“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, August 06, 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!

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Option Trade – Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE: TSM) Calls

Thursday, August 09, 2018

** OPTION TRADE: Buy the TSM OCT 19 2018 42.000 CALL at approximately $1.60. Place a pre-determined sell at $3.20.

Also include a protective stop loss of $0.65.

Nanotech stocks have tremendous upside potential representing one of the most ground-breaking and far-reaching innovations at this stage.

Within the broad and rapidly expanding technology sector, nanotechnology offers perhaps the most profound potential impact for society. On a purely scientific level, nanotech involves any innovation conducted at the nanoscale, which is between one to 100 nanometers.

Professor Norio Taniguchi coined the term nanotechnology. However, it took substantial advancements in microscopic platforms before scientists could begin practical experimentations.

Once they did, the positive implications from nanotech integration became readily apparent. According to Nano.gov, 25.4 million nanometers can “fit” inside an inch. A single sheet from a typical newspaper is approximately 100,000 nanometers thick.

This tech and its astonishing scale will clearly set the pathway towards the next generation of super-computers. But this innovation reaches much further than that. With the ability to manipulate individual atoms, healthcare and the pharmaceutical industry can finally move beyond researching diseases, and towards their complete elimination.

Without question, nanotech stocks have the capacity to deliver enormous gains.

And Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE: TSM) is one of the leaders in this field.

The challenge with most direct nanotech stocks is that they’re incredibly speculative. TSM has a proven history of success.

Also consider TSM’s financials. The company essentially levers class-leading profitability margins, and stronger-than-average three-year revenue growth. Moreover, it features a robust balance sheet, with a very favorable cash-to-debt ratio.

Influencing Factors…..

The Taiwan stock market climbed higher again on Wednesday, one session after it had ended the two-day winning streak in which it had collected almost 100 points or 0.9 percent. The Taiwan Stock Exchange now rests just above the 11,075-point plateau.

Over the weekend, the chip manufacturing giant Taiwan Semiconductor Manufacturing was hit by a computer virus. CFO Lora Ho told Bloomberg that this was a first for the company.

"TSMC has been attacked by viruses before, but this is the first time a virus attack has affected our production lines," Ho said.

Earlier this week the company issued more detail on the operational impact of this virus. Long story short, this issue will make a material difference to TSMC's third-quarter report -- but the company hopes to make up the lost ground in the last reporting period of the year, and management stands firm by its full-year guidance targets.

The virus stopped several production lines across more than one of TSMC's manufacturing locations but the company brought 80% of its operations back online quite quickly.

The incident should reduce third-quarter revenues by approximately 3%. The less-than-optimal operating conditions will also lower TSMC's gross margins by roughly 1%. The posted third-quarter guidance had been pointing at revenues near $8.5 billion and a gross margin near 49%. The updated targets are zeroing in on $8.25 billion and 48%, respectively, which would work out to 9% year-over-year sales growth and a weaker bottom line.

Looking ahead…..

However, the incident should reduce third-quarter revenues by approximately 2%. The less-than-optimal operating conditions will also lower TSMC's gross margins by roughly 1%. The posted third-quarter guidance had been pointing at revenues near $8.5 billion and a gross margin near 49%. The updated targets are zeroing in on $8.25 billion and 48%, respectively, which would work out to 9% year-over-year sales growth and a weaker bottom line.

Expect TSMC's gross margins to come back strong in the fourth quarter as every available ounce of manufacturing efficiency is squeezed out of its systems through longer operating hours.

Analysts and Hedge Funds Opinions

Susquehanna Financial Group analyst Mehdi Hosseini on Monday said the setback likely won't affect earnings estimates for the full year.

"We are essentially pushing out about 3% of September-quarter revenue into December-quarter revenue," Hosseini said in a report. He reiterated his positive rating on TSMC stock.

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

  • Taiwan Semiconductor was upgraded by equities research analysts at ValuEngine from a “hold” rating to a “buy” rating in a research report issued to clients and investors on Wednesday, July 25th.
  • Zacks Investment Research downgraded shares of Taiwan Semiconductor Mfg. from a “hold” rating to a “sell” rating in a report on Saturday, July 21st.
  • Nomura raised shares of Taiwan Semiconductor Mfg. from a “neutral” rating to a “buy” rating in a report on Thursday, July 19th.
  • Susquehanna Bancshares raised shares of Taiwan Semiconductor Mfg. from a “neutral” rating to a “positive” rating in a report on Monday, July 2nd.
  • Finally, UBS Group raised shares of Taiwan Semiconductor Mfg. from a “neutral” rating to a “positive” rating in a report on Monday, July 2nd.

One equities research analyst has rated the stock with a sell rating, four have assigned a hold rating and eight have assigned a buy rating to the company. The stock presently has a consensus rating of “Buy” and a consensus price target of $46.00.

