“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, September 16, 2019

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.


You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO "Trading Capital Management"



Option Trade – Verizon Communications Inc. (NYSE:VZ) Calls

Friday, September 20, 2019

** OPTION TRADE: Buy VZ OCT 18 2019 60.000 CALL at approximately $0.80.

Sell price is left to your own judgment.

Verizon’s 5G, being the next-generation network, is at the core to its Communications’ strategy, and its CEO is excited about the innovations that their faster speed, lower latency, and greater capacity in high-density areas will spur.

Verizon’s 5G millimeter wave network will face perhaps its biggest coverage test yet when it launches in “parts of” New York City on September 26th. Yesterday Verizon Communications Inc. (NYSE:VZ) announced that 5G service will reach areas of uptown, midtown, and downtown Manhattan, along with select parts of Brooklyn, the Bronx, and Queens.

So, what is 5G?

5G is a capital improvement project the size of the entire planet, replacing one type of wireless architecture created this century with another one that aims to lower energy consumption and maintenance costs. It’s also a huge gamble on the future of transmission technology, doubling down on consumers’ willingness to upgrade.

The true purpose of 5G wireless is to produce a global business model where expenses are lower and revenue from services is higher, on account of the presence of more and greater services than 4G could provision for.

With so many technologies under the 5G umbrella -- home broadband, office broadband, home television, internet of Things, in-vehicle communication, as well as mobile phone -- there's no guarantee that, when it comes time, any consumer will choose the same provider for each one unless that consumer is willing to sign a contract beforehand.

5G is a collective bargain between the telecommunications industry and society. To allow for anything close to evenly distributed coverage over a metropolitan area, the base stations containing the transmitters and receivers (the "cells") must be smaller, much lower in power, and much greater in number than they are today. Essentially, the new cell towers must co-exist with the environment.

Verizon’s 5G

That’s why Verizon’s 5G is stepping up their 5G branding efforts now, including rolling out preliminary 4G upgrades with 5G monikers, and re-introducing the whole idea of 5G to consumers as a fuzzy, cloudy, nebulous entity that encapsulates a sci-fi-like ideal of the future.

“The general purpose technology for the Fourth Industrial Revolution is actually the ambiguous sort of connectivity that 5G can bring," admitted Verizon CEO Hans Vestberg.

Verizon's 5G with their "First on 5G" began with the October 2018 rollout of what's being called 5G Home -- a broadband Wi-Fi service that bundles wireless phone with no-longer-cable TV service. In the test cities where it was first deployed, Verizon’s 5G Home utilized wireless spectrum that is indeed being earmarked for 5G. Yet it involved a grade of equipment only capable of 300 megabits-per-second (Mbps) throughput, that would eventually need to be upgraded to 1 gigabit-per-second (Gbps) for it to qualify as 5G technology.

Earlier this summer, Verizon’s 5G had expanded to include parts of Atlanta, Detroit, Indianapolis and Washington, DC. Once the network is active in NYC, Verizon will have 5G in 11 cities across the US. The carrier hopes to launch 5G in more than 30 cities nationwide by the end of the year. While not included in next week's rollout, it's worth noting earlier in the month Verizon’s 5G was turned on across the Hudson in New Jersey at MetLife Stadium.

“Our goal is to provide 5G network coverage to more than 50 percent of the US by the end of 2020,” Verizon said in a press release.

Where to now?

Verizon is the largest provider of wireless services in the U.S. It also sells wired services to consumers in the Northeast and business services globally.

Verizon is much more exposed to the U.S. wireless market than AT&T. The telecom firm gets nearly 85% of adjusted earnings from its wireless business.

Chief Executive Hans Vestberg has embarked on a four-year, $10 billion cost-cutting effort.

Verizon stock usually attracts income-oriented investors. If Verizon’s 5G wireless services reignite earnings and revenue growth, however, its shares should have a much greater appeal to growth investors.

Amid stock market volatility and talk of negative interest rates reaching the U.S., Verizon climbed well above its 50-day moving average in early September.

Further change expected? The Trump administration expects an economic boom from 5G wireless services. It's making more spectrums available for 5G wireless.

Verizon has been aggressive in building out 5G wireless infrastructure. Verizon's 5G buildout could reignite currently anemic earnings and revenue growth, say Verizon stock bulls.

Verizon’s 5G growth is expected where 5G wireless will have a role in manufacturing automation, cloud gaming, autonomous vehicles, drones and remote health care services.

Next Earnings Report…..

Verizon is expected to issue its next earnings report on Tuesday, October 22nd.

Equities analysts expect that Verizon Communications will report $1.24 earnings per share (EPS) for the current quarter. Eighteen analysts have issued estimates for Verizon Communications’ earnings. The lowest EPS estimate is $1.14 and the highest is $1.32. Verizon Communications posted earnings of $1.22 per share during the same quarter last year, which would indicate a positive year over year growth rate of 1.6%.

Analysts’ Views…..

