Bring On the New Year

12/28/14

With 2014 coming to a close, the S&P is currently up about 11% this year, much better than most analysts expected. And with another strong year in the books, it is time to look ahead to next year and where the opportunities in the stock market are. I see next year acting very similar to how this year went, with the S&P steadily rising, followed by a rapid 8-10% pullback, only to end at all-time highs. There are still some uncertainties in the market including rising interest rates, a slowing global economy, and a strong US dollar. Baring an absolute economic collapse, the Fed will begin raising interest rates in the summer, and a lot of people are concerned about how the market will react. The stock market will spend the next 6 months pricing in a .25% rise in interest rates, so when the Fed announces that exact increase, I expect the reaction to be fairly muted. The only thing that will cause a big swing up or down is if the Fed decides to hold off on raising rates until the Fall or if the rate increase is more than .25%, neither of which I see happening. Perhaps the most important headwind for 2015 is the struggling economies of China and almost all of Europe. China is one of the biggest buyers of just about every commodity, and if their economy continues to slow, that could lead to deflation of commodities from oil to wheat to cotton. As long as the Chinese economy stabilizes around 6.5%-7% GDP growth, I don’t see any problems. As for Europe, many US companies rely on international growth, so if Europe continues to contract, then you will see a lot of companies with European exposure struggle. So the best thing to do is buy stocks that get a majority of their profits from the US. 

With that said, I see a lot of areas of opportunities to outperform the market. It seems almost obvious, but cyber security will again continue to be a hot topic and could be one of the best performing sectors in 2015. While Palo Alto Networks (PANW) is trading at a premium to it’s peers, I still think it’s the best of the bunch and would be a buyer on any pullback. I also continue to like FireEye (FEYE) and with just a $5B market cap, it could be a takeout candidate. If you want to be in a name in this space but want a stable dividend and low volatility, then you can buy Intel, who owns MacAfee.

I am also calling for a 2015 comeback in energy and energy related stocks. This sector has been so beaten down as the price of oil dropped, that a lot of these names have become extremely oversold and a great long-term buying opportunity. The companies that you want to look at are the large companies that have solid balance sheets, or pay a good dividend and are not in danger of defaulting on their credit. I own ConocoPhillips, EOG Resources and Kinder Morgan, and I plan to stick with all three. Other names in the space that I like are Cheniere Energry (LNG), Chevron (CVX), Anadarko Petroleum (APC), Tesoro (TSO) and Enterprise Products Partners (EPD). Out of all of these names, I think Kinder Morgan and Enterprise Products Partners are the least risky because they are pipeline companies who are not directly affected by lower oil prices, and both pay more than a 4% dividend.

Although I see the energy stocks making a comeback in 2015, I can’t say the same for energy prices. For oil prices to rise back to $80/barrel, OPEC will have to cut production and the economies in China and Europe will have to drastically improve, and while I see those economies stabilizing, I don’t see much growth there. So with oil prices remaining low, you can still own stocks that will benefit from lower oil prices. Airlines like Southwest (LUV) and Delta (DAL) should continue to do well, along with food services names like Darden (DRI) and Chipotle (CMG). Lower oil prices are also beneficial for the auto industry, with names like Lear (LEA), Autozone (AZO), General Motors (GM) and Ford (F) doing well. Retail stocks like Macy’s (M), Costco(COST) and Target (TGT) can also be bought. Consumer Staples like Proctor & Gamble (PG) and entertainment companies like Disney (DIS) and Time Warner (TWX) are both buys.  

Lastly, last week so a big sell off in biotech stocks, on the back of a deal between Express Scripts and Abbvie, where Express Scripts will ONLY cover hepatitis C pills made by Abbvie, shutting out Gilead Sciences, sending that stock down about 14% for the week, along with big drops in Celgene, Regeneron and Amgen. Many investors got spooked that there will be big price wars in the future and that these company’s profits may be reduced in the future. I think these moves were a major overreaction and biotech is alive and well, and should continue to be so in 2015. While Gilead was the hardest hit, I still like it the best because of their strong pipeline and continuous success of their hep C drug, despite the Express Scripts announcement. If you are a looking for the individual names, I recommend staying with the big 5 because this is a very volatile sector, and while the smaller biotechs may have more upside, they are far more risky. The names to consider are Gilead Sciences, Celgene, Regeneron, Amgen and Biogen Idec. If you don’t want the stock specific risk, look to buy IBB or BIB, both are biotech ETFs.

 My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), Jack In The Box (JACK), Under Armour (UA), Masco (MAS), long Solar City (SCTY) Jan calls, and SHORT Feb Crude oil. 

Jeff Lewison

Why Thursday Was the Worst Day of the Year

12/14/14

In one of the worst weeks for stocks in three years, and with the S&P falling 1.62% on Friday, the most concerning day of the week was actually a day that the S&P finished UP 7 points; Thursday. In fact, Thursday’s price action made me more bearish on this market than the October correction and the sell-offs on Wednesday and Friday of this week. The reason that a gain of 0.35% was so bad was because the S&P was actually up 28 points or 1.25% and practically erased all of the previous day’s losses. When the market opened, retail sales were better than expected, up 0.7% in November, aided by a drop in gas prices. Weekly unemployment claims were lower than expected and all was well. Even oil prices were up almost 1%. Then all of a sudden, oil crated back into the abyss when the EIA cut its global oil demand, which led the S&P to drop 20 points. Historically, lower oil prices are bullish for the stock market, so why did the S&P fail so miserably?

