Get RSS Feed
11:45pm (EST)
1. Market Summary
2. Mosaic Showing Strength
3. VMWare Could Hit Par ($100)
4. Earnings
5. AutoTrade With Us
= = = = = = = = = = = = = = =
1. Market Summary
The bulls and bears put on quite a show Friday as both sides dug deep into their artillery and dropped a couple of huge bombs on each other. Futures were pointing towards a slightly higher open before the bell but all eyes were focused on what Fed Chairman Ben Bernanke had to say.
The bears used the Intel (INTC, $18.37, up $0.19) news, which lowered revenue guidance for the current quarter, to drive the market to fresh lows for the week, about 30 minutes into the session. However, moments later, the markets reversed course and surged higher after Big Ben Bernanke said the Fed was prepared to do whatever it takes to keep the economic recovery in place.
The Dow hit a low of 9,925 but rebounded and added 165 points, or 1.7%, to finish at 10,150. Hewlett-Packard (HPQ, $38.00, down $0.22) was the Dow’s lonesome loser as the company got locked-up in a bidding with Dell (DELL, $11.89, up $0.14) over 3Par (PAR, $32.46, up $6.43) all week.
Despite Friday’s triple-digit advance, the index finished the week on the south side as it lost 63 points, 0.6%. We mentioned in our 9am update that resistance would come in at 10,100-10,200 and the bulls split the difference. A break above 10,200 could lead to 10,400 and put is right back in a trading range.
The S&P 500 gained 17 points, or 1.7%, to finish at 1,064 but touched a low of 1,039. For the week, the index lost 7 points, or 0.7%. Our near-term targets have been 1,050 and then a possible trip below 1,000 but the bulls will need to break through 1,070 and then 1,100 before we say they have the momentum back.
The Nasdaq advanced 35 points, or 1.7%, and settled at 2,153 which is right above our target or 2,150. The index reached a low of 2,099 and fell 26 points, or 1.2%, for the week. We were looking for a drop to the 2,050 region and resistance should come in at 2,200-2,250 if the bulls run Monday morning.
= = = = = = = = = = = = = = =
2. Mosaic Showing Strength
Mosaic (MOS, $58.27, up $0.48) had a good day as shares were up over 4% on Friday. We mentioned last week in our Potash (POT, $147.73, up $2.91) article that the stock could be on the move but it is volatile and will probably remain that way as rumors and acquisition news circulate.
The company is a major potash and phosphates producer and recently closed the books on 2010 as they are currently in the first quarter for fiscal year 2011. For 2010, Mosaic reported revenue of $6.8 billion, and earned a profit of $827 million, or $1.85 a share. This was a considerable drop from their 2009 numbers of $10.3 billion in revenue and a profit of $2.35 billion, or $5.27 a share.
Wall Street is looking for the company to earn $3.57 for 2011 on revenue of $8.25 billion. These numbers are a little conservative if you ask us because the industry is recovering which was evident when Mosaic topped estimates by 2 cents back in July.
Going off the aforementioned numbers gets us a P/E ratio of 15.4 going forward for Mosaic. When you compare that to the 19.9 times 2011 earnings Potash is currently trading at, you can see why we get excited about this stock. If we apply the same multiple, we get Mosaic being valued at over $70+ a share. However, Mosaic shares have reached an all-time high of $163 and Potash has traded up to $241 in the past.
Take out the acquisition talk and the long term growth of this company still looks good. Remember, if major companies are bidding up a natural resource company, it is only because they expect the price of that commodity to go much higher. We covered a few of the agricultural woes that are afflicting the world in our last Weekly Wrap and the factors increasing the demand and price of potash fertilizer. Here are a few more.
Cotton prices have doubled over the last twelve months, and the crop in Pakistan is almost completely wiped out due to flooding. Arabica coffee beans just hit an all time high on the spot market. We have talked before how the price of sugar has gone up. Beef prices are up 9% in the last three weeks and wholesale pork hit a record because companies are stocking up in the belief that major input costs to meat production, namely grains, are going higher. Bacon prices are sizzling.
A couple of years ago, the price of potash had gotten very high due to the increased crop demands of a growing world population and the addition of 400 million people to the middle class. World food demands were rising back then, and despite this recession, the basic premise on potash as a fertilizer hasn’t changed. No new production has come online in the last two years, and the recent destruction from Mother Nature has caused farmers who have under-fertilized to go into overdrive.
For all of these reasons, we believe shares of Mosaic have more room to run over the next few months and could easily break above $70 on fundamentals alone.
The company will announce earnings again in October and will be worth a second look as far as an option trade at the end of the month.
