2015-03-10 ORM Market Commentary (S&P 500 Nears Key Support Levels)
ORM Market Commentary
S&P 500 Nears Key Support Levels
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Notes: A strong U.S. dollar and the start of the Euro Zone QE program on Monday ($1.2T program) are weighing on the currency. Given that this program could last until September 2016 or beyond (2% inflation target), it is not out of the question to see parity against dollar by the time their quantitative easing has ended.
Top Trade Idea Of The Night (IMAX)
Notes: The $2.3B movie theater company trades at a P/E ratio of 29.90x (2015 estimates) with 50.7% EPS growth, price to sales ratio of 8x, and a price to book ratio of 6.08x. 20% and 10% sales growth over this year and next year are expected to result in a $100M jump in revenue to more than $383M in 2016. On February 19th, IMAX reported Q4 EPS of $0.34 per share ($0.04 beat) on revenue of $102.46M ($7.18M beat). Longer term film deals and a 20% stake sale of their Chinese business helped drive results. In the latest quarter they signed contracts for 16 theater systems and just today announced plans for their 1st commercial agreement in Denmark.
IMAX Corp. (IMAX) Options Trade Idea
Buy the (IMAX) June $34/$38 bull call spread for a $1.40 debit or better
(Buy the June $34 call and sell the June $38 call, all in one trade)
Stop loss- $0.70
1st upside target- $35.70 in the stock
2nd upside target- $3.50 in the call spread value
Notes: The $140B food and beverage company is feeling the effects of a strong U.S. dollar (negatively), resulting in another sharp pullback. However, the consistent earnings beats and 2.7%+ dividend yield make the stock an attractive option for those searching for yield, which is why you want to watch for dip buyers to step up in the near-term. Trading at 20.22x 2015 earnings, Pepsico is in-line with Coca-Cola (20.45x) and Dr. Pepper Snapple (20.09x).
Notes: Unlike Altria Group (MO) and Reynolds American (RAI), Philip Morris (PM) is strictly an international business based in New York City. A strong U.S. dollar is putting a damper on earnings estimates for 2015 ($5.05 to $4.36 in three months) and 2016 ($5.50 to $4.64 in three months). Even though shares are down $10 from the 2014 highs it still trades at a P/E ratio of 18.18x as sales are likely to drop 10% this year.
Philip Morris International (PM) Options Trade Idea
Buy the (PM) Apr 17 $75/$80 bear put spread for a $2.00 debit or better
(Buy the Apr 17 $80 put and sell the Apr 17 $75 put, all in one trade)
Stop loss- $0.90
1st upside target- $3.50
2nd upside target- $4.75
Notes: The $1.9B semiconductor company trades at a P/E ratio of 19.12x (2015 estimates), price to sales ratio of 3.66x, and a price to book ratio of 3.07x. PMC-Sierra is growing revenue annually in the 7-8% range and profits at more than 20%+ (undervalued at a PEG ratio less than 1x). On February 9th, the board authorized an additional $75M in buybacks, bringing the total to $102M in the share repurchase program.
Notes: Trading at a 16.59x multiple (2015 estimates) puts it at a premium compared to the likes of JPMorgan Chase, Citigroup, Goldman Sachs, and many more, even though the company is expected to see EPS decline 6% (partially due to legal charges). They also barely made a passing grade on the Fed Stress Tests (5.1% vs 5.0% needed in Tier 1 Capital Ratio).
Zions Bancorporation (ZION) Options Trade Idea
Buy the (ZION) Mar $25/$27 bear put spread for a $0.70 debit or better
(Buy the Mar $27 put and sell the Mar $25 put, all in one trade)
Stop loss- None
1st upside target- $1.40
2nd upside target- $1.95