There are a number of factors at play right now. For oil, there is an over supply and very low demand, but I believe the biggest drag on the oil markets right now are hedge funds and traders getting hit with margin calls, which is leading to liquidations in other positions, namely equities. Anytime I see $1 drops occur within just a few minutes, to me, that’s not a sign of market fundamentals at play, but more a sign of technical levels being broken and long bets being covered. At the same time, other investors see the rapid pace at which oil is dropping, making them concerned that the global economy may fall back into a recession. Another issue at hand is that a lot of the energy companies have taken on huge amounts of debt, and if oil prices continue to drop, the small cap energy companies may default on their debt and/or get bought by a larger competitor. At the same time, nations that rely heavily on oil production like Russia and Venezuela are facing sinking currency headwinds and risk falling into a deep depression.

Looking at a daily chart for the S&P 500, what was once support of 2058, now becomes resistance, as the S&P failed to break above that level on Tuesday, Wednesday and Thursday. It was no surprise that the S&P dropped 33 points on Friday, and I expect that the S&P will continue to be pressured so long as crude oil continues to drop.  In fact, I wouldn’t buy anything right now until oil finds a floor and stabilizes. While I think oil is oversold by about $10/barrel, I still don’t see any bottom in sight, so there’s no reason to bottom fish here.  

Thursday was the worst day of the week for the stock market, because despite the market ending the day higher, it showed that the Bears are clearly in charge, and they will remain in charge until the oil market flushes everyone out. With only three more weeks left in the year, there is no reason to chase stocks. Let the drop in oil continue to put pressure on the stock market and wait to buy once you see oil bottom.  You may want to take the time to look back through your portfolio and sell stocks that you don’t feel certain about going forward. Remember that it’s not about where the stock has been, but rather where the stock is going. If a stock in your portfolio doesn’t have a bright outlook, now would be a good time to unload.     

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), long Mobileye (MBLY) December calls, Jack In The Box (JACK), Under Armour (UA), Masco (MAS) SHORT Feb Crude oil, SHORT S&P futures. 

Jeff Lewison

Look At This Restaurant Stock For Future Growth

11/30/14

                  With oil prices plunging into the depths of hell, I thought I would take the time to recommend a stock that I have loved for a while now and one that should greatly benefit from lower prices the pump, Darden Restaurants (DRI).  For those who are unfamiliar with the company, Darden owns and operates the restaurant chains; Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s and Yard House.   Earlier in the year, Darden came under attack by activist investor Starboard Value LP, when in October, having already taken out the CEO, they ousted the previous Board of Directors and replaced all 12 with their own nominated slate.  Currently, Starboard has hired Executive search firm, Korn Ferry, to find a new CEO, and with current CFO, Brad Richmond, retiring early next year, Darden’s management shake-up is headed in the right direction.  Since the ousting of former CEO, Clarence Otis, the company has run more efficiently and more importantly, increased same-store sales.  The company has introduced online ordering, which has greatly increased Olive Garden’s takeout business, introduced lower-calorie items and sped up lunch service.  Additionally, September same-store sales rose 0.6%, the first MoM increase in almost a year.  With a new board in place, Darden can easily spin-off its specialty restaurants like Eddie V’s and Capital Grille, unlocking significant value for the company.  If you look at the success that competitor Brinker International (owner of Chili’s restaurants), has had after selling off On the Border and the Macaroni Grill, along with cutting labor and food costs, Darden’s game plan should see similar results. 

                  Since the rapid drop in oil began early in October, food service stocks like Chipotle, McDonalds, Jack-in-the-Box and Starbucks have all rallied hard, but Darden is one of the leaders, up about 20% to new all-time highs.  Despite that rise, Darden is still very cheap, trading at a P/E of around 11, while competitors, DineEquity and Brinker International, trade at 2x the price.  Not only is the stock cheap, but it also pays a hefty 3.90% dividend, better than McDonalds, Brinker, and Yum Brands.  Darden reports 2^nd quarter results on December 15^th, and is expected to earn $0.27/share, up 80% QoQ and analysts anticipate Darden will increase YoY earnings and revenue guidance.  A couple months ago, Darden forecast same-store sales growth at Olive Garden to be between 0-1%, LongHorn of 1-2% and 2% growth for it’s speciality restaurants.  Not only do I believe Darden will beat those estimates, but I also see them raising full year guidance. 

                  As I previously mentioned, Darden is trading at all-time highs, closing on Friday at $56.99.  While I believe in the long-term story, you don’t have to run out and buy the stock right now.  I think you can wait for the stock to pull back to $55, which has been key support since it gapped up in early November.  But with gas prices staying low for what seems like the considerable future, job creation on the rise, wage growth soon to creep higher, and activist investors leading the charge, Darden Restaurants has a bright future, and one that you should be a part of.

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), Mobileye (MBLY), long Mobileye (MBLY) December calls, Jack In The Box (JACK), Under Armour (UA), Masco (MAS). 

Jeff Lewison

A Couple Good Bets for Years-End

11/22/14

                  Even with the S&P making new all-time highs on a daily basis, heading into year-end there are still a number of stocks that have a lot of room to run.  Ever since crude oil traded down to $77 the first time, I have been very bullish on energy, with my favorite being EOG Resources.  Despite crude oil falling to multi-year lows in October, EOG was still able to put up strong earnings, beating estimates on EPS and revenues.  The company reported revenues of $5.1B, up about 45% YoY and EPS was up 100% to $2.01/share.  EOG does most of it’s drilling in the Eagle Ford and Bakken shale, where the company can still increase production despite lower oil prices, estimating that FY14 production will increase 16.4% compared to earlier predictions of 14%.  EOG has been able to operate more efficiently than competitors, increasing margins and production during the previous quarter.  Management said that oil would have to trade down to about $65/barrel for a considerable amount of time in order for them to cut production, something that I don’t see happening.  EOG is trading at 20x FY15 earnings, and while that’s a premium to the industry, I still think it’s a great way to play energy going into the end of the year and beyond.  EOG is still about 14.5% off all-times this year, but is up 25% from the October lows.  On Friday, EOG closed at $101.74, gapping above an upward sloping 200-day moving average.  That’s a level that I see holding and rallying from to make new all-time highs.   

