“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, April 09, 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.



Option Trade - - General Electric Company (NYSE:GE) Puts

Thursday, April 12, 2018

** OPTION TRADE: Buy GE MAY 18 2018 13.000 PUT at approximately $0.60 each. Sell price is left to your own judgment.

General Electric (NYSE: GE) stock continues to bounce near its lowest levels in more than six years following a horrendous year of trading that sent the stock plummeting more than 56 percent. Unfortunately for GE investors, analysts say things could get worse before they get better.

On Wednesday, Cowen analyst Gautam Khanna said GE is likely to miss consensus earnings expectations once again in the first quarter of 2018. To make matters worse, Khanna says GE shareholders are facing a real possibility of another dividend cut.

General Electric was by far the worst performer in the Dow in 2017, and many value investors had hoped to see a rebound for the conglomerate at the beginning of this year. Yet that didn't come to pass, as investors failed to see a strong response from GE management in plotting a pathway forward to bounce back from its past challenges.

Investors were already prepared coming into 2018 for several of General Electric's key businesses, including power and oil services, to remain weak. But the quarter's earnings report revealed an unexpected problem in the form of a $6.2 billion after-tax charge because of the conglomerate's portfolio of insurance exposure that it had retained after its divestiture of major financial assets. With ongoing potential issues that the conglomerate is still facing, GE hasn't yet shown signs of stabilizing, let alone clawing its way back to success.

Influencing Factors

Shares of General Electric resumed their slide yesterday, as Cowen maintained a “Market Perform” rating on the stock. However, the firm revised down its price target on GE from $15 to $12 previously, citing a forecast that the conglomerate’s first-quarter earnings may fall short of market expectations.

General Electric shares closed lower for the third time in the past seven trading sessions on Wednesday. The stock went down 0.61% ($0.08) to $12.97, after touching an intraday low at $12.85, or a price level not seen since April 9th ($12.82).

In the week ended on April 8th the shares of the industrial conglomerate lost 3.12% of their market value compared to a week ago, which marked the fifth drop out of seven weeks.

The stock has extended its loss to 3.78% so far during the current month, following a 4.46% slump in March. The latter has been a 13th consecutive month of losses.

Cowen analyst Gautam Khanna forecast that GE’s first-quarter earnings, excluding restructuring and pension costs, to be $0.08 per share. That compares with a median analyst estimate of $0.12 per share.

Last week the industrial giant said that its financial results for 2016 and 2017 would be restated in order to observe a new accounting standard.

We expect the upcoming accounting restatement and Q1 print to continue to pressure this ‘show me’ stock”, Cowen’s Khanna wrote in a client note.

“We don’t believe the $0.48/year dividend is safe unless ‘contract assets’ convert to cash on a net basis, and/or the Power market rebounds sharply and soon”, he added.

“GE will remain reliant on short term credit markets in 2018, which makes the restatement, and any related borrowing cost impact, worthy of monitoring”, Khanna also noted.

Analysts and Hedge Funds Opinions

The litany of problems that have hurt the stock has caused leading Confluence Investment Management to dump its stake  in the conglomerate and JPMorgan to argue the shares are still too pricey even after a 25% decline this year.

Also, General Electric had its price objective trimmed by Stifel Nicolaus from $15.00 to $13.00 in a report issued on Tuesday, April 3rd. The firm currently has a hold rating on the conglomerate’s stock.

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

  • DZ Bank reiterated their sell rating on shares of General Electric (NYSE:GE) in a research report sent to investors on Tuesday, April 3rd.
  • TheStreet lowered shares of General Electric from a c rating to a d+ rating in a research report on Wednesday, January 24th.
  • Deutsche Bank set a $15.00 target price on shares of General Electric and gave the company a sell rating in a research report on Wednesday, January 31st.
Summary

General Electric has a 12-month low of $12.73 and a 12-month high of $30.54. The company has a quick ratio of 1.59, a current ratio of 1.87 and a debt-to-equity ratio of 1.32. The stock has a market capitalization of $113,307.62, a price-to-earnings ratio of 12.42, a price-to-earnings-growth ratio of 2.54 and a beta of 1.02.


