2015-03-16 ORM Market Commentary (Is It Time To Buy Soda Stocks?)
ORM Market Commentary
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Is It Time To Buy Soda Stocks?
Notes: Google (GOOGL) shares trade at a P/E ratio of 19.56x (2015 estimates) with 12.3% EPS growth, price to sales ratio of 5.70x, and a price to sales ratio of 3.60x. Even at a $380B market capitalization, the search giant is still able to grow revenue by 15% annually (likely to top $75B this year). Cost per click has been declining in recent years, which is likely the result of an underperforming stock, but the company has still been able grow the top line (grown their advertising network by about 20% in this time). On a 5-year TTM P/E ratio basis, the stock trades at a 26.34x multiple vs the average of 28.14x. Earnings are due out on April 14th.
Google (GOOGL) Options Trade Idea
Buy the (GOOGL) Apr 10 weekly $560/$585 bull call spread for a $10 debit or better
(Buy the Apr 10 weekly $560 call and sell the Apr 10 weekly $585 call, all in one trade)
Stop loss- $4.50
1st upside target- $17.50
2nd upside target- $24.00
And/Or
Sell the Apr 10 weekly $545/$547.50 bull put spread for a $0.60 credit or better
(Sell the Apr 10 weekly $547.50 put and buy the Apr 10 weekly $545 put, all in on trade)
Stop loss reference- A move below $547 in the stock
Upside target- $0.15 debit or less
Maximum gain potential- 32%
Probability of hitting $547.50 by April 10 expiration- 30%
Notes: HCP, a REIT in the healthcare industry, has been impacted by the potential for a rising rate environment (meaning other alternatives for yield) as have many other high dividend payers. The correction has brought down the forward P/E ratio down to just 12.75x, P/S ratio to 8.17x, and the P/B ratio to 1.72x. REITs with yields north of 5% typically have higher valuations (mid to high teens), so along with the technical bounce and options activity the stock is poised to see a relief rally.
HCP Inc (HCP) Options Trade Idea
Buy the (HCP) Apr $40 call for $1.45 or better
Stop loss- $0.70
1st upside target- $2.50
2nd upside target- $3.50
Notes: Coca-Cola continues to trade around a P/E ratio of 20x, but they have a 3.28% dividend yield (raised it 8.2% last month) and over $21B in cash and short-term investments. They expect to use some of their cash towards $2B-$3B in share repurchases in 2015. In an effort to see sales move above the flat line, the company has been investing in Keurig Green Mountain Coffee (GMCR) and now owns 16% of its market cap. Over 15,000 Apr 17 $41 calls were purchased for $0.58-$0.63 each today, against open interest of 7,594 contracts. Earnings are due out on 4/14.
Coca-Cola (KO) Options Trade Idea
Buy the (KO) Apr 17 $40 call for $1.10 or better
Stop loss- $0.49
1st upside target- $2.00
2nd upside target- $3.00
Notes: On March 9th, Macy’s announced the completion of Bluemercury for $210M. This adds 60 stores across 18 states, but more importantly will allow them to add the Bluemercury brand to Macy’s stores nationwide. M shares trade at a P/E ratio of 13.47x (Jan16 estimates), P/S ratio of 0.77x, and a P/B ratio of 4.01x. Macy’s has consistently been growing earnings in the high single digits and is likely to see this trend continue in the foreseeable future.
Macy’s (M) Options Trade Idea
Buy the (M) Apr $62.50/$67.50 bull call spread for a $2.20 debit or better
(Buy the Apr $62.50 call and sell the Apr $67.50 call, all in one trade)
Stop loss- $0.95
1st upside target- $3.75
2nd upside target- $4.90
Notes: The top ten holdings of the (OIH): (SLB), (HAL), (NOV), (BHI), (CAM), (WFT), (HP), (FTI), (ESV), (TS)
Market Vectors Oil Services ETF (OIH) Options Trade Idea
Buy the (OIH) Mar 27 weekly $32 call for $1.00 or better
Stop loss- $0.45
1st upside target- $2.00
2nd upside target- $2.50
PepsiCo (PEP) Options Trade Idea
Sell the (PEP) Apr 10 weekly $92.50/$93.50 bull put spread for a $0.25 credit or better
(Sell the Apr 10 weekly $93.50 put and buy the Apr 10 weekly $92.50 put, all in one trade)
Stop loss reference- A move below $93.45 in the stock
Upside target- $0.10 debit or better
Maximum gain potential- 33%
Probability of hitting $93.50 by Apr 10 expiration- 32%
Analysis on PepsiCo from March 10th
Notes: A 2,300 person study showed today that Regeneron Pharmaceuticals and Sanofi’s experimental cholesterol drug had positive trial data (alirocumab cut the risk of heart attack and stroke in half versus placebo). (REGN) trades at a P/E ratio of 36.37x (2016 estimates), price to sales ratio of 15.52x, and a price to book ratio of 17.21x. Current valuations are rich, but when you take into consideration the expected 21% sales growth and 14%+ earnings growth for next year.
Regeneron Pharmaceuticals (REGN) Options Trade Idea
Buy the (REGN) May 15 $475/$500/$525 call butterfly for a $4.75 debit or better
(Buy 1 May 15 $475 call, sell 2 May 15 $500 call, buy 1 May 15 $525 call, all in one trade)
Stop loss- None
1st upside target- $9.50 or a move to $500 in the stock
2nd upside target- $15.00