                  Another sector that I really like going into next year is the red-hot housing sector.  Now, I have been bullish this sector all year long, but these stocks have been so beaten up all year long, that this recent rally should absolutely continue into next year.  Recent earnings reports from Home Depot and Lowes show that housing is alive and well despite the winter coming, and secondary housing plays like Sherwin Williams and Masco have both reported very strong earnings and forecasts.  Homebuilders, Pulte Homes and Lennar, are at all-time highs, while Toll Brothers, and KB Homes have each rallied sharply off the October lows.  The chars of each of the homebuilders is setting up nicely for a rally into years-end, and even stocks at all-time highs like Sherwin Williams and Lowes can be bought with confidence.  What is also making me bullish on the entire housing sector is the strength of the US economy.  With unemployment ticking lower, wages beginning to slowly pick up, oil prices staying considerably low (even $85-$90/barrel is low), more consumers will have money to spend on buying a new home, instead of renting or living with their parents.  My favorite names in this space is Toll Brothers if you want to be in a homebuilder and Masco if you want construction exposure, as Masco owns names such as Delta, Behr, Duraflex, and Milgard.  In short, Masco has exposure to everything from faucets and windows, to insulation and paint.  It is your ultimate housing stock. 

                  I did make a couple adjustments to my portfolio since I last wrote.  I closed out my Microsoft call options prior to expiration with a 97% gain.  I also went long December $44 calls in Mobileye and purchased Under Armour early last week.    

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), long Mobileye (MBLY) December calls, Jack In The Box (JACK), and Under Armour (UA). 

Jeff Lewison

Don't Always Believe the Analysts

11/1/14

                  Just a few short weeks ago, the S&P had fallen about 10%, crude oil was plummeting on a daily basis and Ebola was taking over the world.  What a difference a couple weeks make, with the Dow and S&P closing right at all-time highs and the Nasdaq soaring to 14-year highs on Friday.  Now that the Fed has finally ended QE3, and maintained their stance that interest rates will remain low for “a considerable time”…whatever that means, the big question is, can this stock market continue to rally, and I am under the impression that it can.  However, with stocks at all-time highs, and having rallied back about 11% over the last couple weeks, I couldn’t fault you for taking profits and trimming some of your positions that you don’t feel very strongly about. 

                  One important reason that stocks and markets move up or down is because of analyst estimates and opinions.  When you see these upgrades/downgrades, make sure to look at who is making the call, why they are making the call, and when they are making the call.  Remember…what makes a market is when different people have different opinions, and just because someone has a lot of letters behind their name, doesn’t mean they know what they are talking about.  Back on September 23, an analyst at William Blair decided that it would be a good idea to downgrade retailer, Bed Bath & Beyond (BBBY), from “outperform” to “market perform” just hours before the company reported Q2 earnings.  Now, I don’t care what the stock is, you don’t make a call in the morning on a stock that reports earnings later that day.  For me, that was a clear signal that he was setting himself up to be wrong.  On his downgrade, I decided to buy Bed Bath prior to earnings (which I almost never do), and low-and-behold, I sold the stock the next day for a 7.5% gain as the company beat expectations. 

                  One bank in particular has a real rough time in 2014…Goldman Sachs.  While they are correct on plenty of market calls, there are some that they are way off on.  Early in January, Goldman Sachs downgraded the entire biotech sector while it was sitting at all-time highs, as they are known to do.  Well, at the same time, companies like Celgene, Gilead, Biogen, Regeneron and Amgen were only in the early phases of what is quickly becoming an incredible string of game-changing successful drugs.  I however, felt that Goldman’s call was ridiculous and knowing the list of drugs that a company like Gilead had in its pipeline, added more to my position.  If you listened to Goldman’s call, you would have missed out on a 33% rally in the sector, outperforming the S&P by 24%.  While the biotech sector is red-hot and suffered a down day on Friday, there is still a great amount of upside in all of the names I mentioned, and would be looking to add on every pullback.  If you don’t want all the risk that is associated with owning individual names in the biotech sector, you can buy the IBB (iShares Biotech ETF). 

                  Unfortunately for Goldman Sachs, I am going to pick on another one of their calls, most recently when they decided to lower their price target for US crude oil to $75 by the 2^nd quarter in 2015, which is now the most bearish bet on the street.  The call came on October 27^th, which then sent crude oil to $79.44, its lowest level since May 2012.  While it’s still too early to tell if they will be right or not, I am betting on the fact that they will be wrong…again.  You see, this isn’t the first time that Goldman has made a call on crude oil, only to be wrong.  Back in June 2008, with oil sitting around $125/barrel, Goldman decided to increase their estimate to $200/barrel.  From July through the end of the year, crude oil proceeded to plummet like never before, falling 70% from the highs down to $44.60/barrel.  Goldman has also had incorrect calls on crude oil in 2011 and 2012.  Had Goldman lowered it’s outlook a few months ago, then maybe I would be inclined to believe it, but with Goldman dropping it’s 6 month price target by $15, with crude oil already having fallen 24% in the summer, I am more inclined to believe history will repeat itself.  With that, I added to my current positions in ConocoPhillips, Kinder Morgan and then opened a new position in EOG resources. 