Option Trades - JPMorgan Chase & Co. (NYSE:JPM) & Citigroup Inc (NYSE: C) Calls

(As mentioned in "Earnings Predictions for the Week Beginning April 09, 2018")

Wednesday, April 11, 2018

Banking Summary

In the midst of rollercoaster trading that has seen massive one-day swings in major stock indexes become commonplace, two earnings reports may stand out -- JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE: C).

The last earnings season was very messy because of huge one-time charges related to tax law changes, but we should start seeing 'cleaner' results from this earnings season onwards, with net interest margins potentially coming in better than many analysts have factored in their models.

The sharp uptick in market volatility is also helpful to the big banks' capital markets businesses and we should see proof of that in trading results on Friday, April 13th.

Bank stocks are up +19.2% over the past year, outperforming the broader market's +15.5% gains and the Finance sector's +17.7% gain. But the industry has struggled lately, with stocks in the Major Banks industry down -8.6% since February 1st, underperforming the S&P 500 index's -5.6% decline in that same period.

The biggest reason for this recent underperformance is the interest rate uncertainty. That said, the Fed remains on a steady tightening trajectory, with market uncertainty at present primarily related to whether the central bank will announce four rate hikes, as it has publicly stated, or more than that.

The low interest rates of the last few years, resulting from a deliberate Fed policy, had put a lid on banks' earnings power. Net interest margin, the difference between what banks pay their depositors and what they charge lenders, has been flat to down for the last few years. With revenue growth hard to come by as a result of this backdrop, banks were forced to maintain profitability by squeezing expenses out of their operations.

All of this has started changing, net interest margins have started expanding, at least on a year-over-year basis, offsetting some of the lingering weakness with loan portfolio growth.

GOP tax cuts are expected to help banks' profitability, as well as an uptick in bond yields and interest rates, which means pushing up what banks can charge on their own loans. The recent spike in stock market volatility is also expected to boost the banks' trading desks, which have weighed on earlier quarterly results.

The market remains very bullish on the overall sector, and rising rates, recent tax reform, low unemployment, and rising wages all create a great environment for big banks, which should remain strong for the foreseeable future.

Option Trade 1: - - JPMorgan Chase & Co. (NYSE:JPM) Calls

** OPTION TRADE: Buy JPM MAY 18 2018 115.000 CALL at approximately $2.20 each. Sell price is left to your own judgment.

JPMorgan Chase & Co. (NYSE:JPM) will report its first-quarter numbers before the market opens. Wall Street expects EPS of $2.28, a 38% jump, on revenue up 12% to $27.53 billion. The Earnings Whisper number is for $2.31 per share.

JPM has been strong over the last couple of years. Higher interest rates will allow big banks like JPMorgan to widen the spread on money where “the borrow” versus “loan out” to customers, which means that higher rates will drive profits higher.

Overall earnings estimates have been revised higher since the company's last earnings release.

Technical indicators for JPM are bullish with a strong upward trend. The stock has recent support above $106.00 and recent resistance below $115.00.

Of the 19 analysts who cover the stock, nine rate it a “strong buy”, one rates it a “buy”, and nine rate it a “hold”.

Option Trade 2: - - Citigroup Inc (NYSE: C) Calls

** OPTION TRADE: Buy C MAY 18 2018 72.500 CALL at approximately $1.30 each. Sell price is left to your own judgment.

Citigroup Inc (NYSE: C) will report earnings before the market opens. Citigroup is seen reporting an 18% EPS boost to $1.61, on a 5% revenue gain to $18.94 billion The Earnings Whisper number is for $1.65 per share.

Short interest has decreased by 9.1% since the company's last earnings release; as well overall earnings estimates have been revised higher.

Its last quarterly outing showed progress in management's long-term initiatives, including an improved efficiency ratio, higher capital returns to shareholders, and steady growth in its consumer banking segment. In early comments on the upcoming fiscal year, CEO Michael Corbat and his team said they're targeting healthy growth both in the bank's return on invested capital and in its return of capital to shareholders.


