“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, March 26, 2018

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.



UPDATE ON SQ AND FTNT

Thursday, March 29, 2018

The last couple of days have been quite hard on our trades.

I would suggest that you double-up on the following stocks as the reasoning behind the original trades is still applicable…..

1.      Option Trade - - Square Inc (NYSE:SQ) Calls

** SUGGESTED OPTION TRADE: Buy SQ APRIL 20 2018 55.000 CALL at approximately $0.60 each.

Combined with the trade from Tuesday this will reduce the breakeven to $1.40.

 

2.      Option Trade - - Fortinet Inc (NASDAQ: FTNT) Calls

If you traded out of this trade at $1.77 on Tuesday well done – if not, maybe execute the trade below.

** SUGGESTED OPTION TRADE: Buy FTNT APRIL 20 2018 55.000 CALL at approximately $0.60 each.

Combined with the trade from Monday this will reduce the breakeven to $0.75.


Option Trade - - Square Inc (NYSE:SQ) Calls

Tuesday, March 27, 2018

** OPTION TRADE: Buy SQ APRIL 20 2018 55.000 CALL at approximately $2.20 each. Sell price is left to your own judgment.

Payment processing and point-of-sale upstart Square Inc (NYSE: SQ)’s stock price is already up 50% for 2018. When SQ stock price was at its highs in 2017, shares were up 250% on the year. Ultimately, Square stock ended with gains of 155% for 2017.

Square stock has set a bullish tone over the past year.

Even in February, when the rest of the market was under pressure, Square stock held onto its trend line, refusing to close below it. Friday's 6% fall is now starting to be erased again with the pick-up of the market.

And now, yesterday saw a price-target increase to $67 from $51 by Evercore ISI on SQ stock. The brokerage firm expects the payment processor's new products to help it expand its market share, saying large sellers are likely to continue adopting Square.

The stock has outpaced the S&P 500 Index (SPX) by 50 percentage points during the past three months, and a recent pullback from the March 21 record high of $58.45 found support at the 20-day moving average. Despite this promising technical setup, almost half the analysts covering Square still have just "hold" or "strong sell" ratings in place -- suggesting there's more room on the bullish bandwagon.

Influencing Factors

While the gains seem ridiculous, there was an interesting options trade recently that tips its hand to more potential upside.

On Mar. 19, someone bought 33,000 call options. This wasn't a low-premium "lotto ticket" trade looking to play a big rally for cheap. With SQ stock price trading near $55, this person bought 33,000 $40 strike calls expiring in September.

These units were $15 in the money and required a gigantic premium. In fact, the buyer paid $55.6 million for this particular trade.

This trade implies that the buyer is clearly bullish. However, by buying such deep in-the-money calls, they are basically looking to capture the upside but only pay about one-quarter the price. They paid $16.85 per share (or $1,685 per contract because each call option represents 100 shares).

So to control 100 shares, the buyer paid $1,685 rather than the ~$5,500 it would've cost to buy 100 shares on Mar. 19. The upside here is obvious: for the price of 100 shares of Square, he/she can buy three of these contracts, effectively controlling 300 shares for the same price.

But note that the leverage works both ways. A rally to $65 would lead to explosive gains. But if SQ stock tumbles, the trader is on the hook for all of those losses as well.

Analysts and Hedge Funds Opinions

Square had its price objective boosted by Deutsche Bank from $47.00 to $57.00 in a report published last Friday morning. The firm currently has a buy rating on the technology company’s stock.

Also, Vetr upgraded shares of Square from a hold rating to a buy rating in a research report published on Monday, March 19th. Vetr currently has $57.03 price target on the technology company’s stock.

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

  • Guggenheim reiterated a buy rating and set a $50.00 target price on shares of Square in a report on Thursday, March 1st.
  • Needham & Company LLC lifted their target price on shares of Square from $45.00 to $55.00 and gave the company a buy rating in a report on Wednesday, February 28th.

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

  • Schwab Charles Investment Management Inc. raised its stake in shares of Square by 1,407.6% in the third quarter. Schwab Charles Investment Management Inc. now owns 696,007 shares of the technology company’s stock valued at $20,052,000 after acquiring an additional 649,841 shares in the last quarter.
  • California Public Employees Retirement System increased its holdings in Square by 4.1% in the third quarter. California Public Employees Retirement System now owns 368,151 shares of the technology company’s stock valued at $10,606,000 after buying an additional 14,451 shares during the last quarter.
  • Finally, Nomura Asset Management Co. Ltd. purchased a new position in Square in the third quarter valued at $36,574,000. Institutional investors and hedge funds own 52.06% of the company’s stock.
Summary

Square has a debt-to-equity ratio of 0.46, a current ratio of 1.83 and a quick ratio of 1.83. The stock has a market capitalization of $20,479.71, a P/E ratio of -334.69 and a beta of 4.56. Square has a 52-week low of $16.22 and a 52-week high of $58.46.