                  One opinion in particular that really affected my portfolio was on October 24, Jim Cramer ran a segment on his Mad Money show about selling out Palo Alto Networks (PANW) because it has become to expensive.  Cramer has an unbelievable following, and has a major influence on stock prices, and when he has an entire segment devoted to selling a stock, well, that stocks is going to get hammered, which is what happened to PANW the very next day.  The stock closed right near all-time highs o $108.50 that night, only to then sell-off all the way down to $100, before bouncing back and finishing the day down about 4.5%.  For those investors who couldn’t think for themselves, they ran scared and missed an opportunity.  While the stock is still down from Cramer’s call, Palo Alto closed at its third highest level ever on Friday.  One rule of thumb on a Jim Cramer recommendation is to wait at least three days before making a decision.  Had investors done so, they probably wouldn’t have been so quick to sell (full disclosure, I did not sell any of my shares in Palo Alto Networks).

                  Now, I fully realize that I am giving you MY personal opinion and views on the markets and particular stocks, but the point is, everyone has their own opinions, including yourself.  The purpose of this newsletter is to give you various trade/investment ideas, educate you on what to look for whether technically or fundamentally, and hopefully make you a little money.  With that said, it is important to do your own research and formulate your own opinions before buying or selling anything.  But it’s also important to know that just because a “professional” analyst makes a bold prediction, it doesn’t always mean they are right, in fact, it may mean that you should do the exact opposite. 

                  I have made some changes to my portfolio over the last couple of weeks, selling out of Citibank (C) on Friday after they announced a reduction to Q3 that were reported a few weeks ago due to a legal charge.  I, personally, have lost all faith in Citibank management, and having an 8% gain, I decided to lock it in and move on.  I also sold out of Coach (COH) with a 1% loss because it never really rallied off the lows like I expected it to, and when something doesn’t do what I expect it to, I get out.  On October 23, before market-open, I opened a new position in Celgene (CELG) at $95.20 after they reported monster earnings, but didn’t react and I saw that as a great chance to get in before the rally happens.  I also took some profits in Delta Airlines, which I added to on the Ebola outbreak, and built a new position in Jack In The Box (JACK) on its long-term growth prospects and possible spin-off of Qdoba.  Lastly, I bought some calls in Microsoft prior to earnings, as a trade, which I still own.  

     

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Delta Airlines (DAL), Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), Darden Restaurants (DRI), Celgene (CELG), long Microsoft (MSFT) November calls, and Jack In The Box (JACK). 

Jeff Lewison

Capitulation Wednesday

10/17/14

                  In another week of extreme volatility, the broader markets finished on a positive note and gave you a level to buy against, but there may still be more headwinds ahead.  Among those reasons for the market sell-off, are a slowing Chinese economy, possible recession in Europe, free-falling oil prices, analysts concerned about lower guidance, Ebola, Russia/Ukraine, ISIS, Fed rate hikes and just about anything else you can think of.  My opinion is that there is no fundamental change in the US economy and I think what you’re going to hear from the high quality companies is that sales, revenues and earnings are strong and will continue to be so, and that the higher US dollar is offset by sharply lower oil prices.      

These last three days of trading were very important, starting with Wednesday.  If you remember, that was the day that the Dow dropped 460 points and the S&P plunged 54 points almost instantaneously…only to then immediately rally back and finish the day relatively strong.  A lot happened on that day that contributed to what I believe was the market capitulation and low for the move.  On Wednesday, there was a string of bad news that hit the market within a couple hours of each other, which sent stocks in a free fall.  First, retail sales numbers came in very light, especially when you back out iPhone sales.  That was a concern because a lot of investors expected consumers to use the money they are saving on lower gas prices, to go out and buy goods.  Then there was news that Abbvie was pulling out of deal to buy Shire, which would have given Abbvie the chance for a tax inversion.  Shares of Shire plunged about 30% on the news, which caused major losses for hedge funds that bet on a deal getting done.  Losses on that trade forced those funds to liquidate other assets, sending stocks lower on the open.  But what I believe to be the biggest culprit of the drop was news that another Dallas Nurse had contracted Ebola, which we later learned had actually boarded plane just 2 days prior to the diagnosis.  The Ebola story broke at roughly 3:30am CT, which sent the S&P futures down about 32 points over the next hour.  On top of that, I also saw major capitulation in buying of treasuries as the 10-year yield sank below 2% for the first time since June 2013, only to snap right back and end the day around 2.10%.  Volume on Wednesday in both stocks and treasuries were at their highest levels in more than three years.  When I look for capitulation, I look for the market or stock to make a dramatic drop on extreme volume, only to rally back, usually to end the day sharply higher.  While there wasn’t really a follow through on Thursday, Friday’s price action was encouraging.  Instead of dropping sharply, stocks rallied sharply, with the S&P closing up 24 points or 1.29%, ending the week almost 4% off the lows on Wednesday.