Option Trade - - Advanced Micro Devices, Inc. (NASDAQ:AMD) Calls

Monday, April 09, 2018

** OPTION TRADE: Buy AMD MAY 18 2018 10.000 CALL at approximately $0.65 each. Sell price is left to your own judgment.

Advanced Micro Devices, Inc. (NASDAQ:AMD), a global semiconductor company, has taken a substantial hit over the last few weeks. Security flaw revelations had some speculating that AMD stock would fall to $0. That combined with reported production issues have reduced the stock price by about 25% in just the last four weeks.

However, despite the bad news, AMD's move into graphics chips has turned years of losses into massive profit growth. A reduced stock price stemming from negative press combined with profit increases has created the perfect buying opportunity for Advanced Micro Devices stock.

The equity offers compelling benefits…….

  • First, analysts believe profits will rise by more than sevenfold this year.
  • They also expect profits to increase by more than 50% in both 2019 and 2020. At a forward price-to-earnings (PE) ratio that stands under 23, this level of profit growth creates a compelling buy case.
  • As well, the second-place market position for its graphics processors further bolsters the buy case. Jack Welch, the longtime former CEO of General Electric Company (NYSE: GE ) emphasized winning. He defined winning divisions and companies as ones that ranked first or second in their industry. As second overall in graphics chips, and first among many crypto miners, AMD stock maintains a valuable position in its market.

Influencing Factors

AMD stock has multiple positive catalysts, including meaningful improvements in its processors, the growth of the video game sector, and the proliferation of artificial intelligence, or AI.

Stifel recently upgraded AMD stock to Buy from Hold and downgraded Intel Corporation (NASDAQ: INTC ) stock to Hold from Buy, according to CNBC. Stifel believes that AMD's processors have largely caught up to those of Intel, giving AMD the opportunity to gain market share "in the PC space."

AMD also has the opportunity to gain market share in the artificial intelligence, or AI, space. Writing in Forbes in November, research firm Trefis noted that AMD currently has 30% market share in the discrete graphics processing, or GPU segment.

If AMD's market share in machine learning GPUs, which are used to power AI, can reach even 3%, AMD's revenue would jump by $3 billion, according to the firm. Since AMD's total 2017 revenue was $5.33 billion that would be a huge windfall for AMD and of course would provide a tremendous boost to AMD stock.

Finally, AMD stock should be boosted by the continuing growth in the popularity of video games. According to a Forbes contributor, "With data going back to 2011 (it's) easy to see that video games are gaining over 1 billion a year in spending." Graphics cards are an important part of PC gaming, and AMD's Radeon chip appears to be a high quality, low-cost graphics card.

Analysts and Hedge Funds Opinions

Advanced Micro Devices was upgraded by equities researchers at Stifel Nicolaus from a “hold” rating to a “buy” rating in a research report issued to clients and investors on Wednesday.

Also, Advanced Micro Devices‘s stock had its “positive” rating reiterated by analysts at Bank of America in a note issued to investors on Tuesday, March 13th. They presently have a $11.52 price target on the semiconductor manufacturer’s stock, which suggests a potential upside of 19.88% from the company’s previous close.

The company currently has a consensus rating of “Buy” and a consensus price target of $15.62.

Summary

AMD expects to increase momentum in 2018, through new premium product launches, a growing portfolio, and expanded go-to-market initiatives with OEM and retail partners - in the Computing and Graphics segment. Launches will include second generation Ryzen desktop CPUs and Ryzen Pro mobile processors (APUs), both of which incorporate Radeon Vega GPUs. The launch of Radeon Vega mobile products will extend penetration of the line-up into high end notebooks.

In Enterprise, Embedded, and Semi-custom, activity will revolve around ramping first-generation EPYC-based systems of major cloud providers, while progressing the developmental milestones of the next-generation server platforms. Having completed the design stage, sampling among customers is slated for the latter part of 2018.

AMD has a debt-to-equity ratio of 2.17, a current ratio of 1.76 and a quick ratio of 1.27. The firm has a market cap of $9,468.42, a P/E ratio of 120.13, a price-to-earnings-growth ratio of 4.22 and a beta of 2.86. Advanced Micro Devices has a 12 month low of $9.04 and a 12 month high of $15.65.






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