“Cut-to-the-Chase” Recommendations
- Week Beginning January 30, 2017 -

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.


Option Trade – Akamai Technologies, Inc. (NASDAQ:AKAM) Calls

Friday, February 03, 2017

**OPTION TRADE: Buy the AKAM FEB 17 2017 75.000 call at approximately $1.50. Sell price is left to your own judgment.

Akamai Technologies, Inc. (NASDAQ:AKAM), a provider of content delivery and cloud infrastructure services for the delivery of content and applications over the Internet, is setting up to complete a bullish continuation pattern by breaking up through resistance at $70 in the run up to, or aftermath of, the company’s earnings announcement on Feb. 7, after market close. The stock has been forming higher lows since early December and with support bounces occurring in the past few days shows that investors are starting to buy before earnings.

Akamai Technologies will be posting its Q416 quarterly earnings results on Tuesday, February 7th. Analysts expect Akamai Technologies to post earnings of $0.68 per share and revenue of $605.57 million for the quarter.

AKAM had a fantastic earnings announcement last October, which sent the stock up to $70 for the first time in a year. The company soundly beat both revenue and earnings estimates with accelerated growth in both its Cloud Security and Web Performance Solutions businesses. This was music to Wall Street’s ears as traders had become nervous the company would slip as its Media Delivery Solutions business took a hit when Apple Inc. (NASDAQ:AAPL) announced it would be shifting away from AKAM and toward an in-house content-delivery network (CDN).

It is anticipated that the announcement of further growth in Cloud Security and Web Performance Solutions, along with stabilization in the company’s Media Delivery Solutions business, will be present in next week’s earnings announcement.

Why Akamai Technologies?

Akamai still has work to do before a full blown breakout develops, but recent action should be very encouraging for investors.

From early March through mid-October, Akamai was stuck in a fairly narrow range. An upside resolution began to look very likely in early October after the stock left behind a third straight higher monthly low near a supportive moving average cluster.

It wasn't until the extremely powerful earnings-inspired breakout on Oct. 21 that Akamai was clear of the range.  The stock gained more than 14% that day after opening with a huge upside gap. A little over a week later, after stalling near $71, Akamai began a 10-week consolidation.

Once the current consolidation is clearly broken, Akamai will have room to run to the upside.

On the upside, Akamai will clear an important hurdle once the 2016 high of $71.05 is convincingly taken out.

Analysts and Hedge Funds

Principal Financial Group Inc. boosted its position in Akamai Technologies by 2.8% during the third quarter, according to its most recent Form 13F filing with the SEC. The fund owned 274,239 shares of the technology infrastructure company’s stock after buying an additional 7,377 shares during the period. Principal Financial Group Inc. owned about 0.16% of Akamai Technologies worth $14,532,000 as of its most recent SEC filing.

Akamai Technologies was upgraded by Zacks Investment Research from a “sell” rating to a “buy” rating in a research report issued recently. The firm presently has a $79.00 target price on the technology infrastructure company’s stock. Zacks Investment Research’s price objective would suggest a potential upside of 12.82% from the stock’s current price.

According to Zacks, “Akamai is likely to benefit from the rising demand for cloud infrastructure solutions, security, mobile products and online video. Additionally, it is likely to gain from its strong foothold in the web applications domain. Upcoming new products like the Kona Site Defender 5.0, Bot Manager 2.0 and the Enterprise Threat Protector (ETP) service will expand customer base going ahead. We note that the company has outperformed the broader market over the last 12 months. Notably, estimates have been going up ahead of the company’s Q4 earnings release.”

Also, Oppenheimer Holdings, Inc. raised shares of Akamai Technologies from a “market perform” rating to an “outperform” rating and upped their price objective for the stock from $65.00 to $70.00.

Summary

Akamai Technologies has been extending its rally since the December close. This healthy move has driven the stock past the December peak and through a key overhead trend line. The stock's post-earnings consolidation may be giving way to a powerful fresh rally leg.

Akamai Technologies, Inc.’s 50-day moving average is $68.33 and its 200-day moving average is $60.27. Akamai Technologies, Inc. has a 1-year low of $39.43 and a 1-year high of $71.64. The stock has a market capitalization of $11.91 billion, a price-to-earnings ratio of 39.01 and a beta of 0.92.


Option Trade – Facebook Inc (NASDAQ:FB) Puts

Tuesday, January 31, 2017

**OPTION TRADE: Buy the FB FEB 17 2017 125.000 put at approximately $1.70. Sell price is left to your own judgment.

Facebook Inc. (NASDAQ:FB), which is engaged in building products to create utility for users, developers, and advertisers, has been one of the market's hottest large-capitalization growth names for years now. Some trade groups estimate Facebook and Alphabet (GOOG, GOOGL) accounted for 103 percent of ad spending in the first half of 2016 -- meaning the rest of the industry was in decline.

Shares of FB are up 321 percent in the last four years, outperforming the 54 percent returns of the Standard & Poor's 500 index by nearly a factor of six.

Numbers-wise, analysts expect revenue to jump 45 percent to $8.49 billion. Wall Street expects the Menlo Park, California-based giant to post earnings per share of $1.31, up 66 percent from the same quarter a year ago.