= = = = = = = = = = = = = = =
3. VMWare Could Hit Par ($100)
VMware (VMW, $79.27, up $1.12) continues to trade near its 52-week high of $83+ and has nearly doubled from the low $40’s since the beginning of the year. So why are shares hot and look headed to $100 over the next 6-12 months?
The company is the dominant player in the virtual computing space. Its virtualization suite of solutions is used by over 900 companies to cut costs and improve efficiency. That is music to the ears of corporate executives with $2 trillion in cash on the balance sheets and an economy that can’t decide which way it wants to go. Executives are willing to shell out money to improve productivity without having to add to payroll and the company has benefitted from that trend.
VMware has projected revenue of $2.8 billion for 2010, a 40% increase over the $2 billion they had in 2009. Some analysts are on record saying the firm will do $3.6 billion in revenue for 2011. This kind of growth during a recession would be pretty amazing but the stock is pricey at current levels. With projected 2010 earnings of $1.39, the P/E ratio is a little high at 56 times earnings, and a forward P/E of 46 in 2011.
VMware has also been a rumored takeover target thanks to the ridiculous bidding war that has gone on over 3 Par, a company with somewhat similar products. However, there would be some obstacles to overcome if another company decided to make a bid for VMware.
VMware was spun out of EMC (EMC, $18.37, up $0.32) in August 2007 at a price of $29, and it ended its first day of trading at $51. EMC is a pretty well run company and they still own 85% of VMware.
Despite the fact that we think shares are fairly valued, the future for this company is bright and there is a chance analyst’s raise their estimates down the road. The stock can easily move 5% on any given day and we are watching for a possible option trade in the near future depending on the trend.
= = = = = = = = = = = = = = =
4. Earnings
MONDAY – Dollar General (DG, $28.09, down $0.41), Donaldson (DCI, $43.36, up $1.10), Jos. A. Bank Clothiers (JOSB, $38.11, up $0.27) and Partner Communications Company (PTNR, $16.25, up $0.09).
TUESDAY – ABM Industries (ABM, $20.24, up $0.64), Applied Signal Technology (APSG, $19.85, up $0.66) and DSW (DSW, $24.32, up $0.55)
WEDNESDAY – Brown-Forman (BF-B, $62.10, up $0.89), Express (EXPR, $13.97, up $0.14), Greif (GEF, $58.22, up $1.47), HJ Heinz (HNZ, $46.85, up $0.65), Joy Global, Inc. (JOYG, $56.83, up $2.94), Martek Biosciences (MATK, $21.50, up $0.30), Oxford Industries (OXM, $20.47, up $0.75) and SAIC (SAI, $15.31, up $0.15).
THURSDAY – ArcSight (ARST, $39.66, up $3.03), Blyth (BTH, $40.81, up $2.51), Cascade (CASC, $32.12, up $1.86), Calavo Growers (CVGW, $20.18, up $0.98), Del Monte Foods (DLM, $13.12, up $0.21), Esterline Technologies (ESL, $47.43, up $1.41), Finisar (FNSR, $12.73, up $0.15), Layne Christensen (LAYN, $25.32, up $0.57), Toronto-Dominion Bank (TD, $68.03, up $2.84) and UTi Worldwide (UTIW, $14.38, up $0.25).
FRIDAY – Campbell Soup (CPB, $37.47, up $0.52)
= = = = = = = = = = = = = = =
5. AutoTrade With Us
Here is an update on our AutoTrading program which has been a hit with subscribers who may be too busy to follow the market every day. For those of you who have thought about using our services but may have been worried about opening and closing the trades we do, this program is a perfect fit. We have chosen TWSF which has done a great job of getting our fill prices as soon as we send out our alerts or trade updates and here is their deal:
Trade Wall Street Financial is a full service brokerage firm with a department dedicated to AutoTrading. Our customer service is second to none. At Trade Wall Street Financial, we know our customers by name, not by account number or account value. We offer competitive commission rates and years of experience in the financial field. The firm’s mission is to help individual investors build their investment strategy with focus and clarity. Trade Wall Street Financial offers self-directed investment accounts for retail investors in 50 countries around the world.
Our full range of benefits include:
- Access to global markets and all major exchanges
- One convenient banking and brokerage account
- Increased customer support hours (7 am – 6 pm)
- Friendly and knowledgeable service
- Multiple investing and trading platforms
- AutoTrading
- Financial planning and structured investing
- Life insurance and health insurance products
- The professional clearing services of Penson Worldwide (Nasdaq Symbol: PNSN)
and Pershing LLC (a division of Bank of New York)
- Money market checking, debit card and asset management accounts
- Short-term, mid-term, and long-term research information
- Timely portfolio diversification strategies
For more information, please contact Trade Wall Street Financial at:
Toll Free: (800) 776-1018 (Monday to Friday 9 am to 5 pm)
Direct: (704) 243-5201 anytime
Ask for Mark Wesley and he will be happy to answer any questions you may have.
