“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, April 23, 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 - - Micron Technology, Inc. (NASDAQ:MU) Calls

Friday, April 27, 2018

** OPTION TRADE: Buy MU MAY 18 2018 52.500 CALL at approximately $1.30 each. Sell price is left to your own judgment.

Idaho-based Micron Technology, Inc. (NASDAQ: MU), a memory chip manufacturer, is moving higher, particularly riding on the back of Advanced Micro Devices (AMD)’s well-received earnings for the chip sector.

Prior to yesterday's surge, Micron stock was mired in a steep pullback from its mid-March high at $63.42. If past is precedent, though, it seems to be the correct time to bet on MU's next leg higher, as the stock is rallying from the site of a historically bullish trendline.

The shares recently pulled back to within one standard deviation of their 160-day moving average. After the previous two times MU stock pulled back to this moving average amid a broader uptrend, it averaged an impressive 21-day gain of 27.06%, and was higher both times.

MU has already added 21% year-to-date, and has outperformed the broader S&P 500 Index (SPX) by 22 percentage points during the past three months.

A rally similar to that already mentioned would put Micron stock above that of the aforementioned March peak, which represented an 18-year high.

Influencing Factors

While the worldwide semiconductor market has been rising, MU chipped away at its rivals, stealing market share. In the first three years of this decade, Micron's share of total industry revenues averaged 2.5%. The years 2013-2016 saw the company's average haul at 4.1%.

And, last year, Micron took away 5.5% - a 34% improvement over the aforementioned average share.

Of course, stealing market share from your competition is one thing, stealing where it matters is quite another. The results from management’s aggressive strategies are clearly evident. Presently, only two companies have over 20% market share in the critical NAND and DRAM markets - SK Hynix and Micron. SK Hynix leads, but by less than a 3% margin.

Micron’s operating and net margins are among the best in the business. It also has a three-year revenue growth curve that exceeds more than two-thirds of the competition. And against earnings, MU is significantly undervalued.

Micron management has excellent prioritization skills. As revenues climbed, so too did cost and expenses. However, Micron has put more of its money where it counts - in research and development. Over the past four years, R&D expenses have increased 33%, whereas SGA expenses have gone up only 5%.

At the current RSI level of 39.2 Micron presents a great buying opportunity going forward.

The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. Typically, when the RSI is less than 30, it indicates that the stock is oversold, and when the RSI rises to over 70, the stock is overbought.

Analysts and Hedge Funds Opinions

Morgan Stanley boosted their target price on shares of Micron Technology from $54.00 to $65.00 and gave the stock an “overweight” rating in a report on Friday, March 23rd.

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

  • BMO Capital Markets boosted their price objective on Micron Technology from $43.00 to $63.00 and gave the stock a “market perform” rating in a research report on Wednesday, March 21st.
  • Vetr upgraded Micron Technology from a “hold” rating to a “buy” rating and set a $61.52 target price on the stock in a research note on Monday, March 19th.
  • Credit Suisse Group boosted their target price on Micron Technology from $60.00 to $70.00 and gave the company an “outperform” rating in a research note on Tuesday, March 20th.
  • BidaskClub upgraded Micron Technology from a “hold” rating to a “buy” rating in a research note on Thursday, March 15th.
  • Nomura boosted their price objective on Micron Technology and gave the company a “buy” rating in a research note on Monday, March 12th.
  • Finally, Rosenblatt Securities boosted their target price on shares of Micron Technology from $85.00 to $100.00 and gave the stock a “buy” rating in a report on Friday, March 23rd.

Micron Technology has been assigned a consensus recommendation of “Buy” from the thirty-four brokerages that are presently covering the company. Two analysts have rated the stock with a sell recommendation, five have given a hold recommendation, twenty-four have issued a buy recommendation and three have assigned a strong buy recommendation to the company. The average 1 year price objective among analysts that have updated their coverage on the stock in the last year is $66.46.

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

  • Xact Kapitalforvaltning AB raised its holdings in Micron Technology by 13.6% during the fourth quarter. Xact Kapitalforvaltning AB now owns 204,001 shares of the semiconductor manufacturer’s stock valued at $8,389,000 after acquiring an additional 24,403 shares during the period.
  • Envestnet Asset Management Inc. raised its holdings in Micron Technology by 13.1% during the fourth quarter. Envestnet Asset Management Inc. now owns 192,685 shares of the semiconductor manufacturer’s stock valued at $7,923,000 after acquiring an additional 22,345 shares during the period.
  • Delek Group Ltd. bought a new stake in Micron Technology during the fourth quarter valued at about $8,673,000.
  • Prudential Financial Inc. raised its position in Micron Technology by 17.1% during the 3rd quarter. Prudential Financial Inc. now owns 1,775,481 shares of the semiconductor manufacturer’s stock worth $69,830,000 after buying an additional 259,557 shares during the last quarter.

