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Boeing Weighs on Stocks as Credit Outlook Cut to “Negative”

Posted: 23 Jul 2019 03:00 AM PDT

737 Max problems weigh on company's credit rating.

On Monday, Fitch Ratings lowered its outlook for Boeing Company (BA) to "negative" from "stable." The rating service cited regulatory uncertainty and the uncertainty of when the 737 Max jet would be able to return to service.

The lowered outlook is part of a process before the airline manufacturer's credit rating is lowered. Corporate credit ratings determine the price paid for a company's bond offerings.

 

The downgrade follows last week's news that Boeing would take an accounting charge of $4.9 billion in the second quarter on 737 Max problems. The rating agency sees the concerns moving through at least 2020, and possibly beyond as customers seek other jets, potentially from other manufacturers.

At the moment, Boeing has about $14.7 billion in debt, a manageable level given the company's size. However, that number is expected to rise to nearly $24 billion as these 737 Max issues play out.

Action to take: While a public relations nightmare at the moment, Boeing is a world leader in commercial aviation technology and a worthwhile investment for the long term. Its unique place and the fear surrounding shares now make it a buy for the long-term in mind. As upside may be a bit limited until these issues resolve, shares look more attractive for long-term returns than making an options trade here.

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Federal Reserve’s National Activity Index Contracts for Seventh Straight Month

Posted: 23 Jul 2019 03:00 AM PDT

Longest period of contraction since 2009.

The Chicago Federal Reserve printed its National Activity Index for June, showing a decline of 0.02. Economists had been expecting a 0.08 positive gain instead. This marks the seventh month in a row of declines, the longest period of contraction since the financial crisis in 2009.

The National Activity Index is designed to gauge overall economic activity and potential inflationary pressure. As with other pieces of economic data lately, it indicates that the economy is slowing down.

 

Whether that slowdown is transitory—from trade war fears or the like—or a bigger recession—remains to be seen.

The index uses 85 existing monthly indicators and is constructed to have an average value of zero, and a standard deviation of 1. So a 0.02 decline isn't the end of the world, but coupled with data from the previous months, it doesn't paint a great picture either.

As with other economic data points lately, a deeper dive into the index looks contradictory. 40 of the 85 factors showed positive signs in June, with 45 showing negatively.

That weighs on an economic slowdown rather than the start of a bigger recession. Of the data points showing positive growth, employment-related factors indicated the strongest signs of growth with a 0.06 rise.

Insider Activity: pdvWireless (ATEX)

Posted: 23 Jul 2019 03:00 AM PDT

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Major fund owner adds to stake.

Last week, Owl Creek Asset Management bought over 428,000 shares of pdvWireless Inc (ATEX). This represented a 16 percent increase in the fund's holdings and brings their total share ownership up to over 3,076,000.

The fund, with over $2 billion in assets under management, owns over 10 percent of shares in the company.

 

pdvWireless provides network and mobile communication solutions to infrastructure and enterprise customers, with a cloud-based mobile resource management solution and push-to-talk mobile communication services, and provides nationwide two-way digital communication services. The company was renamed from Pacific DataVision in 2015.

Action to take: We see little reason to follow insiders in at current prices and valuation. The company is currently not profitable, and both earnings and revenue have declined by double-digits in the past year. Yet, at the same time, shares are up nearly 68 percent in the past year against a rise in the S&P 500 of just 6 percent. There are better opportunities to chase here.

While the company is debt free, and has over $5 per share in cash, that isn't enough of a cushion for investors here. Shares would look more attractive closer to the 52-week low of $24, so look for an opportunity to buy shares if they slip to $30 or less.

Unusual Options Activity: Facebook (FB)

Posted: 23 Jul 2019 03:00 AM PDT

Trader makes bullish bet before earnings on Wednesday.

Shares of Facebook (FB) may rally on Wednesday after it reports earnings.

On Monday over 29,400 contracts traded on a July 26th call option on the social media giant. With a strike price of $227.50 and with shares around $200, it's a bet that shares will move up in the coming four days. Shares would need to move 13.5 percent higher for the trade to move in-the-money.

 

With the option trading around $0.32, or $32 per contract, this is a cheap bet on any earnings move higher Wednesday. And should earnings miss or the share price otherwise drop, the loss would be a small one. The size of options contracts here indicates a huge bet, however, that shares will head somewhat higher this week.

Facebook shares have been quietly moving higher in recent weeks, as many of the issues facing the company have seemed to die down.

Action to take: This is a very short-term trade that will either promptly go to zero later in the week, or spike higher after earnings. Traders should follow it, and look to sell on any spike in earnings. It's unlikely shares will move high enough for the trade to move in-the-money, however, so take the trade off Thursday after earnings either way.
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