Option Trade - - Fortinet Inc (NASDAQ: FTNT) Calls

Monday, March 26, 2018

** OPTION TRADE: Buy FTNT APRIL 20 2018 55.000 CALL at approximately $0.90each. Sell price is left to your own judgment.

The alarming rise of cyber-crime across the world has benefited the cyber security stocks courtesy of growing demand for security products.

Per a market research firm, Markets and Markets' report, the cybersecurity market is expected to grow at a CAGR of 11% between 2017 and 2022 and to reach $231.94 billion by 2022.

Fortinet Inc (NASDAQ: FTNT) offers network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide. The company surpassed the Consensus Estimate in the trailing four quarters by delivering an average positive earnings surprise of 20.10%.

It has been about a month since the last earnings report for Fortinet, Inc. Shares have added about 11.4% in that time frame, outperforming the market.

Influencing Factors

Continuing with its upbeat performance for the sixth straight quarter, Fortinet recently reported better-than-expected results for fourth-quarter 2017, wherein revenues and earnings came ahead of the company's expectations, and also surpassed the respective Consensus Estimate.

Fortinet's non-GAAP earnings per share of 32 cents beat the Consensus Estimate of 29 cents. Also, earnings came in higher than management's guidance range of 28-30 cents and marked an improvement over the year-ago quarter's earnings of 30 cents, driven mainly by higher revenues which were partially offset by elevated operating expenses.

Fortinet reported fourth-quarter revenues of $416.7 million, beating the Consensus Estimate of $409 million and up 14.8% year over year. Segment wise, Product revenues increased 2% year over year to $162.1 million, while Services revenues jumped 24.8% to $254.6 million. A large number of deal wins and customer additions during the reported quarter also proved conducive to top-line growth.

During the fourth quarter, the company witnessed 21% year-over-year growth in the number of deals worth more than $100,000, while the number of deals worth more than $250,000 and $500,000 climbed 31% and 24%, respectively.

Billings were up 15% on a year-over-year basis to $534 million.

Fortinet exited the reported quarter with cash and cash equivalents, and short-term investments of approximately $1.25 billion. Accounts receivable were $346.2 million compared with $258 million witnessed at the end of the previous quarter.

Fortinet initiated outlook for first-quarter and full-year 2018. Management expects revenues in the range of $387-$393 million (mid-point: $390 million). Billings are estimated in the range of $449-$457 million.

Non-GAAP earnings per share are anticipated to come in the band of 21-22 cents (mid-point: 21.5 cents). The guidance range represents a year-over-year increase of 26.4%. Non-GAAP gross margin is estimated in the range of 75-76%, whereas non-GAAP operating margin is projected to be between 12% and 13%.

For 2018, management projects revenues in the range of $1.695-$1.715 billion (mid-point: $1.705 billion). Billings are forecast in the band of $2.030-$2.050 billion.

In the past month, investors have witnessed an upward trend in fresh estimates, with three revisions higher.

Analysts and Hedge Funds Opinions

Fatima Boolani, UBS analyst, raised her price target to $62 from $50 on Fortinet.

"Fortinet has a credible shot at becoming a top three vendor in the overall network security space — currently commanded by Cisco, Palo Alto and Check Point," Boolani said in a note to clients.

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

  • Monness Crespi & Hardt reissued a “buy” rating and set a $56.00 target price (up previously from $50.00) on shares of Fortinet in a report on Wednesday, February 28th.
  • Oppenheimer increased their target price on Fortinet from $50.00 to $55.00 and gave the company an “outperform” rating in a report on Wednesday, February 28th.
  • Piper Jaffray Companies reissued an “overweight” rating and set a $57.00 target price on shares of Fortinet in a report on Wednesday, February 28th.

One equities research analyst has rated the stock with a sell rating, twelve have assigned a hold rating, thirteen have given a buy rating and two have given a strong buy rating to the company’s stock. The stock presently has a consensus rating of “Buy”.