We will be back in the morning with a fresh look at what the week will bring and an update all of our current trades and what to expect going forward.
Futures Pointing Towards Lower Start
Tuesday, August 31st, 2010
9:05am (EST)
The bulls took another two steps backwards on Monday after failing to capitalize on Friday’s one step forward. We knew last week at some point there would be a “dead cat” bounce or a “short covering” rally but we didn’t expect one before the weekend. However, we had a feeling it would be hard for the bulls to carry forward any meaningful rally given the current trend.
The futures were pointing towards a slightly lower open yesterday but the selling pressure intensified late into the session which took the market to new lows. Volume was extremely light; in fact, it was one of the lowest volume days of the year as Wall Street takes the last of its summer vacations. This is usually a popular week to hit the beach so we are expecting much of the same with an increase in volatility. Hurricane Earl could also be a factor this week.
As a result, the Dow dropped 141 points, or 1.4%, to finish at 10,009. The bulls didn’t give back all of Friday’s gains and they still managed to hold the 10,000 level but it wasn’t pretty as the Dow got slammed in the last 15 minutes of trading. The bears will try to push for 9,800 and then 9,500 while the bulls try to hold support.
The S&P 500 fell 16 points, or 1.5%, and settled at 1,048. The index closed below our 1,050 target and will likely trade down to 1,020 if 1,040 is taken out. From there, we could eventually see the S&P at 950 by October.
The Nasdaq tanked 34 points, or 1.6%, to finish at 2,119. Tech remains the most volatile and support will come in at 2,100 and then 2,050 but we think a test to 1,900 could be on the way.
There is a ton of economic news due out over the next few days, including Friday’s monthly employment report, and the market will likely react violently to any surprisingly bad news.
Financial stocks continue to look weak and we have been saying the bulls cannot have a sustained rally without them. Wells Fargo (WFC, $23.25, down $0.75) is in a nosedive, Bank of America (BAC, $12.32, down $0.32) hit a fresh 52-week low and Goldman Sachs (GS, $136.66, down $2.74) is breaking key support levels.
Although some names in the sector are starting to look like real bargains, there is probably some more exposure to the downside before the group turns around. We are looking at some attractive LEAPs on a few Banking stocks but we think there is a chance we can get them cheaper. You can buy call options on stocks as far as a year or two out and we will be covering more about LEAPs in the Weekly Wrap in the future.
We wanted to take some time to talk about a strangle option trade this morning that we were going to cover over the weekend but didn’t. The stock we were going to cover is a good candidate because we are expecting shares to move at least 10% or more over the next few weeks.
To find an attractive candidate, you need volatility and Freeport-McMoRan (FCX, $70.36, down $0.84) fits the bill. The strangle option trade can be used for a stock that you feel will be making a big move but you are unsure of the direction.
If you look at a chart for FCX, you will notice shares are easily capable of moving $10 in a week and that is the action we are looking for. The company is mainly a Copper ETF but has some exposure to gold and although we are in a downtrend, we would use call options to protect us if the stock moved higher.
September options expiration is only 18 days away, so you could use the September 65 puts (FCX100918P00065000, $0.81, up $0.08) and the September 75 calls (FCX100918C00075000, $0.95, down $0.25) as a way to play a big move in the stock. If we let this trade run down to the wire we would need shares of FCX to be under $64 or over $76 for us to make a decent return. The goal would be to make enough on one side of the trade to offset the other side of the trade.
If the stock makes a quick 5% move either way, the calls or puts would double and hopefully give you an overall gain of 10% or more. Then you would have the other side of the trade to wait for a rebound and possibly get out of the other side with a profit. That is not often the case but it does happen.
These trades are also known as “chicken trades” or you can use the 70 strike price and make the trade a “straddle” option trade. This trade is not an official recommendation because we don’t like the risk/ reward setup for this one but we will track it to show you why it did work or didn’t. This trade is for educational purposes only.
As we head to press, Dow futures are lower by 35 points to 9,944 while the S&P 500 futures are down 4 points to 1,040. The Nasdaq futures are off by 9 points to 1,760.
We do have current trades that are official recommendations and they are inside our Members Area. Many of them made some nice gains yesterday as we remain on the short side and are using puts to play the current downtrend. Our Watch List also has a couple of earnings trades we are watching and we may be pulling the trigger on one or two of them if we see an opportunity. Subscribers, check for the updates.
Tags: bac, chicken trade, FCX, option picks, stock options trading, wfc
Posted in Company Commentary, Market Analysis, Market Commentary, strangle option trades | Comments Off