“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, October 09, 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 - International Business Machines Corp. (NYSE:IBM) Puts

Friday, October 13, 2017

** OPTION TRADE: Buy the IBM OCT 20 2017 145.000 PUT at approximately $1.80.

Sell price is left to your own judgment.

The struggling info tech giant International Business Machines Corp. (NYSE:IBM) is expected to report earnings on October 17, 2017 after market close. The report will be for the fiscal Quarter ending Sep 2017. Based on 9 analysts' forecasts, the consensus EPS forecast for the quarter is $3.28, on revenues of $18.7 billion. The reported EPS for the same quarter last year was $3.29.

In 2Q17, IBM reported revenues of ~$19.3 billion and non-GAAP EPS of $2.97. On a year-over-year basis, IBM’s revenues fell 4.7% in 2Q17, marking its 21st consecutive quarter of no revenue growth.

There once was a time when International Business Machines was the king of the technology world. Even Microsoft (MSFT) wouldn't be where it is today were it not able to ride IBM's coattails when the software company was young.

However, technology changes; but Big Blue simply hasn't changed with it, letting the advent of cloud computing slip by without jumping into the fray until it was well too late. As a result, International Business Machines has - as of its second quarter of the year - suffered declining revenue in 21 consecutive quarters. Its per-share earnings trend has been almost as abysmal.

International Business Machines Corp. is now having another rough year. While the rest of the tech sector is flying higher, Big Blue's stock has dropped sharply. From its opening $170 level in January, shares are down about 15% on the year, trailing its peers by close to 35% on the year.

IBM remains stuck in a long-running and quite possibly unfixable decline. Of course, as the adage goes, there's no such thing as a bad asset, just a bad price.

In 2017 year-to-date, IBM stock has fallen ~11.7% and significantly underperformed the S&P 500 Index, which rose 13.8%. IBM stock has also underperformed the Dow Jones Industrial Average (DIA), which has risen ~15.2% in 2017 year-to-date.

Influencing Factors

IBM's troubles look particularly bad, given that its sector has shown explosive growth since the financial crisis. IBM is seemingly well-positioned in many areas, such as cloud computing and health care software and services that are experiencing robust gains.

And yet, the company's revenues continue spiraling downward. They've declined for 21 straight quarters and earned $103 billion in annual revenues as recently as 2012. That's down more than 20% to just $78 billion over the most recent 12 month trailing period. The company can massage the decline with its massive share buyback program, but it's hard to put a positive spin on a business that shrinks this quickly.

IBM’s changed focus and strategy caused its top line to fall 24% in the last five years, and its adjusted EPS (earnings per share) fell 10%. Its FCF (free cash flow) also suffered and fell 22% during that time. All these factors weighed on IBM stock, which has fallen ~31% in the last five years.

Investing guru Warren Buffett's decided to sell part of his stake, after purchasing IBM stock back in 2011 and has received really mediocre returns on it, in comparison with the market and even on an outright basis.

Earlier this year, he said that: "I don't value IBM the same way I did six years ago when I started buying." While acknowledging that it still is a "strong company" he suggested that the competition is greater than he had previously thought. When the long case for a stock primarily relies on the stock being a value play, having Buffett vote with his wallet in the other direction is hardly a good sign.

IBM has plenty of positive attention and advertising campaign focused on its next-generation growth ideas. It advertises, for example, about all the things it can do with blockchain; but there doesn’t seem to be much revenues off this initiative, to say nothing of profits.

Also, IBM's cloud efforts seem to be lagging those of Microsoft Corporation (MSFT). In late September, Gartner released its first report on the state of the IaaS (infrastructure-as-a-service) public cloud computing market. As has been the case in the past few quarters, Amazon (AMZN) and Microsoft (MSFT) occupied the first and second positions in the IaaS cloud space. Surprisingly, IBM wasn’t featured in this list.

Analysts and Hedge Funds Opinions

Of the 25 analysts covering IBM stock, 60% recommended a “hold” on October 10, 2017. About 24% recommended a “buy,” and 24% recommended a “sell.”

International Business Machines Corporation‘s stock had its “sell” rating reaffirmed by equities research analysts at Jefferies Group LLC in a research note recently. They currently have a $125.00 price target on the technology company’s stock.