Oppenheimer upgraded shares of Verizon Communications from a market perform rating to an outperform rating in a report published on Tuesday, August 27th. Oppenheimer currently has $70.00 price target on the cell phone carrier’s stock. Oppenheimer also issued estimates for Verizon Communications’ Q3 2019 earnings at $1.22 EPS, Q4 2019 earnings at $1.16 EPS, FY2019 earnings at $4.82 EPS and FY2020 earnings at $4.92 EPS.

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

Citigroup set a $62.00 price objective on shares of Verizon Communications and gave the company a “hold” rating in a research note on Tuesday, September 10th.

Finally, Zacks Investment Research raised shares of Verizon Communications from a “hold” rating to a “buy” rating and set a $62.00 price objective for the company in a research note on Monday, September 2nd.

Eight equities research analysts have rated the stock with a hold rating and five have given a buy rating to the stock.

Summary…..

Verizon Communications has a 50 day simple moving average of $57.31 and a 200-day simple moving average of $57.55. Verizon Communications Inc. has a 1-year low of $52.28 and a 1-year high of $61.58. The company has a debt-to-equity ratio of 2.12, a current ratio of 0.87 and a quick ratio of 0.84. The stock has a market cap of $246.08 billion, a price-to-earnings ratio of 12.73, a price-to-earnings-growth ratio of 2.85 and a beta of 0.52.


Option Trade – Snap Inc. (NYSE:SNAP) Calls

Wednesday, September 18, 2019

** OPTION TRADE: Buy SNAP JAN 20 2020 17.000 CALL at approximately $2.00.

Sell price is left to your own judgment.

Snap Inc. (NYSE:SNAP), formerly Snapchat, Inc., operating the popular multimedia messaging app, has had a good year so far, up 186% in 2019, and it even reached a new 52-week high at the end of July.

Snap has been steadily improving its fundamentals after a rough 2018. The company’s user base continues to steadily grow, which has boosted revenue and increased investor confidence.

SNAP’s stock growth continues to outperform peers like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR).

The latest push to Snap stock has been Susquehanna’s analyst Shyam Patil upgrading the stock to neutral from negative, citing "constructive" advertising channel checks and expectations for more progress in the fourth quarter.

He wrote that the popularity of Instagram's "stories" feature seems to be making advertisers more willing to market on Snap's "stories" as well. Patil also sees room for Snap to meet or exceed its user-growth forecast of two to four million net additions for the third quarter.

Snap shares have gained 16% in the past three months, as the S&P 500 has risen only 3.8%.

Also, Evercore ISI upgraded shares of Snap from an in-line rating to an outperform rating in a research report released on Tuesday, September 3rd. Evercore ISI currently has $20.00 price target on the stock, up from their prior price target of $18.00.

Next Earnings Report…..

Snap is expected to issue its next quarterly earnings report on Thursday, October 24th.

Snap is on track to report a loss of 5 cents a share, up 58.33% from the third quarter of 2018.. Revenue is expected to hit $437.59 million, up nearly 47% from a year ago.

For the full year, the Consensus Estimates are projecting earnings of -$0.20 per share and revenue of $1.69 billion, which would represent changes of +57.45% and +42.85%, respectively, from the prior year.

Positive Factors…..

During the first quarter, Snap added four million daily active users and this figure increased to 13 million during the second quarter. 

The company now boasts 500 million monthly active users. This growth was largely fueled by Snap’s updated version of its app and an increased focused on AR technology.

Snap recently announced it is partnering with Spotify to allow users to share music and podcasts directly within the app.

The company has avoided much of the criticism it endured in 2018 over top executives leaving the company.

Most importantly, SNAP avoided the regulatory issues that have plagued Facebook and other big tech companies.

Snap’s advertising business continues to be a strong source of revenue but that company’s gaming business is where the real opportunity could lie.

Last April, the company launched Snap Games, which quickly attracted the attention of the gaming developer Zynga (NASDAQ:ZNGA).

Zynga introduced a new battle royale game exclusively on Snap’s platform called Tiny Royale. SNAP also introduced five other titles when it launched in the spring. According to Evercore ISI analyst Kevin Rippey, Snap Games could bring in hundreds of millions of dollars in sales by 2020.

What now for Snap?

During its most recent earnings report, company executives seemed optimistic about SNAP’s future growth prospects. The company’s third-quarter revenue guidance has SNAP earning between $410 million and $435 million in revenue.

Summary…..

SNAP has a quick ratio of 4.53, a current ratio of 4.53 and a debt-to-equity ratio of 0.15. The company has a market capitalization of $22.07 billion, a P/E ratio of -17.35 and a beta of 1.12. The stock’s fifty day moving average is $16.21 and its two-hundred day moving average is $13.38. Snap has a 52 week low of $4.82 and a 52 week high of $18.36.


Option Trade – Apple Inc. (NASDAQ:AAPL) Puts

Monday, September 16, 2019

** OPTION TRADE: Buy AAPL OCT 18 2019 210.000 PUT at approximately $2.80.

Sell price is left to your own judgment.