                  The other market that I was watching this week was crude oil, which I believe has bottomed out at $80 barrel.  Oil hit a low of $79.78 on Thursday morning, only to gain back 3.1% to close at $82.25 on Friday.  It was no surprise that once oil bounced off $80, we saw the stock market rally, led by the energy and transport names that have been so beaten up over that last month.  Off the lows on Wednesday, Cheniere Energy (LNG) rallied 17%, EOG Resources (EOG) soared 12.5%, Delta Airlines was up 14.2% and Union Pacific (UNP) gained 10.6%.  I believe these two sectors offer the long-term investor the best risk/reward right now because they have been so beaten down, mainly due to fears of Ebola.  On Thursday, Delta announced better-than-expected Q3 earnings, which sent the stock higher.  But the most important note on the call wasn’t what they did last quarter, it was more about what they expect going forward.  Delta expects fuel costs, which make up about 45% of their input costs, should drop about $0.20/barrel to $2.70 from Q3 to Q4, prices they haven’t since 2010.  While lower fuel costs are important, the most important thing management said on the conference call was that they have seen 0 impact from the Ebola scare.  Remember, the transportation sector had been hurt the most from the Ebola headlines, and when you have stocks that trade on fear, historically they have been great buys, and this time is no different.  You know I love Delta, but they do have the most exposure to Africa, so for a more domestic play, I like Southwest Airlines (LUV).  As for energy names, I think you have a great opportunity to buy EOG Resources and Cheniere Energy, my two favorites.  EOG will give you exposure to both oil and natural gas, while Cheniere is strictly a natural gas play. 

                  Hopefully you had a chance to buy the stocks that you have been waiting to buy.  If you missed out on some of those names that have already rallied 10-15% from the lows on Wednesday, don’t chase these names because I think you’ll get another chance.  While I do think the low for this move in, I can easily see the market push lower early next week one last time.  The 200-day moving is the key level to watch on the upside.  That was support on the way down, so it is now resistance on the way up.  The longer the market stays below that level, the more negative it is for stocks.  Everyone who was waiting for a correction to begin buying had their shot this week.  I did some buying and hopefully you didn’t get scared away and bought yourself.  This coming week is important for where we go the rest of the year.  We really need to see the S&P break through the 200-day moving average of 1906; otherwise it could be a rough end to the year.

                  Just like it’s bad idea to panic and sell, it’s also a bad idea to panic and buy thinking that you missed your chance.  Be patient and wait for another opportunity in the energy and transportation names.  If another negative Ebola headline comes out, you will get another chance to buy.  This is the sell-off you have been waiting for, and if you are in for the long haul, you should have your list of stocks ready to go.  If you already have enough energy and transportation in your portfolio, look to buy stocks of companies that report strong quarterly earnings like Honeywell, CSX, Goldman Sachs, and Alcoa just to name a few. 

For full disclosure, on Wednesday, I added to my positions in KMI, COP and TWX, and added Darden Restaurants to my portfolio.  This week, I will be looking to buy EOG Resources around $86 or Cheniere Energy around $65. 

    

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), Lockheed Martin (LMT), and Darden Restaurants (DRI). 

That Was Brutal

10/11/14

                  After suffering one of the most volatile weeks in years, and the biggest weekly loss in almost 2.5 years, a lot of investors are left wondering how bad is this going to get.  While the S&P is only down 5.5% from all-time highs a couple weeks ago, it is still the largest drop from peak to trough in years and the pace at which we dropped is quite concerning.  Looking at the Nasdaq, the situation is even worse, down more than 6% from all-time highs.  Unless you have a very conservative portfolio or hedged your positions with put options, you are probably in worse shape that the indices.  On Friday, the semiconductor stocks all gotten a major beating after chipmaker, Microchip Technologies came out and said that there is a correction going on in the semiconductor space.  That sent big names like Intel, Micron, NXP, Taiwon Semiconductor and almost everyone else in the sector down more than 5%.  The biggest issue I have with that is every investor in the world was listening to what a tiny ($7B market cap) company that was flat for the year, underperforming competitors by more than 30%, has to say more than what Intel said a few weeks ago, that there isn’t a slowdown coming.  With crude oil falling to the lowest levels since July 2012 on weak global demand, energy stocks and transports continued to collapse on Friday, with names like Trinity Industries, Conoco Phillips, Delta and Southwest Airlines, Caterpillar, Exxon Mobil, and many more falling into correction or bear market territory. 

                  There are two ways to deal with this market right now if you are not able to buy/sell options.  As long as you have a long-term outlook and investment time horizon, there’s nothing to worry about and this should be viewed as a buying opportunity.  While I wouldn’t necessarily go in and buy everything right now, I think there are some great opportunities to get stocks on the cheap and you should have your shopping list ready to go.  Tech stocks like Google, Microsoft, and Facebook are all oversold, as are the chipmakers that I previously mentioned.  Transports like Trinity Industries which builds railcars for transporting crude oil across the US, should not be down 31% in the last few weeks…that is a buy, as are the big oil and gas stocks.  On top of a possible recession in Europe, the Ebola virus has really beaten down airliners like Delta, Southwest, American and United Airlines.  Those are all long-term buys as well.

                  The second way to deal with this volatile market, is by buying low beta names…that is, stocks that have low volatility and won’t move as much as the broader market.  Names that have held up very well in the last few weeks and even rallied are utility stocks that pay dividends of more than 3.5%, like Exelon (EXC) and Consolidated Edison (ED).  Telecom companies like Verizon and AT&T, paying more than 4.5% to wait, are also good plays here because their dividend acts as support for the stock.  Another stock that has done really well is CVS.  While it’s trading near all-time highs, there’s still more room to run.  The last stock that you can own in this market is one that really just trades by itself and doesn’t really move with the broader market, Apple.  The tech giant has outperformed the Nasdaq by about 6% in the last three weeks, dropping only about 1%. 

                  So there you have it.  Hopefully you have cash on the sidelines to put to work in stocks that you have been waiting to buy at a discount.  If you’re in for the longhaul, buy high quality stocks that have been beaten down because of profit taking and investors running scared.  If you’re in for the short-term, look for low beta names paying big dividends.  Keep your eye on the S&P this week.  1905 is the 200-day moving average and has been significant support for a couple years.  If the S&P can’t hold that level this week, then will absolutely be more downside coming.  Hedge Funds are getting margin calls on some of their long futures positions, which means they are selling the positions they have gains in.  That’s why I like buying those stocks that shouldn’t have dropped like Google, Facebook and Trinity Industries, because I believe they will be buying them up again going into the end of the year.       