Growth figures like that are pretty stellar, and for a company the size of Facebook, which has a $381 billion market cap, they're almost unheard of.

 Still, compared to prior quarters it's actually a deceleration. In the third quarter, revenue rose 59 percent and earnings soared 165 percent.

Facebook reports its earnings after the closing bell on Wednesday, and analysts expect the company to earn $1.13 a share. Facebook traded as high as $133.14 on last Thursday, which was shy of its all-time intraday high of $133.50 set on Oct. 25. The stock has a gain of 13.8% year to date and is 15.4% above its Nov. 14 low of $113.55.

Why FaceBook?

"Based on previously released guidance, Facebook has already indicated that revenue growth rates are cooling off, especially Q4 year-over-year comparisons," says Mike Smerklo, co-founder and managing director at Next Coast Ventures.

Facebook warned last quarter that its top-line growth will slow down, which is believed to be partly a result of stiff competition for online ad spending. The company is battling for ad revenue with Twitter (TWTR), Yelp (YELP), Microsoft’s (MSFT) LinkedIn, Alphabet’s (GOOGL) Google, and Apple’s (AAPL) Apple News.

Facebook's metamorphosis into a media company hasn't all been smooth sailing. Perhaps the biggest blip has been the fake news phenomenon, which some in Congress blame for influencing the election outcome.

Something far more concerning for shareholders is a string of announcements from Facebook regarding misreported metrics. Since September, the company has acknowledged three instances where it had misreported performance metrics to advertisers.

In one instance, "average time spent reading articles were over-reported by 7 to 8 percent and traffic was under reported by 10 to 20 percent. The end result is to mislead advertisers on viewership or success of their advertising," Ma says.

"Even though none of these were done nefariously, it puts all of Facebook's data and metrics into question," he says.

Another potential issue for Facebook shares is Snap, the parent of the wildly popular ephemeral messaging app Snapchat. A Snap IPO is expected in the first quarter, and some think that institutional investors could shift money from FB into Snap, a company Zuckerberg tried to snap up in 2013 for $3 billion.

Facebook is trying everything to re-enter china—and it’s not working. Since regulators blocked the service in 2009, CEO Mark Zuckerberg has hired well-connected executives, developed censorship tools and taken a ‘smog jog’ in Beijing—but the company has made no visible headway.

Summary

Facebook tends to reach these levels, and when an earnings report is presented there is usually a drawback of stock price!

Facebook has a 12 month low of $96.82 and a 12 month high of $133.50. The company has a market capitalization of $377.51 billion, a P/E ratio of 50.49 and a beta of 0.67. The company has a 50-day moving average price of $123.12 and a 200-day moving average price of $124.38.


Option Trade – Mastercard Inc (NYSE:MA) Calls

Monday, January 30, 2017

**OPTION TRADE: Buy the MA FEB 17 2017 110.000 call at approximately $2.00. Sell price is left to your own judgment.

Financial stocks have crushed the stock market over the past three months, sending the SPDR KBW Bank ETF (KBE) rising 27% during that time frame, driven by a combination of rising interest rates and the economic policies of President Donald Trump.

The Purchase, N.Y.-based credit card company, Mastercard Inc (NYSE:MA), which reports fourth quarter earnings Tuesday, has been one of the beneficiaries of that financial rally. The shares, which closed Friday at $109.84, have already risen 6.4% this year, including a recent 52-week high of $111.07 last week.

The credit card giant is trading near its record high and has enjoyed very strong gains since the historic March 2009 low. The stock is prone to move after reporting earnings and can easily rally from here when it manages to post strong numbers.

Mastercard Inc is expected to earn $0.85/share on $2.78 billion in revenue. Meanwhile, the so-called Whisper number is $0.87/share.

For the full year, which ended in December, earnings are projected to rise 9.3% year over year to $3.75 per share, while revenue of $10.81 billion would mark an 11.8% rise year over year.

Why Mastercard?

MasterCard's quarterly results should get support from the broader favorable macro trends in the U.S. economy, with improving consumer confidence and declining unemployment. Also, several markets across Europe have been showing signs of gradual recovery. Notably, due to the weak British pound, inbound travel to the UK has been rising.

While the picture in Asia remains mixed, results will likely continue to benefit from growth momentum in India. Notably, on Nov 8, 2016, the Indian government declared the two largest denomination bills invalid, thereby withdrawing around 86% of circulating cash by value. The move encourages digital transactions in India. Payment processing giant - MasterCard - should gain from substantial rise in transactions in the quarter.

Overall strength in the company's most of the markets should lead to double-digit volume and transaction growth as it continues to win deals, executing its long-term strategy.

The company's progress in the U.S. consumer business, with continued focus on debit should support results. Outside the U.S., the company is taking strategic initiatives in a number of portfolios by continuing to leverage services as a major differentiator.

For instance, it is building the long-term debit-deal announced in 2015 in Italy with Poste Italian, and has also been expanding partnership by converting a major portion of their prepaid portfolio. Also, the company should benefit from the numerous new deals with a number of banks in China, inked in third-quarter 2016.