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

  • ValuEngine downgraded International Business Machines Corporation from a “buy” rating to a “hold” rating in a report on Friday, September 15th.
  • Vetr cut shares of International Business Machines Corporation from a “hold” rating to a “sell” rating and set a $150.26 target price on the stock. in a report on Monday, June 26th.
  • Cantor Fitzgerald reissued a “hold” rating and issued a $154.00 price objective (down from $166.00) on shares of International Business Machines Corporation in a research report on Wednesday, July 19th.
  • Finally, Credit Suisse Group reissued an “underperform” rating and issued a $110.00 target price (down from $125.00) on shares of International Business Machines Corporation in a report on Monday, July 17th.

Institutional investors have recently made changes to their positions in the stock….

  • Whitnell & Co. cut its position in International Business Machines Corporation by 0.6% in the second quarter. The institutional investor owned 15,294 shares of the technology company’s stock after selling 100 shares during the quarter. Whitnell & Co.’s holdings in International Business Machines Corporation were worth $2,353,000.  
  • Also, Gamble Jones Investment Counsel cut its holdings in International Business Machines Corporation by 3.4% during the 2nd quarter. The firm owned 37,396 shares of the technology company’s stock after selling 1,301 shares during the quarter. Gamble Jones Investment Counsel’s holdings in International Business Machines Corporation were worth $5,753,000.

Summary

IBM’s failure to report growth for more than five years indicates that the company has been on the wrong side of the growth wave for too long.

IBM has appeared to be more hype than results in recent years. So far, things such as Watson – the “super-computer” -- have shown potential but have underwhelmed financially.

IBM stock is deeply unpopular at the moment. The company's sales continue to decline, and it only maintains its earnings through a debt-fuelled share buyback. That's all bad news.

International Business Machines Corporation has a 52-week low of $139.13 and a 52-week high of $182.79. The firm has a market cap of $137.57 billion, a price-to-earnings ratio of 12.25 and a beta of 0.95. The firm has a 50-day moving average of $144.97 and a 200 day moving average of $152.25.


Option Trade – Netflix, Inc. (NASDAQ:NFLX) Calls

Thursday, October 12, 2017

** OPTION TRADE: Buy the NFLX OCT 20 2017 200.000 CALL at approximately $6.00. Place a pre-determined sell at $12.00.

Also include a protective stop loss of $2.40.

CLICK HERE FOR DETAILS


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

Tuesday, October 10, 2017

** OPTION TRADE: Buy the C OCT 20 2017 76.000 CALL at approximately $0.85.

Sell price is left to your own judgment.

With an impressive earnings surprise streak under its belt and shares up more than 27% year-to-date, Citigroup Inc. (NYSE:C) is one of the hottest companies in the financial sector. Citigroup Inc. is confirmed to report earnings on Thursday, October 12, 2017, before the market opens. The consensus earnings estimate is $1.30 per share on revenue of $17.73 billion and the Earnings Whisper number is $1.32 per share. Consensus estimates are for year-over-year earnings growth of 4.00% with revenue decreasing by 15.31%.

Citigroup has surpassed the Consensus Estimate for earnings in ten straight quarters. In its most recent report, the company posted earnings that were nearly 5% more than expected, and shares have gained more than 9% since that report was released. Citigroup's investments in core business and expense management have been encouraging, and the recent expansion of its wealth management business in Australia signals the company's intentions to keep growing.

Citigroup’s total assets are very large, compared to its market price, and its price-to-book-value back then was around 0.80. Now, the price to book value is around 0.96. Citigroup has performed well over the past few months, with the bank maintaining deposits of $307 billion and a retail loan book of $142 billion, which reflects year-over-year growth of 3% and 1%, respectively.

Citigroup (C) has expanded its balance sheet thanks to rising deposits and growth in trading assets, which were partially offset by buybacks. The bank has focused on core banking, as reflected in the winding down of its legacy assets over the past few quarters and reduced exposure to structured holdings. Its common Tier 1 equity ratio improved from 12.5% in 2Q16 to 13.0% in 2Q17, reflecting improved asset quality, deployment, and the growing economy.

Citigroup’s total assets grew to $1.9 trillion on June 30, 2017, compared with $1.8 trillion at the end of 2Q16. The bank’s deposits and loans saw 2% growth in 2Q17. It has deployed excess cash reserves with other banks, resulting in 29% growth to $165 billion.

Influencing Factors

Citigroup announced that its board has approved a stock buyback plan on Wednesday, June 28th that permits the company to buyback $15.60 billion in shares. This buyback authorization permits the financial services provider to buy up to 8.7% of its stock through open market purchases. Stock buyback plans are usually an indication that the company’s leadership believes its stock is undervalued.