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), NXP Semiconductors (NXPI), and Lockheed Martin (LMT). 

Jeff Lewison

And The Best IPO Is...

10/4/14

                  While the S&P closed on Friday 41 points off yesterday’s low, the index still finished down 0.8% for the week.  Thursday’s low marked a 4.6% drop from the highs made just a couple weeks ago, but I think that low of 1926 will be support for the rest of the year.  It took a lot of trial and error, but 1926 happens to be the current 120-day moving average, which is a level that the S&P has not closed below since November 2012.  In fact, since that time, the S&P bounced off that level 8 straight times, including thrice this year alone.  The fact that the market rallied almost 2% in the last 1.5 days makes me incredibly bullish for the rest of the year.  The markets were already oversold, but given the ebola concern, problems with Russia/Ukraine, a slowdown in China, a slowdown in Europe, protests in Hong Kong, a weak US housing market, and a strong dollar, the S&P should not have rallied that much, which makes me believe the markets are headed for another new all-time high.  With that said, in order to really be in the clear, I need to see the S&P close above 1975, which was the previous support level.  If stocks can’t close above that level this week, then I expect the S&P to make one more push lower to the 120-day moving average before rallying into years end.  Q4 earnings kick off next week and I believe that will be the catalyst to take the markets higher.

                  With all the Alibaba hype over the last few months, I feel like I should mention it…so there, I mentioned it.  Forget Alibaba because the best IPO this year is in the auto sector, Mobileye.  The company engages in the provision of automated driver assistance technologies.  In short, they have revolutionized the future of the auto industry by helping drivers improve safety and avoid accidents.  Mobileye’s technology can be found in cars made by BMW, General Motors, Volvo, Ford and many others.  Not only are they going to be the biggest player in driverless car technology but right now their technology is what controls lane departure warnings, pedestrian collision warnings, speed limit indications and more.  Last quarter, Mobileye reported a $0.01 earnings beat of $0.05/share and revenues increased 90% to $33.7M, also above estimates.  On the earnings call, management said that their technology was already installed in 3.9M vehicles and expects to be in 160 car models by the end of the year, and 237 by the end of 2016.  While a majority of their sales are to car manufacturers, they are growing in the after market where their systems need to be professionally installed, however they predict that by early 2015, they will have self-installation systems available in retail stores.

                  This stock is not for the faint of heart.  If you are someone that watches the market every single day, and may not be able to handle a sudden 5% drop, then you may want to stay away.  But if you are someone who wants a very high growth stock with a lot of volatility then Mobileye is the way to go.  Now, the stock is already up 60% from where it opened on its IPO day, having closed on Friday at $57.70 after hitting a new all-time earlier in the day.  So I do not recommend going out and buying it right now.  Instead, be patient and wait for the stock to come in a little bit, and buy in blocks.  I would look to buy 25% of your position around $54 and then the other 75% if the stock gets back down to $50, which is right around the 61.8% Fibonacci retracement and a strong support level over the last couple weeks.  This stock, along with GoPro tend to trade by themselves, being the new momentum names, so just because the market is rallying, doesn’t mean Mobileye is going higher.  My advice is to put in your orders now so that if the stock sells off, you’ll already be in position to buy it. 

                  I put my money where my mouth is last week and bought NXP Semiconductors with an average price of $66.22.  It only made sense that as soon as I recommended it, the stocks suffered one of its worst weeks in months, despite also receiving an upgrade and price target increase by Sterne Agee.  I thought the sell-off was nothing more than profit taking and took advantage of that.

                  A couple months ago, I wrote an article about how you need to be ready to take advantage of completely irrational reactions by certain stocks to news stories.  My case in point was just this week when every airline and cruise stock got hammered on reports that an Ebola case was found in the US.  Does anyone really think that people are going to cancel their trips or decide not to take a vacation because of an Ebola case?  The sell-off was ridiculous and I took advantage and added to my position in Delta Airlines.  Delta has rallied about 8% since the low on Wednesday’s sell-off and most of the other airlines are up similar amounts.    

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), Twitter (TWTR), and NXP Semiconductors (NXPI). 

Jeff Lewison

Driverless Cars...the Future

9/28/14

                  Sell-offs like the one we had last week should be a welcome sign to investors, not a reason to worry and panic.  Days like Thursday should be used to begin buying positions that you want or add to positions that you already own.  Much like myself, you should have a list of stocks that you want in your portfolio and are willing to buy if you see it lower because of a broader market sell-off.  Among the many on that list should be chipmaker NXP Semiconductors (NXPI).  The company designs, manufactures and supplies mixed-signal and standard product solutions.  The reason I like this chipmaker so much is because they are a big player in mobile, identification and automotive high-performance mixed-signals.  NXPI’s technology can be found in devices made by Google, Microsoft and most recently Apple.  They are benefitting from the rapidly growing near-field communication (NFC) business that is now more popular than ever due to Apple’s new Apple Pay.  NFC technology allows your devices to connect to one another through radio communications…think Bluetooth.  During the Apple iPhone 6 teardown, multiple NXPI chips were found, so NXPI is only going to benefit from the red hot Apple phone.  Early last week, an analyst report from ABI Research found that NXPI had a 50% market share in shipped units in 2013, up from 32% in 2012.  They had an 18% lead in market share and that lead is only going to continue with Apple’s contactless pay. 

