday, August 06, 2020

** OPTION TRADE: Buy NEM OCT 16 2020 75.000 CALLS at approximately $3.70 (Up to $4.00).

Place a pre-determined sell at $7.40.

Also include a protective stop loss of $1.50.

Nothing is as hot as gold right now.

With gold approaching $2,000 an ounce in a raging bull market that just won’t let up, it is important to look at the bullish reasons behind this push.

Central banks and governments around the world have gone on a Covid-19 spending-and-borrowing spree to support growth. That creates a lot of risks that may cause serious problems in the economy and even society at large. But those problems will be bullish for gold, a haven in times of crisis.

There’s potentially huge inflation on the way, which often stimulates demand for gold. When more dollars chase the same amount of goods, this drives up the dollar price of those goods. Gold is just another one of those goods that gets driven up in price. This isn’t always the case, but it’s a good general rule.

This would hurt pensioners and small savers the most, adding to the social tensions already sparked in part by large and growing wealth disparities. The growing wealth divide is partly responsible for the wild protests since late May — another source of unease that supports demand for gold.

Confidence in the dollar may be eroded, which also is bullish for gold.

In the background, it always makes sense to have 5% of your portfolio in gold as a hedge.

And now, how to pick a good gold stock.....go with successful fund managers, companies with proven reserves and a plan to extract the gold, over early stage exploration companies, asset quality - a blend of grade level of deposits, reserve depth and cost of production, a company that get “royalties,” or a percentage of production .....

..... and one company with a solid management team is Newmont Corporation (NYSE: NEM).

About Newmont Goldcorp.....

Newmont Mining Corporation, together with its subsidiaries, operates in the mining industry. The company primarily acquires, develops, explores for, and produces gold, copper, and silver.

Its operations and/or assets are located in the United States, Australia, Peru, Ghana, and Suriname. As of December 31, 2018, the company had proven and probable gold reserves of 65.4 million ounces and an aggregate land position of approximately 24,000 square miles.

Newmont Corp is a well-known operator in the industry. A large portion of total production of attributable gold (approximately 75%) is being mined from surface operations and through open-pit mining techniques and the processing of stockpiles. This characteristic will play a crucial role during the pandemic as a possible resurgence of Covid-19 cases will most likely not affect the production from these mine sites.

At The Moment.....

Despite a 21% year over year fall in the gold output for the second quarter of 2020 to 1.26 million ounces, as well as an 8% increase in the all-in sustain cost (AISC) to $1,097 per ounce, Newmont has kept the full year 2020 guidance unaltered.

The U.S. miner targets to mine about 6 million ounces of gold this year from its total mineral reserves of 24.3 million ounces, enduring an AISC of $1,015 per ounce. The company will allocate about $1.4 billion to mining, exploration and development activities.

The stock has risen 59.3% so far this year, outperforming the VanEck Vectors Gold Miners Exchange Traded Funds (GDX) by 12.6%.

Earnings…..

Newmont Corporation came out with quarterly earnings on July 30 with $0.32 per share, missing the Consensus Estimate of $0.34 per share. This compares to earnings of $0.12 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of -5.88%. A quarter ago, it was expected that this gold and copper miner would post earnings of $0.43 per share when it actually produced earnings of $0.40, delivering a surprise of -6.98%.

Tom Palmer, President and Chief Executive Officer said "In the second quarter we delivered solid financial performance with $984 million in adjusted EBITDA and $388 million in free cash flow, both substantial increases over the prior year quarter. Our focus remains on ensuring the health, safety and wellbeing of our workforce and neighboring communities as we manage through the Covid pandemic. I am very proud of our workforce for the agility and resolve that they have demonstrated during these challenging times," said Tom Palmer, President and Chief Executive Officer. "We safely and efficiently executed restart plans at our mines previously in care and maintenance and Newmont’s world-class portfolio is well positioned to deliver an even stronger second half of 2020. The ongoing favorable gold price environment amplifies our free cash flow generation yet our discipline around capital allocation will not change as we continue to invest in profitable projects and provide shareholders industry-leading returns while maintaining a strong balance sheet."

Analysts Thoughts.....

Credit Suisse Group reiterated their buy rating on shares of Newmont Goldcorp in a research report published last Wednesday morning. Credit Suisse Group currently has a $72.00 price target on the basic materials company’s stock.

Several other analysts commented on the stock.....

TD Securities lifted their price target on shares of Newmont Goldcorp from $81.00 to $83.00 and gave the stock a “buy” rating in a research note on Wednesday, May 6th.