Summary

Taiwan Semiconductor Mfg. has a quick ratio of 2.47, a current ratio of 2.71 and a debt-to-equity ratio of 0.05. Taiwan Semiconductor Mfg. has a 12-month low of $35.34 and a 12-month high of $46.57. The company has a market cap of $216.31 billion, a PE ratio of 19.21, a P/E/G ratio of 1.22 and a beta of 1.05.


Option Trade – Micron Technology, Inc. (NASDAQ:MU) Calls

Monday, August 06, 2018

** OPTION TRADE: Buy the MU OCT 19 2018 55.000 CALL at approximately $3.35. Place a pre-determined sell at $6.70.

Also include a protective stop loss of $1.50.

Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, has seen its shares tumble more than 15% from the 52-week highs they reached in late May as investors have cooled on the chip industry amid stretches of market-wide volatility. Micron is still one of Wall Street's top success stories from the past few years, but concerns that its bullish cycle is ending have many investors ditching the memory giant for now.

Two major concerns for bears are……

  • cyclical trends of the semiconductor space, and
  • international tariff disputes-including the so-called trade war between the U.S. and China.

But Micron should actually be uniquely protected from both of these potential problems.

Trade war fears seem to be overblown, with Micron confirming that the affected products would represent just "slightly more than" 1% of its annual sales, while the injunction will hurt Q4 revenue by about 1%.

And, Micron is also protected from a cyclical burnout due to its exposure to fresh, secular growth drivers.

However, Micron has been posting a notable comeback: shares gained 22% so far in 2018 and 92% over the last 12 months, blowing away the broader market. Micron stock has looked a bit soft throughout July, though, with sentiment centered on the fact that a Chinese court granted the blockage of some of Micron’s products. Management said the affected product will affect sales by around 1%.

Companies have used cash from tax cuts to buy back a record amount of stock last quarter: over $436 billion — almost double to prior record. Recently, Nomura analysts Romit Shah expressed that Micron’s free cash flow — which includes a $2 billion credit line and $8 billion in cash — could be used to buy back stock in coming quarters.

Currently, Micron is expected to earn $11.77 per share this year, followed by $11.65 next year. Shah thinks Wall Street may be expecting $1.50 per share too little for earnings over the next four quarters.

We think this means that consensus is either not factoring in the buyback or contemplating a 10%-15% decline in profit next year, which appeals overly conservative in our estimation,” he wrote.

Influencing Factors…..

Micron has seen eight positive revisions to its full-year EPS estimates within the past 60 days, with no negative revisions coming in that time.

Micron's current fiscal year ends in August. Looking ahead, there have been seven positive revisions-and just one negative revision-to its next-year EPS estimates in the same 60-day timeframe. Positive earnings estimate revisions are correlated with positive share price movement.

Micron is trading at an extremely attractive valuation. The stock is currently trading at just 4.7x forward 12-month earnings. Over the past year, its earnings multiple has been as high as 6.8x and as low as 4.1x. Its 52-week median earnings multiple is 5.3x.

Micron's potential to benefit from amazing secular trends makes its below-average current earnings multiple even more appetizing.

Analysts and Hedge Funds Opinions

Goldman Sachs Group set a $68.00 price objective on shares of Micron Technology and gave the company a “buy” rating in a research note on Wednesday, July 18th.

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

  • ValuEngine downgraded shares of Micron Technology from a “buy” rating to a “hold” rating in a report on Wednesday, May 2nd.
  • Deutsche Bank boosted their price objective on shares of Micron Technology from $68.00 to $72.00 and gave the stock a “buy” rating in a report on Tuesday, May 22nd.
  •  Stifel Nicolaus set a $108.00 price objective on shares of Micron Technology and gave the stock a “buy” rating in a report on Thursday, July 5th.
  • Finally, Credit Suisse Group boosted their price objective on shares of Micron Technology from $70.00 to $80.00 and gave the stock an “outperform” rating in a report on Tuesday, May 22nd.

Micron Technology has been given a consensus rating of “Buy” by the thirty-four analysts that are presently covering the firm. Eight equities research analysts have rated the stock with a hold recommendation, twenty-three have assigned a buy recommendation and two have issued a strong buy recommendation on the company. The average 1-year price target among analysts that have issued ratings on the stock in the last year is $79.16.

Summary

Right now, the median price target for shares is $80, good for another 38% upside, while the highest estimates show the stock more than doubling. Technically, shares simply have to get through some resistance at the stock’s current 52-week high before breaking out again.

With four straight earnings beats in the books, there’s little reason to think anything is going to knock Micron off its current upward trajectory in the near future.

Micron Technology has a debt-to-equity ratio of 0.20, a quick ratio of 2.06 and a current ratio of 2.63. Micron Technology, Inc. has a one year low of $26.85 and a one year high of $64.66. The company has a market cap of $61.93 billion, a P/E ratio of 11.98, a PEG ratio of 0.56 and a beta of 1.61.






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