As well, with its P/E ratio of 14.44 and a PEG ratio of 1.48 coming in better than the respective industry averages of 15.46 and 1.72, Citigroup shares could be seen as undervalued heading into the report.

Citigroup has an enormous global presence. As a result, emerging market growth will be a significant opportunity for growth in Q4 and in 2018.

The company’s rising global presence has been helped due to a rise in transaction advisory revenue, increased loan books and operations for Citigroup.

In China, C intends to increase its revenue growth by utilizing Beijing’s Belt & Road initiative. The initiative was announced in 2013 with the goal of building infrastructure between Asia, Africa, Europe and elsewhere.

China is currently one of eight Asian markets that generate revenue of over $1 billion for Citigroup and, in February, C became the first U.S.-based bank to obtain a license acting as a bond settlement agent in China’s interbank bond market.

In Europe, Citigroup recently named Arnaud Marès, a key adviser to European Central Bank President Mario Draghi, as its top economist, with his official start date set for early December. The hire of Marès comes in the wake of the European Union introducing new trading rules in early January 2018 that will impact the way banks will be able to sell their research to fund managers. Marès will be brought in to take over the economics research team in Europe, the Middle East and Africa.

The overall economic backdrop favors financials with expected stronger economic growth and a tapering Fed. That backdrop should push yields higher and spur trading volatility.

Tax cut legislation and a December interest rate hike is expected to lift commercial banking profits in 2018.

The sector outlook has brightened considerably since the November 2016 breakout, but 2017 gains have been hampered by D.C. gridlock and a slower-than-expected rise in interest rates. Citi has led its peers during this bullish advance, posting a series of multi-year highs following years of underperformance triggered by 2008's near death experience. This leadership should continue in 2018, perhaps lifting shares in the financial powerhouse into the triple digits for the first time in nearly a decade.

Analysts and Hedge Funds Opinions

J P Morgan Chase & Co reaffirmed their overweight rating on shares of Citigroup Inc. in a research note issued to investors on Friday. The firm currently has a $78.50 target price on the financial services provider’s stock, up from their prior target price of $77.50.

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

  • Credit Suisse Group restated an “outperform” rating and set a $76.00 price objective (up previously from $70.00) on shares of Citigroup in a report on Wednesday, July 26th.
  • Wells Fargo & Company reiterated a “buy” rating on shares of Citigroup in a report on Monday, October 2nd. They issued a $90.00 price target on the stock.
  • Royal Bank Of Canada reiterated a buy rating and set a $75.00 price target on shares of Citigroup in a report on Wednesday, September 27th.
  • Atlantic Securities reissued an overweight rating and set a $85.00 price objective (up previously from $75.00) on shares of Citigroup in a research report on Tuesday, September 26th.
  • Finally, HSBC Holdings plc initiated coverage on Citigroup in a report on Tuesday, July 11th. They set a “hold” rating and a $71.00 price target for the company.

Two analysts have rated the stock with a sell rating, eleven have assigned a hold rating, fifteen have assigned a buy rating and three have issued a strong buy rating to the company. Citigroup has a consensus rating of “Buy” and an average target price of $72.08.

Institutional investors have recently made changes to their positions in the stock….

  • West Family Investments Inc. purchased a new position in Citigroup Inc. (NYSE:C) during the second quarter. The firm purchased 35,000 shares of the financial services provider’s stock, valued at approximately $1,484,000.
  • Vantage Financial Partners Ltd. Inc. bought a new position in Citigroup during the second quarter valued at about $1,034,000.

Summary

Citigroup has led its banking peers in 2017 and could add substantially to gains in 2018.

Citigroup Inc. has a 1-year low of $47.54 and a 1-year high of $76.02. The company has a market capitalization of $205.40 billion, a PE ratio of 15.09 and a beta of 1.45. The company’s 50-day moving average price is $70.03 and its 200-day moving average price is $64.99.


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

Tuesday, October 10, 2017

** OPTION TRADE: Buy the JPM JAN 19 2018 100.000 CALL at approximately $2.00. Place a pre-determined sell at $4.00.

Also include a protective stop loss of $0.80.


CLICK HERE FOR DETAILS


Option Trade - Northern Trust Corporation (NASDAQ:NTRS) Calls

Monday, October 09, 2017

** OPTION TRADE: Buy the NTRS NOV 17 2017 100.000 CALL at approximately $0.90.

Sell price is left to your own judgment.