Barclays lifted their price target on shares of Newmont Goldcorp from $58.00 to $61.00 and gave the stock an “equal weight” rating in a research note on Monday, July 20th.

Finally, Deutsche Bank raised their price objective on shares of Newmont Goldcorp from $70.00 to $74.00 and gave the stock a “buy” rating in a report on Wednesday, June 17th.

Seven analysts have rated the stock with a hold rating and ten have issued a buy rating to the company. The stock currently has an average rating of “Buy” and a consensus target price of $71.08.

Summary.....

Newmont's second quarter results highlight resilient operating model and significant leverage to rising gold prices from diversified portfolio of world-class assets

Newmont’s 50 day moving average price is $61.12 and its two-hundred day moving average price is $54.20. Newmont Goldcorp Corp has a 1-year low of $33.00 and a 1-year high of $70.30. The stock has a market cap of $54.47 billion, a price-to-earnings ratio of 43.80 and a beta of 0.40. The company has a debt-to-equity ratio of 0.26, a quick ratio of 2.41 and a current ratio of 2.81.


Option Trade – Salesforce.com, inc. (NYSE:CRM) Calls

Tuesday, August 04, 2020

** OPTION TRADE: Buy CRM NOV 20 2020 230.000 CALLS at approximately $6.10 (Up to $6.80).

Place a pre-determined sell at $12.20.

Also include a protective stop loss of $2.45.

Software-as-a-service is perhaps the most attractive business model around, and many of most explosive growth stories in the market are coming from this industry in recent years. Demand for all kinds of software is booming, and companies in the sector enjoy tremendous customer loyalty because those customers are remarkably reluctant to change suppliers or to reduce their investments in mission-critical technologies.

This provides for a rare combination of sustained growth and recurrent revenue, which is very hard to find in other industries. Besides, the cost of providing the software is relatively stable in comparison to revenue, and this produces expanding gross profit margin as revenue grows over time.

Software as a service, delivered by the cloud, is the technology revolution of the last two decades. Salesforce.com, inc. (NYSE:CRM) has been on top of it.

Salesforce has made the cloud its secret sauce. Founder and CEO Marc Benioff negotiated among the major cloud providers so customers could host data wherever they needed it. Salesforce also built its own data centers and expanded into other database application areas.

About Salesforce.com.....

Salesforce pioneered the software-as-service business model under the leadership of founder and CEO Marc Benioff, who founded the company in 1999. Benioff has exhibited a talent for business since he was very young; while in high school, he sold his first app to a computer magazine for $75.

When he was 15, Benioff founded Liberty Software, a one-man company making games for Atari 800. While studying at USC, Benioff took a summer internship with Apple, working as a programmer in the Macintosh division under Steve Jobs himself. This was a profoundly inspiring experience for Benioff.

After a successful career at Oracle from 1986 to 1999, Benioff launched Salesforce.com and with it a new business paradigm for the industry. Salesforce.com's key advantage was that the software was accessed through a web browser and delivered entirely online, which was truly revolutionary at the time.

The company has delivered vigorous growth rates through both organic growth and acquisitions, and management has done a great job at expanding the addressable market and producing all kinds of opportunities for cross-selling. Financial performance has been outstanding over the long term and the company still has ambitious plans for expansion going forward.

Moving Forward…..

Salesforce has gone from a specialized customer relationship management software-as-a-service to a massive ecosystem of services centered on relationships. In this digital age, human interaction can get downright impersonal. But Salesforce is doing its part to prevent that as far as business and customer relationships are concerned.

Salesforce prides itself on delivering actionable insights to organizations based on information gathered from their customers. But through dozens of acquisitions and internal development, the company's platform has become a torchbearer for digital transformation that puts customers first.

The company has kicked its efforts into overdrive during the current lockdown. It announced a new chat and video tool embedded directly in its software, expanded its freelance advisor marketplace with Torchlite to help businesses manage the current business environment, partnered with Siemens to create touchless office entry and workforce management systems, announced a new set of tools from subsidiary MuleSoft to help healthcare providers make better use of patient data, and invested $100 million in remote-work service technologist Tanium. Salesforce has been busy the last few months helping users of its platform make a quick pivot.

The Situation.....

Salesforce started out the year on a strong note as the company got a series of bullish analyst estimates projecting a strong year for the customer relationship management specialist. 