Shares of tech heavyweight Apple Inc. (NASDAQ: AAPL), a company that designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications, have been volatile, to say the least, since the start of 2018. Apple stock was trading at $169.20 in January 2018, and it rose to $233.00 in October 2018. Apple shares then fell to $142.00 in January this year before making a strong comeback over the last few months.

AAPL stock, at the time of the previous trade, Thursday, August 15, 2019, was currently trading at $205.86 per share. It had returned 28.5% year-to-date, -2.0% over the last 12 months, and 94.0% over the last three years. A lot of this volatility was due to the ongoing trade war between China and the United States.

However, Apple shares had also been affected by slowing demand for iPhones. The company’s flagship product has seen a decline in shipments over the last two quarters.

Apple Now.....

Last Friday saw Goldman Sachs significantly slash its price target for Apple, predicting 26% downside for the shares because of a “material negative impact” on earnings for the accounting method the iPhone maker will use for an Apple TV+ trial.

“We believe that Apple plans to account for its 1-year trial for TV+ as a ~$60 discount to a combined hardware and services bundle,” wrote Goldman analyst Rod Hall, in a note.

The firm cut its 12-month price target on the company to $165 from $187.

“Effectively, Apple’s method of accounting moves revenue from hardware to Services even though customers do not perceive themselves to be paying for TV+. Though this might appear convenient for Apple’s services revenue line it is equally inconvenient for both apparent hardware ASPs and margins in high sales quarters like the upcoming FQ1′20 to December,” Hall added.

Goldman is not accusing Apple of improper accounting but believes that hardware profit margins will suffer as a result of this TV+ free trial and investors will react negatively.

Obviously Apple disputed the negative call by Goldman Sachs on Friday, which hit the stock, taking issue with the firm’s negative characterization on how Apple would account for its new TV+ service.

Apple shares – which fell as much as 2.6% on Friday – finished trading down 1.9% at $218.75 a share.

Where to Now?

Apple unveiled its new line-up of products along with some game-changing subscription services last Tuesday. AAPL investors had mixed feeling about the aggressively priced subscription services and lackluster product discloser, with the share price up effectively flat since the product event. This is a result of a lack of enthusiasm due to several factors…..

The iPhone 11 is a new generation for Apple, but the changes were so marginal that analysts expect to continue to see sales declines in this segment.

Apple is offering one year of free service of Apple TV+ to people who buy a new iPhone, iPad, Mac or other hardware. It has priced the subscription video-on-demand service at $4.99 a month. Apple TV+ will premiere on Nov. 1.

It seems that Apple plans to account for its 1-year trial for TV+ as a roughly $60 discount to a combined hardware and services bundle; but this method of accounting will likely result in lower upfront ASPs (average selling prices) and margins and then higher services revenue growth; which will have a 14% negative impact on earnings per share in fiscal 2020, which starts Sept. 29.

China Influence…..

Apple released a new range of iPhones last Tuesday — but none of them had 5G capabilities. That, together with a hefty premium that Chinese users must pay for the latest iPhone 11 series could hurt the U.S. technology giant’s performance in China, analysts said.

The world’s second-largest economy is a crucial market for Apple but it has struggled in recent times. In the second quarter, its China market share dipped to its lowest level in a year. Shipments of iPhones also declined analysis showed.

One of the problems Apple had with the last iPhone series — the XR, XS and XS Max — was the premium pricing which put off some Chinese consumers. But Apple’s new iPhone 11 range still has a hefty price tag in China.

In January, retailers in China cut the prices of last year’s iPhone models. Months later, Apple announced its official price slash.

Analysts say that it appears Apple hasn’t learned its lesson.

“Apple, after ten years of operations in China with local manufacturing, still commands a ~20% premium which is quite high for a market less developed in terms of per capita spend than U.S.,” Neil Shah, research director at Counterpoint Research.

Other issues in China…..

  • Huawei upped its focus on China and saw shipments surge to record levels.
  • Tariffs also continue to be a black cloud hanging over Apple given the fact that the majority of iPhone assembly takes place in China.

Analysts…..

And, Caution from analysts is highlighted…..

Goldman is merely the latest example of growing caution as it cut its price target to one of the lowest on the Street.

The consensus rating for Apple -- a proxy for its ratio of buy, hold and sell ratings -- stands at 3.76 out of 5. That matches the lowest since the first half of 2004. The average target is about $219, matching the current share price.

In addition to Goldman, recent cautious calls have included New Street Research cutting its own price target earlier this week and warning of a “multi-year decline” in iPhone demand.

On Friday, Rosenblatt said it was seeing “weak” pre-orders for the latest version of the iPhone. The research firm has a Street-low price target of $150 on Apple stock, and it downgraded the shares in July. That brought the number of sell ratings to five, the highest number since at least 1997.

There are some positive aspects, but maybe outshone by the negatives.

5G is expected to propel the smartphone industry back into growth, and Apple is putting a big bet on this new technology.

Apple is attempting to diversify its revenue drivers with a significant push from its accessories like the AirPods and Apple Watch.

Summary…..

Based on analysts’ cautious approach to Apple, the negative impact on earnings and luke-warm sentiment to the new product line-up, there is an expectancy that Apple shares should decline.