                  While I still see a lot of growth in contactless pay and further revenue growth for NXPI, the market that they will really benefit from is the rapidly growing automotive segment.  In July, NXPI reported automotive revenues of $288M, up 14% YoY, helped most by keyless entry and in-vehicle networking solutions.  Most recently, they announced that they received an award for a newly designed chip for car-to-car communications that while it likely won’t be in cars until late 2016, should offer great growth for the foreseeable future.  What’s important about the award is that it was received not only for strong communications capabilities but for strong security as well.  If there is ever a question about whether driverless cars or car-to-car connectivity is going to be future, just look at how well MobileEye (MBLY) is trading.  Also look at how Google and every other automaker in the world are working on a driverless car.    

                  Although at first glance it looks like NXPI is rather expensive, trading at 35x this year’s earnings, it’s actually very cheap at current levels.  Based on expected 2015 earnings, NXPI is trading at just 13x, cheaper than larger chipmakers, Intel and Qualcomm.  Another key metric to look at is price-to-earnings growth ratio, which measures how quickly the stock is moving relative to earnings growth.  Typically, you want a PEG ratio below 1, and NXPI has a PEG ratio of 0.66, which is incredibly strong.  NXPI is reporting record revenues and cash levels and I believe that is very likely to continue. 

                  On Friday, NXPI closed at $71.09, just 3.7% from all-time highs made a couple weeks ago.  On August 29^th, the stock gapped up to $67.81 and hasn’t looked back since.  I would not recommend this stock as a trade, but I do recommend it for a long-term investment given how successful I believe the car-to-car communications market will be in the future.  I would recommend buying the stock this week, and if you get another market sell-off, add more on the way down, closer to $67.00.  The first level of support to look at is $67, which is the high made on August 28^th (the day prior to the stock gapping up) and is also right around where the 50-day moving average is.  The 50-day has been strong support for the stock over the last 52-weeks and should continue to be support.  With that said, again, I would recommend buying 50% of your position this week and then the next 50% around $67, and then let it ride to profits.

                  Over the last couple weeks, I made a couple changes to my own portfolio, selling Michael Kors (KORS) and adding Twitter.  KORS has become an absolute disaster, especially after announcing a new secondary stock offering, which is what made me exit the position.  Adding Twitter was a move I wanted to make for a while because of new management structure and my belief that they are still growing in user base and are better able to monetize mobile. 

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), Palo Alto Networks (PANW), and Twitter (TWTR). 

Jeff Lewison

Rising Rate Environment...At Least Temporarily

9/12/14

                  Hopefully you took my advice a couple weeks ago and bought some FireEye (FEYE) and Palo Alto Networks (PANW), which have yielded 13% and 18%, respectively, with the latter rallying Wednesday on an outstanding quarter.  If you’re in those trades, stick with them because I see more upside for both. 

With the S&P closing down almost 1% for the week, you can’t help but wonder if the impending correction is upon us.  While I think the market is headed lower, I am not at all worried about any kind of correction hitting the market.  This week’s sell off was all about rising interest rates and anticipation of what the Fed will say next week when they meet Tuesday and Wednesday.  Investors are nervous that the Fed will be less dovish and change the language in what they are looking for to determine when to raise interest rates, increasing uncertainty and driving the stock market lower.  The 10-year Treasury suffered its biggest weekly drop since March, with interest rates rising about 20 basis points.  To track interest rates, you can use the iShares 20+ Year Bond ETF (TLT) if you think interest rates are going lower, or if you think interest rates are headed higher, you can buy the ProShares Ultra Short 20+ Year Bond ETF (TBT).  I think rates will continue to move higher towards 2.75% before pulling back, which is the 61.8% Fibonacci retracement from the 52-week low to high. 

If rates rise to 2.75%, I would expect the stock market to move lower.  Right now investors see higher rates as a negative for the economy even though the recent economic data has been very strong.  Higher rates may mean that potential home buyers will sit on the sidelines and wait, which is bearish for the economy, with home buying being one of the key drivers to economic growth.  I personally think the opposite is true.  I think if rates begin to rise, there will be a sense of urgency in home buying because people don’t want to lose out on a low rate.  But if rates rise too quickly, as they did this week, investors get nervous and start selling risky assets, like equities.  I am looking for the S&P to trade down to around 1940 before stabilizing and rallying back.  While that represents a downside of 2.3% from Friday’s close and 3.5% from all-time highs, I am not concerned about any drop much larger than that.

The last thing I want to talk about is the energy trade.  Crude oil is now down almost 15% from the highs back in June, and made a new 52-week low on Thursday, trading down to $90.43/barrel.  On a fundamental basis, I think this sell-off is attributed to a demand issue and not a supply issue.  While there is an abundance of crude oil across the entire world, the demand for oil just isn’t there.  Many European economies are seeing slowing growth and still high unemployment, and here at home, the unemployment level is still too high and with consumer purchasing more fuel-efficient vehicles, they don’t need to fill up the tank as often.  Crude oil overshot to the upside on reports on tensions in Russia and the Middle East, and now it has overshot to the downside.  On a technical basis, crude oil looks to be finding a bottom around $90/barrel.  Thursday was a very important day of trading.  On the second highest volume day in that last 52 weeks, oil made an outside reversal day, where the commodity opened where it closed the previous day, traded all the way down to make a new 52-week low, but then reversed to close near the highs of the day, up 1.5%.  The low on Thursday was $90.43, but I am bullish oil above $90 and I am looking for a short-term rally back to $95, representing a 3% gain from Friday’s close.  A lot of traders will use that low of $90.43 to trade against, and I believe you can do the same thing. 

