2015-03-11 ORM Market Commentary (Small Cap And Transportation Stocks Are Catching A Bid)
ORM Market Commentary
Small Cap And Transportation Stocks Are Catching A Bid
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Notes: Since most companies in the Russell 2000 have a majority or all of their revenues from U.S. operations they don’t have the negative impact (or not as directly) of a sharp rise in the U.S. dollar.
iShares Russell 2000 ETF (IWM) Options Trade Idea
Sell the (IWM) Apr 17 $116/$117 bull put spread for a $0.20 credit or better
(Sell the Apr 17 $117 put and buy the Apr 17 $116 put, all in one trade)
Stop loss reference- A move below $117 in the ETF (31% chance of hitting $117 by April options expiration)
Upside target- $0.10 debit or less
Maximum gain potential- 25%
Notes: Top 10 holdings in the iShares Dow Jones Transportation Average ETF (IYT): FedEx (FDX), Union Pacific (UNP), Kansas City Southern (KSU), Norfolk Southern (NSC), United Parcel Service (UPS), Ryder System (R), JB Hunt Transport Services (JBHT), Kirby (KEX), CH Robinson Worldwide (CHRW), Landstar System (LSTR)
iShares Dow Jones Transportation Average ETF (IYT) Options Trade Idea
Buy the (IYT) Apr $160 call for $3.50 or better
Stop loss- $1.70
1st upside target- $5.00
2nd upside target- $7.50
Notes: The $8.5B holding company of Alaska Airlines and Horizon Air trades at a P/E ratio of 10.60x (2015 estimates), price to sales ratio of 1.57x, and a price to book ratio of 3.97x. The collapse in oil prices has resulted in 2015 EPS estimates going from $4.85 to $6.14 (47% growth from 2014). Sales growth are likely to accelerate north of 7% to $6B in 2016. On March 4th, the company reported February traffic grew 7.9% and capacity expanded 9.4% as they continue to add new flight routes.
Alaska Air Group (ALK) Options Trade Idea
Buy the (ALK) Apr $65/$70 bull call spread for a $1.80 debit or better
(Buy the Apr $65 call and sell the Apr $70 call, all in one trade)
Stop loss- $0.80
1st upside target- $3.60 in the call spread value
2nd upside target- $70 in the stock
Notes: Yesterday morning, Barnes & Noble (BKS) missed earnings projections for the 3rd quarter, but did post a slight sales beat as EBITDA rose 14% to $197M. Gross margins expanded 180 basis points to 32% and the stability in their retail unit has resulted in the company lowering the projected store count closure. One major negative out of the quarter was the 29% fall in digital content sales (likely the reason behind yesterday’s sell off). Following the report, Maxim Group maintained their buy rating and their $36 price target on a conclusion that the business is turning around (average analyst price target is $30.10).
Barnes & Noble (BKS) Options Trade Idea
Buy the (BKS) Oct $20/$25 bull risk reversal for a $1.00 debit or better
(Buy the Oct $25 call and sell the Oct $20 put, all in one trade)
Stop loss reference- A move below $20 in the stock
1st upside target- $2.00
2nd upside target- $3.00
Notes: The $7.6B managed-healthcare enterprise trades at a P/E ratio of 21.31x (2016 estimates), P/S ratio of 0.48x, and a P/B ratio of 4.27x. The company continues to see double digit revenue growth and while the 21.31x multiple looks expensive it actually isn’t when compared to the earnings strength (PEG ratio of 1.43x).
Notes: Oil prices remain more than 50% below last year’s high. However, there has been at least a temporary halt since the start of the 2015, holding around $50. ConocoPhillips has 1 sell rating, 8 hold ratings, and 13 buy ratings ($80.47 consensus price target).
ConocoPhillips (COP) Options Trade Idea
Buy the (COP) Apr 17 $60 call for $2.90 or better
Stop loss- $0.95
1st upside target- $6.00
2nd upside target- $9.00
Notes: As speculation of interest rates rising later this year on an improving U.S. economy is positive for the brokers like Interactive Brokers (IBKR). Reasons include increased investment activity and higher spreads. The $2B electronic brokerage company trades at a P/E ratio of 23.30x (2016 estimates), P/S ratio of 1.54x, and a P/B ratio of 2.48x. (IBKR) is expected to see 12.8% sales growth and 16.9% earnings growth next year.
Interactive Brokers (IBKR) Options Trade Idea
Buy the (IBKR) Apr $34/$36 bull call spread for a $0.65 debit or better
(Buy the Apr $34 call and sell the Apr $36 call, all in one trade)
Stop loss- None
1st upside target- $1.30
2nd upside target- $1.90
Notes: The $6.9B physician services company has 2,300 affiliates in newborn, maternal-fetal and other pediatric care across the country. Shares trade at a P/E ratio of 18.22x (2016 estimates), P/S ratio of 2.75x, and a P/B ratio of 2.96x. Revenue and EPS are consistently growing around a 10% rate annually (haven’t missed on earnings since 2012).