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

  • Dimensional Fund Advisors LP grew its position in Fortinet by 1.6% in the second quarter. Dimensional Fund Advisors LP now owns 259,916 shares of the software maker’s stock worth $9,732,000 after acquiring an additional 4,124 shares during the period.
  • Crossmark Global Holdings Inc. purchased a new position in Fortinet in the third quarter worth approximately $531,000.
  • Victory Capital Management Inc. purchased a new position in Fortinet in the third quarter worth approximately $1,300,000.
  • Canada Pension Plan Investment Board grew its position in Fortinet by 16.3% in the third quarter. Canada Pension Plan Investment Board now owns 64,100 shares of the software maker’s stock worth $2,297,000 after acquiring an additional 9,000 shares during the period.
Summary

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising.

Fortinet has a market capitalization of $9,150.00, a P/E ratio of 320.24, a P/E/G ratio of 4.37 and a beta of 0.73. Fortinet has a 52 week low of $35.44 and a 52 week high of $54.68.


Cut-to-the-Chase Traders - Update on Trading Conditions

Monday, 26th March, 2018

As we all know -- WALL Street took another tumble on Friday, with the Dow falling 400 points, for a loss of more than 1100 points in the two days since President Donald Trump launched a high-stakes trade confrontation with China.

The broadbased S & P 500 dropped 2.1 per cent to end the week at 2,588.26, while the tech-rich Nasdaq Composite Index fell 2.4 per cent to 6,992.66.

Economic data helped boost sentiment early in the session as a big gain in US aircraft sales last month led to a jump in durable goods orders that was double what analysts were expecting, a good sign for economic growth.

And this may be the case although it has been devastating for any call trades – Trump on Friday said his tough policies — including steep tariffs on steel and aluminium imports, and harsh penalties on Chinese goods and trade practices — have brought trading partners to the negotiating table.”

But China and the European Union warned Washington they will not hold talks while being threatened. And China said it was not afraid of a trade war and would not rule out the possibility of scaling back purchases of US Treasury debt as one option for retaliation.

Still, the first steps announced by Beijing against the United States seemed moderate and did not include the vital aircraft and soybean sectors, which initially allayed some of the concerns among investors.

Schwab analysts noted that China presented a “measured response” to the US announcement, saying it would target 128 US products, including ethanol, fresh fruit, pork, steel and wine.

Earlier in the week – Wednesday -- Jay Powell kicked off his first news conference as Fed chairman after a Fed rate hike that came with an outlook just slightly more hawkish than anticipated. Job gains were well above the long-term pace to absorb new entrants, he said in his opening statement, but against a backdrop of a "strengthened economic outlook," inflation is still below the Fed's 2% long-term objective.

And Thursday -- Congressional leaders reached an agreement on a $1.3T spending bill, which boosts defense spending by $80B and domestic spending by $63B above limits set in 2011, as well as $1.6B for a border wall with Mexico and $100M for autonomous car research and testing. With Trump's signature, the bill will avert another government shutdown and keep federal agencies funded until Sept. 30.

Stocks certainly became victims after; Facebook (FB) was slammed by lawmakers over the previous weekend for not providing more information about its ties to Cambridge Analytica. The data firm, which worked for President Trump in the 2016 election, improperly kept Facebook (FB) user data for years despite saying the records were destroyed. Facebook shares fell throughout the week on the news – and continued to upset other stock prices.

The week ahead -- the recent stock market stumbles, which culminated in a brisk selloff late last week and a fall for the Standard & Poor's 500 below its 100-day moving average, are a positive development – which means that the bull market is still intact – “a fast and furious pullback is 'indicative of bull market’.” 

It's actually a positive to see the S&P 500 gap down in the way that it did -- for the first time, we have an oversold condition this month and the last time we had that was at the February lows.

As well, China and the US have opened high-level talks to ease the trade dispute. US Treasury Secretary Steven Mnuchin, trade representative Robert Lighthizer and China's top economic adviser Liu He have opened talks on a trade dispute between the two powers.

And, looking at the futures they are looking quite positive at the time of writing!

Summary

Last week was quite successful trading on the negatives created by Facebook – twice – and then QUALCOMM.

Oracle was a let-down – I will give more feed-back on this later!

Therefore, this week, due to likely volatility continuing, let us see if the positives will stick before playing too many trades. An earnings trade that looks to be quite good is LULU, which will be with you shortly.

 

Best of luck with your trading,

Ian







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