Northern Trust Corporation (NASDAQ:NTRS), specializing in Goals Driven Wealth Management backed by innovative technology and a strong fiduciary heritage, is expected to report earnings on October 18, before the market opens. The report will be for the fiscal Quarter ending Sep 2017. Based on 8 analysts' forecasts, the consensus EPS forecast for the quarter is $1.14. The reported EPS for the same quarter last year was $1.08.

Northern Trust Wealth Management is ranked among the top 10 U.S. wealth managers, with $266 billion in assets under management as of June 30, 2017, and a wide network of wealth management offices across the United States.

Most recently Northern Trust Corporation posted quarterly earnings of $1.18 which compared to the sell-side estimates of 1.15. The stock’s 12-month trailing earnings per share now stand at $4.46. Shares have moved $5.86 over the past month and more recently, $-0.02 over the past week heading into the earnings announcement.

Northern Trust's stock has gained 6.6% over the last six months.

Influencing Factors

Recently, Northern Trust Corporation completed the acquisition of UBS Asset Management's fund administration servicing units in Luxembourg and Switzerland. In order to expand presence in Luxembourg and provide fund administration service in Switzerland, Northern Trust had entered into the deal with UBS Group AG UBS in February 2017.

This acquisition has positioned Northern Trust as a leading administrator in Switzerland and also placed it among the top 10 asset servicing providers, in terms of assets under administration, in the Luxembourg market.

The acquisition has enabled Northern Trust to provide fund administrative services for funds with approximately $413 billion (CHF420 billion) in assets (as of Dec 31, 2016).

This acquisition will not only help Northern Trust expand its current client base, but also will enable it to diversify product and service offerings across Europe. This acquisition, as an initiative to tackle the macroeconomic headwinds, is anticipated to boost the company's financial results. The deal also reflects its strong capital and balance sheet position.

Over the last couple of years, Northern Trust has been focused on initiating new businesses. As a result, it has been successful in adding institutional clients and assets. Post-acquisition, around 200 new employees joined Northern Trust. Moreover, the bank has opened a new office in Basel, Switzerland.

Northern Trust Corp was upgraded from neutral to a positive comparison in regard to the Financials Sector.

Short interest is extremely low for NTRS with less than 1% of shares on loan. This could indicate that investors who seek to profit from falling equity prices are not currently targeting NTRS.

ETF activity is positive. Over the last month, ETFs holding NTRS are favorable with net inflows of $44.73 billion. This was the highest net inflow seen over the last one-year.

Analysts and Hedge Funds Opinions

Buckingham Research restated a “neutral” rating and set a $103.00 target price (up previously from $93.00) on shares of Northern Trust Corporation in a report on Monday, July 10th.

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

  • BidaskClub upgraded Northern Trust Corporation from a “hold” rating to a “buy” rating in a report on Wednesday, June 14th.
  • Royal Bank Of Canada restated a “buy” rating and set a $97.00 target price on shares of Northern Trust Corporation in a report on Thursday, June 29th.
  • Finally, Zacks Investment Research upgraded Northern Trust Corporation from a “hold” rating to a “buy” rating and set a $110.00 target price on the stock in a report on Wednesday, July 12th.

 One analyst has rated the stock with a sell rating, eight have issued a hold rating, four have issued a buy rating and three have given a strong buy rating to the company.

Institutional investors have recently made changes to their positions in the stock….

  • Salem Investment Counselors Inc. boosted its holdings in Northern Trust Corporation by 8.3% during the second quarter. Salem Investment Counselors Inc. now owns 1,083 shares of the asset manager’s stock worth $105,000 after buying an additional 83 shares during the last quarter.
  • Huntington National Bank boosted its holdings in Northern Trust Corporation by 54.0% during the second quarter. Huntington National Bank now owns 1,089 shares of the asset manager’s stock worth $106,000 after buying an additional 382 shares during the last quarter.
  • Dupont Capital Management Corp bought a new position in Northern Trust Corporation during the second quarter worth about $107,000.
  • Finally, Bessemer Group Inc. boosted its holdings in Northern Trust Corporation by 16.9% during the second quarter. Bessemer Group Inc. now owns 1,461 shares of the asset manager’s stock worth $143,000 after buying an additional 211 shares during the last quarter.

Summary

Northern Trust Corporation’s 50 day moving average is $89.42 and its 200-day moving average is $89.93. Northern Trust Corporation has a 12-month low of $68.78 and a 12-month high of $99.30. The stock has a market capitalization of $21.44 billion, a PE ratio of 21.30 and a beta of 0.93.





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