“Armchair Trader Series”  Recommendations
- Week Beginning -
Monday, November 20, 2017

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 - Deere & Company (NYSE:DE) Calls

Tuesday, November 21, 2017

** OPTION TRADE: Buy the DE JAN 19 2018 140.000 CALL at approximately $3.50. Place a pre-determined sell at $7.00.

Also include a protective stop loss of $1.40.

Deere & Company (NYSE:DE), engaged in equipment operations, will report its fiscal fourth quarter results before the market opens tomorrow, Wednesday, November 22. The consensus earnings estimate is $1.43 per share on revenue of $6.91 billion, which would represent year-over-year growth of 58% and 22%, respectively. The Earnings Whisper number is $1.52 per share.

Deere has met or surpassed the Consensus Estimate for earnings in 13 consecutive quarters, and the company's stock has gained more than 30% this year.

Deere & Co. has been a top performing stock over the last year, and there appears to be additional upside. Strength in the housing market, improvements in commodities and President Trump’s pledge to boost federal spending on infrastructure have all helped drive DE shares higher over the last year, and should continue to push the stock to new highs.

Short interest has decreased by 14.3% since the company's last earnings release. Overall earnings estimates have been revised higher since the company's last earnings release, which is generally a precursor to an earnings beat. After all, analysts raising estimates right before earnings - with the most up-to-date information possible - is a pretty good indicator of some favorable trends underneath the surface for DE in this report.

The maker of farm and construction equipment has been expanding its global reach and is benefiting from an improved political and economic climate in Latin America that's driving up sales.

Deere & Company has a market capitalization of $43,622.48, a price-to-earnings ratio of 22.74, a PEG ratio of 2.43 and a beta of 0.73. Deere & Company has a 1-year low of $91.33 and a 1-year high of $136.69. The company has a quick ratio of 1.90, a current ratio of 2.10 and a debt-to-equity ratio of 2.76.

Influencing Factors

Expect the company's overall sales to increase in low double digits this quarter, primarily due to the strength in the construction industry in the last couple of quarters. Deere's profits are also likely to increase in double digits this quarter due to the expected sales growth and Deere's cost-cutting measures.

The government support for infrastructure projects in China and India should continue to boost Deere's construction sales.

The rebound in the North American construction industry is also likely to play a vital role in Deere's sales growth this quarter.

Deere's construction and forestry division had a strong third fiscal quarter, as its sales increased by nearly 30% and operating income doubled. The solid growth of Deere's construction equipment sales was driven by strength in the Asian construction industry, led by China. The government support for infrastructure projects continued in the third quarter of 2017 despite the slowing growth of the Chinese economy. Housing starts and government spending on infrastructure projects in the U.S. have also increased in the last couple of quarters.

Expect the above factors to drive Deere's construction sales this quarter.

Analysts and Hedge Funds Opinions

Deere & Company had its price objective boosted by equities research analysts at Deutsche Bank AG from $129.00 to $149.00 in a research note issued to investors on Thursday. The brokerage currently has a “hold” rating on the industrial products company’s stock. Deutsche Bank AG’s price target would indicate a potential upside of 12.65% from the stock’s current price.

Also, several other equities analysts have recently commented on the company…..

  • ValuEngine raised Deere & from a “hold” rating to a “buy” rating in a report on Friday, September 1st.
  • BMO Capital Markets reiterated a “buy” rating and issued a $150.00 price objective on shares of Deere & in a research note on Thursday, November 2nd.
  • Jefferies Group LLC reaffirmed a “hold” rating and set a $125.00 price target on shares of Deere & in a research note on Wednesday, August 9th.
  • Zacks Investment Research raised Deere & from a “hold” rating to a “buy” rating and set a $150.00 price target for the company in a research note on Thursday, November 2nd.
  •  Finally, Goldman Sachs Group, Inc. (The) reaffirmed a “buy” rating on shares of Deere & in a research note on Sunday, August 20th.

Three analysts have rated the stock with a sell rating, thirteen have given a hold rating and ten have issued a buy rating to the company. The stock currently has an average rating of “Hold” and an average price target of $130.08.

Institutional investors that have recently made a change to their positions in the stock….

  • Bartlett & Co. LLC grew its holdings in Deere & by 552.8% in the 3rd quarter. Bartlett & Co. LLC now owns 105,048 shares of the industrial products company’s stock worth $13,193,000 after buying an additional 88,955 shares in the last quarter.
  • Schwab Charles Investment Management Inc. grew its holdings in Deere & by 3.7% in the 2nd quarter. Schwab Charles Investment Management Inc. now owns 1,139,980 shares of the industrial products company’s stock worth $140,891,000 after buying an additional 40,269 shares in the last quarter.
  • Pictet Asset Management Ltd. grew its holdings in Deere & by 22.3% in the 2nd quarter. Pictet Asset Management Ltd. now owns 808,264 shares of the industrial products company’s stock worth $98,980,000 after buying an additional 147,626 shares in the last quarter.

Harvey’s Options Volatility Indicator

Summary

Sentiment remains very bullish on the stock, and the street expects a solid earnings beat.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the DE JAN 19 2018 140.000 CALL at approximately $3.50. Place a pre-determined sell at $7.00.

Also include a protective stop loss of $1.40.