                  A few weeks ago I recommended buying Conoco Phillips (COP) and Talisman Energy (TLM).  While both have traded poorly, with Talisman making a new 52-week low, I still believe they are the right calls and I am sticking with Conoco.  The big oil companies like Conoco, Exxon and Chevron have all sold-off sharply but so far, Conoco and Chevron have held key technical levels.  I would be a buyer of any of those three stocks, which are yielding nice dividends because they will benefit greatly from higher oil prices.   

As for my portfolio, I sold out of Buffalo Wild Wings (BWLD) with a small profit.  I expected a bigger rally after falling sharply on its most recent earnings call, and I didn’t get it.  While I still like the stock in the long run, I do not see any near-term catalyst to drive the price higher.

                     

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Whole Foods (WFM), Wells Fargo (WFC), Michael Kors (KORS), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), and Palo Alto Networks (PANW). 

Jeff Lewison

Cyber Security

8/31/14

                  On Wednesday, JPMorganChase announced that their systems were hacked, which is just one of the many companies that have suffered a cyber attack in the last couple years.  Everyone remembers the issues that Target had, and Michael’s Crafts stores along with PF Changs restaurants, were also affected in the last year.  Cyber security is becoming ever more important in this day and age and I think now is a great time to invest in this sector.  There are many ways to play this, all of which are great long-term holdings for your portfolio since I don’t think cyber attacks are going away anytime soon.

                  The most exciting stock in the sector is without question, a small company with a market cap of just under $5B; FireEye (FEYE).  The company’s products combine threat prevention systems that provide threat protection from network to endpoint for inbound and outbound network traffic.  FireEye deals in three main sectors: retail, healthcare and government.  FEYE reported strong Q2 results in early August, beating on both the top and bottom line.  The company reported revenues of just under $95M, up 184% YoY, allowing management to increase it’s FY14 guidance by almost 5% to $427M.  At the same time, billings increased 153% to $113.8M.  FireEye is rapidly growing its customer base too, rising more than 100% over the last year, and while they reported a loss of $0.55/share in Q2, that was better than analysts expected.  One short-term negative for FireEye other than it is a very expensive stock, is the rapidly growing expenses as management expects investment in R&D to total 125% of FY14 revenues.  But with more and more cyber attacks occurring, I think this will be money well spent.  Closing at $31.14 on Friday, FireEye is down 40% this year and down 68% from all-time highs made on March 5.  But, I think you can buy the stock right here as it looks to have put in a double bottom at around $26.  The stock was up 11% last week, aided by not only news out of JPMorganChase but also by a well-timed upgraded by Stifel to a “buy” with a $45 price target.  I happen to agree with the call but with a $42 price target, representing a 35% gain.

                  The second stock I like in this sector is an Israeli based company called Check Point Software Technologies (CHKP).  It’s products offer network and data security and management solutions for enterprise networks and services.  Last quarter, CHKP reported stellar earnings of $0.89/share, beating analyst estimates by $0.11.  Management went on to raise Q3 earnings and revenue guidance above consensus estimates.  With a market cap of almost $14B and with $3.6B in cash, it’s one of the biggest companies in the space and management cited they are looking for possible M&A targets.  CHKP, which grew total subscriptions by 14% YoY, continues to be a big focus for management, as it will be bring in a consistent revenue stream for the future.  The stock isn’t to expensive, trading at just 18x 2015 earnings, and with its close of $71.02 on Friday, is just $0.14 off all-time highs that were made earlier in the day.  The stock is up about 10% YTD, outpacing the S&P 500 and there is still plenty of room to run.  If you are going to build a position in this stock for your portfolio, but some next week, but then wait for a move back to $68, which is around the 78.6% retracement, and then buy the rest of your position.  I can easily see the stock headed to $81, giving you a 14% gain.

                  Lastly, the third stock I like in the cyber security sector is one I bought near the low on Thursday’s sell off, which is Palo Alto Networks (PANW).  Palo Alto provides its clients with its market leading, Next Generation Firewall protection amongst a host of other products and services.  Its clients consist of enterprises, service providers and government entities.  Palo Alto recently settled a patent dispute that was hanging over the company, as it paid almost $200M to Juniper Networks.  Last quarter, Palo Alto surprised analysts with another stellar quarter and CEO Mark MacLaughlin stated that the results were driven by continued strong product demand, robust service growth and a rapid market-share gain in the large and growing strategic enterprise security market.  Its customer base already consists of more than 16,000 customers in over 120 countries and they continue to beat out competitors in their space for new business.  Palo Alto is already up 48% this year, but is down 3.3% from all-time highs made on August 14^th.  Even with the sharp gains, I think the stock moves higher and will hit $100 in the next 12 months.  While the company reports earnings on September 9^th, I think you can still buy the stock beforehand, and if it pulls back, pick up some more.

                  There are many companies in the cyber security sectors, but out of all of them, these are the three I like the best.  FireEye will give you the higher risk/reward so if you are looking for a momentum stock with a good entry point and can handle some risk, go with that one.  I also would recommend buying stock in 2 of the three and staying a little diversified in the sector.  Figure out how much of your portfolio you want designated to cyber security and buy 50% in one company and 50% in another.

My current positions: Long Ford (F), Gilead Sciences (GILD), Starbucks (SBUX), Macy’s (M), Boeing (BA), Google (GOOGL), Facebook (FB), Coach (COH), Citibank (C), Delta Airlines (DAL) Biogen Idec (BIIB), Buffalo Wild Wings (BWLD), Whole Foods (WFM), Wells Fargo (WFC), Michael Kors (KORS), General Motors (GM), ConocoPhillips (COP), Kinder Morgan (KMI), Time Warner (TWX), and Palo Alto Networks (PANW). 

Jeff Lewison