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Unusual Options Activity: General Electric (GE)

Posted: 16 Aug 2019 03:00 AM PDT

Flurry of options activity following bearish report.

A bearish report going into potential accounting issues released on Thursday led to many unusual options trades in General Electric (GE).

One notable trade was the December 2019 $5 put options. Those options saw a 47-fold increase in volume from 159 contracts to over 7,500. At a current price near $8, the options reflect a possible 37.5 percent drop in shares between now and mid-December.

Many other put options on the company also saw a surge in volume on Thursday, as did some call options as well. Put options are a way for a trader to bet against the share price of a stock without going through the costs of borrowing a stock and selling it short, and some of the call option activity may have been hedging by share owners.

Action to take: While the numbers released in the bearish report on General Electric are daunting, the company has been moving to take many liabilities off its balance sheet. The company's defense of its accounting practices explained some of, but not all of, the numbers behind the bearish report.

With insiders buying shares here in the multi-million dollar range, we like the recent weakness in shares as an opportunity to buy, should they drop under $7.00, well off recent 52-week highs over $10.

In the short-term, however, a put option play like the December $5 trade could make investors a profit on any further weakness in shares—or on a general market decline itself.

 

Retail Sales, Manufacturing Data Indicate Economic Rebound

Posted: 16 Aug 2019 03:00 AM PDT

Economic indicators move higher.

On Thursday, three key pieces of economic data suggested an economic rebound is underway, even as trade war and inverted yield curves wreak havoc on the market.

First, retail sales outside of automobiles and gasoline saw a 0.9 percent increase in July, nearly double the 0.5 percent expectation.

Second, manufacturing data from two different Federal Reserve districts showed an increase in manufacturing and business outlook that likewise beat expectations.

Specifically, the Empire Manufacturing Index at the New York Fed came in at a 4.8 reading, up from a 4.3 reading in June. This was well above the 2.0 percent expected increase. At the Philadelphia Fed, the business outlook came in at 16.8, a reading still down from the June level of 21.8, but well above the expectation for a 9.5 percent increase instead.

All told, this data shows that manufacturing is improving, consumers are still active, and businesses are generally bullish on overall conditions, even if their overall bullishness has slowed.

The data indicates that the economy may expand more quickly in the third quarter than predicted, and is also strong enough to convince policymakers to slow the rate of any economic stimulus measures such as further cuts in interest rates.

The only dour note in the reports came from the Empire Fed, which noted that there remains some sluggishness in the labor market, as employment and workweek indices reported a slight drop.

 

Insider Activity: Keurig Dr Pepper (KDP)

Posted: 16 Aug 2019 03:00 AM PDT

Division president and director buy shares.

On Wednesday, August 14th, two insiders bought shares at beverage giant Keurig Dr Pepper (KDP). They included Brian Loucks, the President of Keurig Appliances, who picked up over 18,550 shares, paying just over $525,000 to do so.

He was joined by director Robert Singer, who bought 4,000 shares, paying just over $110,000. Corporate insiders have been buyers of the stock in the past year, although a major holder, Maple Holdings, has been a net seller.

Keurig Dr Pepper is an international beverage company with a focus on carbonated soft drinks and coffee, as well as other beverages, with such brands as Sunkist, 7Up, RC Cola, Hawaiian Punch, CanadaDry, and others.

Action to take: Conceptually, a beverage company is a great defensive stock to own during a market downturn or a recession. But with shares trading around 20 times earnings, they're a bit overvalued, and the company's 2.1 percent dividend yield has certainly been higher in the past. The company's relatively high debt load relative to peers is also a reason not to get bullish on this latest insider buy.

We suggest holding off on buying shares until they trade under $25, a modest discount from the current price near $29. While the company has a great basket of brands, they're a bit pricy right now.

 

Deutsche Bank Raises Price Target on Alphabet

Posted: 16 Aug 2019 03:00 AM PDT

Price hike due to faster revenue growth; Pixel phone sales.

On Thursday, analysts on Deutsche Bank raised their price target on Alphabet (GOOG), the parent company of Google, from $1,400 to $1,475. The bank cited the company's strong earnings in the most recent quarter, as well as the improved revenue growth on Google Sites as an immediate catalyst.

With shares currently around $1,170, the new price target implies a 26 percent upside for shares in the coming year. On average, analysts rank Alphabet as an Outperform.

Deutsche Bank also sees the company's product pipeline and revenue growth for its Pixel phone as another potential catalyst to move shares higher.

Action to take: We like Google as an investment—the company dominates the internet search space and has tremendous earnings power.

The company's continued double-digit annual revenue growth more than justifies its valuation near 21 times forward earnings, and the company's cash exceeds its total debt—exactly the kind of wealth-building company we want to add to during adverse market conditions.

With a 52-week high near $1,300 per share, we don't see shares as too pricey here, even if most investors can only buy a handful. Speculators may want to consider the January 2021 $1,400 calls, trading around $67, or $6,700 per contract… that's the least expensive way to have control over 100 shares and profit from the upside.

 
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