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- US Factory Orders Contract for Second Month in a Row
- Tesla Motors Beats Delivery Goals
- Unusual Options Activity: General Electric (GE)
- Insider Activity: The Kroger Co. (KR)
| US Factory Orders Contract for Second Month in a Row Posted: 04 Jul 2019 02:00 PM PDT
Slight decline tied to drops in defense and Boeing orders. United States factory orders fell for a second month in a row, declining 0.7 percent month-over-month in May. This follows a 1.2 percent decline in April. Year-over-year growth is also down 1.2 percent, the lowest level of orders since August 2016. The largest factor in the drop was a decline in defense spending and non-defense aircraft spending. This adds to other pieces of economic data suggesting a slowdown largely in the industrial space, but one that could spill over into the rest of the overall economy. However, defense spending on industrial concerns can be highly variable, and defense spending is largely outside the private sector, where economic growth is most critical for sustained growth. And the slowdown in non-defense aircraft is largely due to the woes at Boeing, which has lost several large orders following the issues with the 737 Max plane. Looking beyond those headlines then, we still see the hint of a slowdown, but news that isn't as necessarily bad as it first appears. While the mounting data of an overall slowdown in the economy continues to rise, there remains a large difference between a slowdown, and negative growth. The news should warrant caution, but so far isn't severe enough to imply a recession.  |
| Tesla Motors Beats Delivery Goals Posted: 04 Jul 2019 02:00 PM PDT
Deliveries beat expectations on Model 3 sales. In the second quarter of 2019, Tesla Motors managed to deliver a record number of vehicles, surprising most analysts. This allowed shares to rally on Wednesday. Overall, the company beat estimates by about 10 percent, and Model 3 deliveries surprised to the upside. Tesla also noted an improvement in its logistics and delivery operations, which helped meet the delivery totals and should drive down manufacturing costs per car. While the news is good short-term, there are longer-term issues that remain unaddressed. The next phase of the US Federal Tax Incentives for electric vehicles began on July 1, so some of the demand may have been to get in before the tax break expired. And with the sales mix skewed towards the Model 3, the company hit production numbers on a lower-margin vehicle. Consequently, a number of analysts with a bearish outlook on shares, like Goldman Sachs and J.P. Morgan, kept their sell/under-perform ratings on the stock. Action to take: If you like Tesla shares, by all means own some. At current prices, and after Wednesday's rally, shares are only down 23 percent for 2019. If you don't like shares, or see this as a short-term bounce at best, consider a long-dated put option, like the January 2021 $200 put. Either way, prepare for volatility!  |
| Unusual Options Activity: General Electric (GE) Posted: 04 Jul 2019 02:00 PM PDT
Big put option bet indicates decline in shares ahead. Shares of General Electric (GE) could be moving down over the summer. That's based on an unusual bet: a surge in trading on the September $12 put options. Why is this unusual? Because shares are at $10.63, making the trade already in-the-money. There are a few reasons for this kind of trade. First, being in-the-money, the option should move down penny-for-penny with shares. However, if shares remain under $12 come September, the trader will be on the hook to sell shares at $12. That could be a sign of a hedge trade, either against GE shares specifically, or on the market as a whole. At the other extreme, the initial trade could have been to sell the puts, in which case the seller would want shares of GE over $12 by September. Shares of GE have been moving up this year, but have traded below $12. That's what makes this trade unusual. And with over 15,000 of these contracts trading on Wednesday, it's a 10-fold surge in volume for this trade. Action to take: Shares of General Electric got oversold in late 2018 and are having a market-beating year so far in 2019. But the early money has likely been made. Traders betting on a decline in GE shares could put less capital up to make the bet with a $10 strike price and still make a big return if shares decline.  |
| Insider Activity: The Kroger Co. (KR) Posted: 04 Jul 2019 02:00 PM PDT
First insider buy at the grocery chain in two years. With so much conflicting economic data, investors may be looking for defensive investments. Corporate insider buying in the space is rare, which makes the recent insider buy at grocery chain The Kroger Co. (KR) so interesting. On July 2nd, director Ronald Sargent bought 5,000 shares, shelling out about $108,000 to add to his stake in the company. All told, he now owns just under 95,000 shares. This is the first insider buy in shares since July 2017. Based out of Cincinnati, Kroger operates over 2,700 grocery stores and over 1,500 fuel centers. The company also has multi-department stores with apparel, home fashion, electronics, and automotive parts. In the past year, shares of Kroger have declined 25 percent against a gain of about 9 percent for the S&P 500 over the same time. Action to take: While grocery stores don't always look like an attractive investment because of their low growth potential, they do have staying power in a recession. On a valuation basis, Kroger is attractive, trading just under 10 times earnings and paying investors a dividend just under 3 percent. That makes it an attractive defensive holding for investors with a cautious outlook. Given the slow pace of grocery stocks, buying the stock under $23 per share looks like the best way to make the trade, as opposed to buying a call option.  |
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