Summary

MU has a quick ratio of 2.06, a current ratio of 2.58 and a debt-to-equity ratio of 0.29. Micron Technology has a fifty-two week low of $26.85 and a fifty-two week high of $63.42. The company has a market capitalization of $54,636.53, a price-to-earnings ratio of 11.37, a price-to-earnings-growth ratio of 0.43 and a beta of 1.33.

Option Trade - - Caterpillar Inc. (NYSE:CAT) Puts

Thursday, April 26, 2018

** OPTION TRADE: Buy CAT MAY PUT 18 2018 140.000 CALL at approximately $2.40 each. Sell price is left to your own judgment.

Alternatively, if you prefer to have a longer expiry time; Buy CAT JUNE 15 2018 140.000 PUT at approximately $3.70 each.

Caterpillar Inc. (NYSE:CAT) reported earnings on Tuesday before the market opened. The stock price climbed more than 5% in early trading until the conference call mid-day. If you had executed the option trade that was in the article “Earnings Predictions for the Week Beginning April 23, 2018”, and exited before the earnings call; you would have been in-front by about 80%.

However, after management indicated on the conference call that the first quarter was a "high water mark for the year," shares tumbled sharply lower to close more than 6% to the downside.

During the first quarter, revenue rose 31.4% to $12.9 billion – beating consensus estimates by $970 million – while earnings per share of $2.82 beat consensus estimates by 75 cents per share. The company boosted its profit outlook for 2018 by $2.00 per share to a range of $10.25 to $11.25 per share, citing growing demand for products and services across its business units.

From a technical standpoint, the stock briefly broke above resistance at $155.82 to about $160.00 before moving sharply lower below the pivot point support at $149.36 and trendline support at $147.50. The relative strength index (RSI) remains in neutral territory with a reading of 42.05, but the moving average convergence divergence (MACD) could see a near-term bearish crossover. These indicators suggest that there could be more downside ahead.

Watch for a move lower to support at $140.19 or trendline and 200-day moving average support at $137.29.

Influencing Factors

As a result of the steep second half 2017 ascent, CAT stock by the second half of January 2018 had reached the upper end of its big picture up-trend for the first time since the year 2011.

This also shot the stock into serious overbought territory as measured by the MACD momentum oscillator. It is those inflection points that most often at the very least lead to sideways consolidation in a stock before a next leg higher can take place.

In the case of CAT stock, it now looks like more of this consolidation, possibly lower, is in the cards.

Tuesday’s post-earnings price action shows that the stock initially rallied but then quickly faltered. The stock reversed gears so much on an intraday basis that the day’s candle fully engulfed the past two week’s price action. This is called a bearish outside day, and from here it should lead to more weakness in the stock.

It actually wasn’t anything that Jim Umpleby, CAT’s CEO said that sparked the sell-off, but instead, something that CFO, Brad Halverson mentioned after discussing many of the ins and outs of the recent quarter. Towards the end of his operational monologue, Halverson said (emphasis added):

“There were several positives in the fourth quarter that we would not expect to continue for the full year. The price versus material cost delta was very favorable in the first quarter, and better than we expected. We expect this delta of price versus material cost to be negative for the balance of the year. However, as I stated for the full year, we expect price to more than offset material cost. Second CAT inventory grew in the quarter to support higher production. Our expectation is that inventory levels will come down which would result in unfavorable changes to cost absorption. And it's often the case the first quarter got off to a slow start for projects spent. We expected targeted investments for future growth to be higher over the remaining three quarters. The outlook assumes that first quarter adjusted profit per share will be the high-water mark for the year.”

Summary

Ultimately, what really moves the stock more often than not is the outlook. Caterpillar uttered some cautionary words during its outlook and that was what got the stock’s investors nervous.

Option Trade - - Capital One Financial Corp. (NYSE: COF) Calls

Monday, April 23, 2018

** OPTION TRADE: Buy COF MAY 18 2018 100.000 CALL at approximately $1.60 each. Sell price is left to your own judgment.

Capital One Financial Corp. (NYSE: COF), a provider of various financial products and services in the United States, the United Kingdom, and Canada, reports its first quarter financial results after market close tomorrow, Tuesday, April 24.