Additionally, quarterly results are likely to get support from MasterCard's digital strategy.

Notably, MasterCard has a decent surprise history.

Hedge Funds

Seven Bridges Advisors LLC raised its stake in MasterCard Inc. by 179.7% during the third quarter, Holdings Channel reports. The fund owned 3,451 shares of the company’s stock after buying an additional 2,217 shares during the period. Seven Bridges Advisors LLC’s holdings in MasterCard were worth $351,000 as of its most recent filing with the SEC.

Analysts

Mastercard Incorporated was upgraded by research analysts at Vetr from a “buy” rating to a “strong-buy” rating in a report released on Monday. The brokerage presently has a $123.04 target price on the stock. Vetr‘s price target would suggest a potential upside of 12.02% from the stock’s previous close.

Wedbush initiated coverage on Mastercard in a research note on Friday, January 20th. They issued an “outperform” rating and a $126.00 target price for the company.

BMO Capital Markets reissued an “outperform” rating and issued a $123.00 target price on shares of Mastercard in a research note on Sunday, January 8th.

Five research analysts have rated the stock with a hold rating, twenty have given a buy rating and three have assigned a strong buy rating to the company. Mastercard presently has an average rating of “Buy” and a consensus price target of $122, suggesting 11% returns.

Summary

Mastercard has a 12 month low of $78.52 and a 12 month high of $111.07. The stock’s 50 day moving average price is $106.36 and its 200-day moving average price is $101.30. The firm has a market cap of $119.68 billion, a P/E ratio of 30.37 and a beta of 1.19.


Option Trade – Sprint Corp (NYSE:S) Calls

Monday, January 30, 2017

**OPTION TRADE: Buy the S MARCH 17 2017 10.000 call at approximately $0.35. Sell price is left to your own judgment.

Sprint Corp (NYSE:S), the smallest of the four U.S. nationwide carriers offering a range of wireless and wireline communications products and services that are designed to meet the needs of consumers, businesses, government subscribers and resellers, is slated to report third-quarter fiscal 2016 financial numbers before the opening bell on Jan 31. Sprint is expected to report a loss of ($0.08)/share on $8.32 billion in revenue. Meanwhile, the so-called Whisper number projects a loss of ($0.10).

The quarter is likely to have seen the carrier bolster its postpaid subscriber numbers and make further progress with its cost cutting.

Last quarter, the company posted an impressive positive earnings surprise of 42.86%. Moreover, the company's earnings surpassed the Consensus Estimate in three of the previous four quarters, with an average beat of 18.35%.

Over the past three months, Sprint marked a growth of 49.13%, beating the 'Wireless National ' industry's gain of 10.90%.

Why Sprint?

Sprint is on track with its network modernization and integration efforts, which has fortified its position in the wireless industry. It is also believed that efficient usage of capital, reduction of cell sites, and elimination of dual networks, backhaul efficiencies, reduced churn, lower roaming charges and energy cost savings are some of its major positives.

Sprint's efforts to lure more customers through different winter promotional offers such as ‘Unlimited Freedom’ and ‘Sprint Open World’ are impressive.

Sprint's postpaid phone growth has been commendable over 2016, driven by attractive pricing plans that have allowed the carrier to add a net of 542k subscribers over the first nine months of 2016, while posting positive port ratios versus its three larger rivals over the last two quarters. It is expected that the trend will continue into Q3 FY'16, driven by the firm's new unlimited plans, which offer the lowest pricing in the industry ($60 for a single line) as well as its move to offer 50% off on porting customers' existing bills.

Moreover, Sprint should benefit from the improved supply of the iPhone 7, and its decision to run its initial promos for the handset longer than its rivals.

Sprint's adjusted margins could expand over the quarter, as the carrier pushes towards its target of achieving a sustainable reduction of $2 billion or more in run-rate operating expenses exiting fiscal 2016.

Adjusted EBITDA margins improved from 31.2% in Q2 2015 to 39.3% in Q2 2016.

Sprint has also been taking steps to cut its interest costs, which have been trending higher in recent years, inhibiting its return to net profitability.

Last Monday, wireless carrier Sprint S announced it would be purchasing a 33% stake in the streaming music service Tidal, owned by hip-hop mogul Jay-Z. While Sprint did not say when the acquisition would be finalized, the new deal is part of a partnership between both companies where Sprint customers will receive exclusive Tidal content. Sprint has about 45 million retail customers.

Analysts

Sprint Corporation‘s stock had its “buy” rating reaffirmed by equities research analysts at Macquarie in a note issued to investors last Monday. They presently have a $10.25 price target on the cell phone carrier’s stock. Macquarie’s price objective points to a potential upside of 19.05% from the company’s previous close.

Summary

Ultimately, Sprint is a company where the fundamentals are matching the technicals in a positive manner. Management has been making aggressive moves, and the markets have rewarded their forthrightness. It’s turning out to be the era of the outsider, and S stock can make the most of it.

Sprint Corp’s 50-day moving average price is $8.68 and its 200-day moving average price is $7.03. Sprint Corp has a 52 week low of $2.45 and a 52 week high of $9.48. The company’s market capitalization is $36.71 billion.




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