Option Trade - Baozun Inc (ADR) (NASDAQ:BZUN) Calls

Monday, November 20, 2017

** OPTION TRADE: Buy the BZUN DEC 15 2017 35.000 CALL at approximately $3.20. Place a pre-determined sell at $6.40.

Also include a protective stop loss of $1.30.

Baozun Inc. (ADR) (NASDAQ:BZUN), offering digital and e-commerce services primarily in China, will report earnings on Tuesday, November 21, 2017, before the market opens. The report will be for the fiscal Quarter ending Sep 2017. The reported EPS for the same quarter last year was $0.05.

Baozun is often called the " Shopify (NYSE: SHOP) of China" since it uses a similar business model focusing on bringing offline retailers online. Baozun provides retailers with digital storefronts, marketing, customer, fulfillment, and IT services -- making it a "one-stop shop" for digitizing a business.

Recently Baozun Inc. realized close to twice over the total order value achieved on Singles Day of 2016. Baozun began preparing for Singles Day in June 2017 to ensure that it was adequately prepared to meet the enormous surge in orders.

Technology plays a central role in Baozun’s strategy and has become increasingly more important during Singles Day to ensure the seamless integration of the Company’s IT infrastructure, online store management, digital marketing, customer service, warehousing and fulfillment, and back-end administration. Baozun’s sophisticated IT infrastructure was also further strengthened, allowing it to process millions of orders per hour during peak time on Singles Day. These IT systems now include new tools such as AI customer service bots and more than one hundred self-developed all-encompassing management tools for online stores which significantly increase operational efficiency and improve the shopping experience for consumers.

These innovative technologies also allow Baozun to drive industry growth through innovation and benefit from the omni-channel shift that is taking place in the New Retail Era in China.

Baozun Inc. has a fifty-two week low of $10.87 and a fifty-two week high of $40.65. The company has a market cap of $1,784.76, a price-to-earnings ratio of 91.28 and a beta of 4.64.

Influencing Factors

Baozun's stock rallied nearly 160% this year, but it seemingly stalled out over the past month with a near-10% decline. Many investors likely took profits during that pullback. 

But there are many reasons why Baozun will keep moving ahead……

  • China is the second largest economy in the world, but it has an Internet penetration rate of just 52%, compared to 89% in the US and 91% in Japan. Therefore, as incomes rise and more shoppers buy things online, China's e-commerce market will grow.
  • In addition to helping businesses digitize their businesses, Baozun helps them set up shop on Alibaba's Tmall and JD.com -- two of the biggest business-to-consumer (B2C) marketplaces in China.
  • Baozun is currently expanding its core Shopdog platform, and is investing up to $3 million in its new cloud-based SaaS (software as a service) platform and IT services. Some bears claim that higher investments could crimp Baozun's margins, but these moves should widen its moat while locking in current customers.
  • Last quarter, Baozun's revenue rose 27% annually, and its gross merchandise volume (the total value of all goods processed through its platform) surged 64%. That marked acceleration from its 21% sales growth and 61% GMV growth in the previous quarter.
  • Baozun's forward P/E of 28 seems reasonable, and actually looks cheap relative to its earnings growth potential.

Analysts and Hedge Funds Opinions

On the ratings front, Merrill Lynch analyst Binnie Wong maintained a Buy rating on BZUN, with a price target of $38, in a report issued on September 11. The current price target represents a potential upside of 16% from where the stock is currently trading.

Also, Zacks Investment Research upgraded shares of Baozun Inc. from a sell rating to a buy rating in a research report report published on Tuesday. The firm currently has $37.00 price target on the technology company’s stock.

Also, several other equities analysts have recently commented on the company…..

  • BidaskClub raised shares of Baozun from a “buy” rating to a “strong-buy” rating in a report on Friday, August 11th.
  • Citigroup Inc. started coverage on shares of Baozun in a research note on Thursday, August 31st. They set a buy rating and a $38.00 price target on the stock.
  • Finally, Bank of America Corporation boosted their price target on shares of Baozun from $34.00 to $38.00 and gave the stock a buy rating in a research note on Monday, September 11th.

Two investment analysts have rated the stock with a hold rating, two have given a buy rating and two have issued a strong buy rating to the company’s stock. The company currently has a consensus rating of “Buy” and an average target price of $36.54.

Institutional investors that have recently made a change to their positions in the stock….

  • Pictet Asset Management Ltd. bought a new stake in shares of Baozun Inc. in the third quarter. The institutional investor bought 77,733 shares of the technology company’s stock, valued at approximately $2,547,000.
  • TB Alternative Assets Ltd. bought a new position in shares of Baozun during the 3rd quarter valued at approximately $44,810,000.
  • Tairen Capital Ltd boosted its holdings in Baozun by 94.6% in the 2nd quarter. Tairen Capital Ltd now owns 1,777,650 shares of the technology company’s stock worth $21,456,000 after buying an additional 864,041 shares during the period.

Harvey’s Options Volatility Indicator

Summary

Baozun has solid growth, reasonable valuations, and a strong, defensible business model.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the BZUN DEC 15 2017 35.000 CALL at approximately $3.20. Place a pre-determined sell at $6.40.

Also include a protective stop loss of $1.30.






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