A strong fourth-quarter earnings report wasn't enough to stop the coronavirus-driven sell-off at the end of February, but the company still beat estimates as revenue jumped 35% to $4.85 billion, ahead of expectations of $4.75 billion. Adjusted earnings per share slipped from $0.70 to $0.66 due in part to share dilution but still beat the consensus of $0.55.   

As the stock tumbled in March alongside the market crash, CEO Marc Benioff pledged not to lay off any employees for the next 90 days. Shares recovered over April and May as hopes for an economic recovery ramped up, but Salesforce's gains were uneven as the stock stumbled after an industry conference, and on some analysts' belief that software focused on revenue generation was more at risk than applications like cybersecurity.

The stock pulled back after its second-quarter earnings report at the end of May. Weak guidance overshadowed solid first-quarter numbers, with the company calling for full-year revenue growth of 17%, following 30% growth in the first quarter as it laps last year's Tableau acquisition. To close the first half of the year, the stock gained at the end of June as a pair of analysts raised their price targets on the stock and a report said Salesforce would launch its own Slack competitor.  

Past Earnings.....

Salesforce.com last posted its quarterly earnings data on Thursday, May 28th beating estimates for the 13th consecutive quarter.

The CRM provider reported $0.70 EPS for the quarter, beating analysts’ consensus estimates of $0.69 by $0.01. The business had revenue of $4.87 billion for the quarter, compared to analyst estimates of $4.85 billion. Salesforce.com had a positive return on equity of 2.45% and a negative net margin of 0.92%.

The business’s revenue for the quarter was up 30.2% compared to the same quarter last year. During the same quarter last year, the company earned $0.93 earnings per share.

Earnings Ahead…..

Salesforce.com is scheduled to report its next earnings results on Thursday, August 27th.

Equities analysts predict that salesforce.com will report earnings of $0.67 per share for the current quarter. Salesforce.com reported earnings per share of $0.66 during the same quarter last year, which would suggest a positive year-over-year growth rate of 1.5%.

Analysts expect that Salesforce.com will report full year earnings of $2.97 per share for the current financial year, with EPS estimates ranging from $2.93 to $3.08.

For the next year, analysts expect that the company will post earnings of $3.50 per share, with EPS estimates ranging from $3.30 to $3.71.

Analysts Thoughts.....

Goldman Sachs Group lifted their target price on shares of salesforce.com from $204.00 to $220.00 and gave the company a “buy” rating in a research report on Wednesday, June 24th.

Several other analysts commented on the stock.....

  • Wells Fargo reiterated an Overweight rating, also raised its 12-month price target on the stock from $200 to $215 on May 29.
  • On May 29, 2020, Mizuho Reiterated a Buy rating and increased its price target from $205 to $210.
  • On May 29, 2020, BMO Capital Markets Reiterated an Outperform rating and decreased its price target to $213.
  • Needham & Company LLC reaffirmed a “hold” rating on shares of salesforce.com in a research note on Friday, May 29th.
  • Jefferies Financial Group increased their price objective on salesforce.com from $205.00 to $220.00 and gave the company a “buy” rating in a research note on Monday, June 22nd. They noted that the move was a valuation call.

One research analyst has rated the stock with a sell rating, four have issued a hold rating, thirty-nine have given a buy rating and two have assigned a strong buy rating to the company. The stock presently has an average rating of “Buy” and a consensus price target of $200.21.

Summary.....

Salesforce has turned itself into a business software juggernaut, one specifically focused on helping its customers undergo much-needed digital transformation for a new era of operations. 

Salesforce's scope has broadened, it's become a platform that other companies are using as a springboard. Two examples are life sciences technologist Veeva Systems and recent IPO and banking software outfit nCino. Paired with its own internal growth, this expanding network of businesses making heavy use of Salesforce should continue to help the enterprise software giant to expand. Salesforce has hauled in $18.2 billion in revenue in the last 12 months and has a market cap of $170 billion as of this writing. If it can maintain its momentum, it's well on its way to knocking on the trillion-dollar door in a decade or so. 

Salesforce has a quick ratio of 1.15, a current ratio of 1.15 and a debt-to-equity ratio of 0.15. salesforce.com, inc. has a 1 year low of $115.29 and a 1 year high of $202.82. The stock has a fifty day moving average of $188.62 and a 200-day moving average of $173.36. The firm has a market capitalization of $182.15 billion, a PE ratio of -1,125.89, a price-to-earnings-growth ratio of 9.62 and a beta of 1.07.