Shares of Capital One are down just 1.2% over the last month, which shows that it has been a bit more resistant to the nearly market-wide downturn than many other stocks. The credit card company is projected to see its quarterly revenues climb by 6.4% to hit $6.96 billion. As well, Capital One’s Q1 earnings are expected to surge by 32% to $2.31 per share.

Stock analysts at William Blair upped their Q3 2018 earnings estimates for shares of Capital One Financial in a research report issued to clients and investors on Thursday, April 12th. William Blair analyst R. Napoli now forecasts that the financial services provider will earn $2.65 per share for the quarter, up from their previous estimate of $2.60.

William Blair also issued estimates for Capital One Financial’s Q4 2018 earnings at $2.58 EPS, FY2018 earnings at $9.83 EPS, Q1 2019 earnings at $2.64 EPS, Q2 2019 earnings at $2.65 EPS, Q3 2019 earnings at $2.93 EPS, Q4 2019 earnings at $2.69 EPS and FY2019 earnings at $10.91 EPS.

Influencing Factors

A solid liquidity position and strength in its credit card and online banking businesses, position the company well for growth. The acquisition of Cabela's credit card portfolio further supports its prospects. Also, benefits from the lower tax rates and improving economy will support its financials.

Capital One Financial declared that its Board of Directors has initiated a share buyback plan on Tuesday, December 26th that authorizes the company to buyback $1.00 billion in shares. This buyback authorization authorizes the financial services provider to repurchase shares of its stock through open market purchases. Shares buyback plans are typically an indication that the company’s board believes its shares are undervalued.

Analysts and Hedge Funds Opinions

Capital One Financial received a $113.00 target price from equities researchers at Sandler O’Neill in a research report issued to clients and investors on Tuesday, April 10th. The brokerage presently has a “buy” rating on the financial services provider’s stock. Sandler O’Neill’s target price would indicate a potential upside of 16.33% from the stock’s previous close.

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

  • Buckingham Research increased their price target on shares of Capital One Financial from $110.00 to $120.00 and gave the stock a buy rating in a report on Wednesday, January 24th.
  • Royal Bank of Canada reissued a buy rating and issued a $110.00 price target on shares of Capital One Financial in a report on Wednesday, January 24th.
  • Credit Suisse Group increased their price target on shares of Capital One Financial from $106.00 to $110.00 and gave the stock a neutral rating in a report on Wednesday, January 24th.
  • BMO Capital Markets reissued an outperform rating and issued a $140.00 price target on shares of Capital One Financial in a report on Wednesday, January 24th.
  • Wells Fargo reissued an outperform rating and issued a $117.00 price target (up from $112.00) on shares of Capital One Financial in a report on Wednesday, January 24th.
  • UBS initiated coverage on shares of Capital One Financial in a research note on Tuesday, March 27th. They set a “buy” rating and a $114.00 price objective for the company.
  • Finally, Wells Fargo dropped their price objective on Capital One Financial from $117.00 to $109.00 and set an “outperform” rating on the stock in a report on Thursday, March 29th.

One analyst has rated the stock with a sell rating, twelve have given a hold rating and eleven have issued a buy rating to the company’s stock. The stock currently has a consensus rating of “Hold” and a consensus price target of $108.18.

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

  • Xact Kapitalforvaltning AB lifted its holdings in shares of Capital One Financial by 3.4% during the fourth quarter. Xact Kapitalforvaltning AB now owns 120,254 shares of the financial services provider’s stock valued at $11,975,000 after acquiring an additional 3,968 shares during the period.
  • Envestnet Asset Management Inc. lifted its holdings in shares of Capital One Financial by 7.2% during the fourth quarter. Envestnet Asset Management Inc. now owns 83,296 shares of the financial services provider’s stock valued at $8,294,000 after acquiring an additional 5,607 shares during the period.
  • BRITISH COLUMBIA INVESTMENT MANAGEMENT Corp lifted its holdings in shares of Capital One Financial by 1.1% during the fourth quarter. BRITISH COLUMBIA INVESTMENT MANAGEMENT Corp now owns 204,276 shares of the financial services provider’s stock valued at $20,342,000 after acquiring an additional 2,221 shares during the period.
Summary

Capital One Financial has a 12-month low of $76.05 and a 12-month high of $106.50. The firm has a market capitalization of $47,237.93, a P/E ratio of 12.63, a P/E/G ratio of 0.86 and a beta of 1.31.