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- Unusual Options Activity: Vale (VALE)
- Tobacco Giants Pushing Toward a Merger
- Analysts Bullish on Chesapeake Energy’s Debt-for-Equity Swap
- Insider Activity: At Home Group (HOME)
| Unusual Options Activity: Vale (VALE) Posted: 12 Sep 2019 03:00 AM PDT
Bet on rally in Brazilian ore play in next month. The October 4th $12.50 call options in Vale (VALE) saw heavy trading recently. With shares around $11.80, the option is a bet on shares moving another 6 percent higher in the next 22 trading days before expiration. Over 3,750 contracts on this option traded against a prior open position of 100, making for a 37-fold surge in volume on the trade. With a cost of just $0.16, or $16 per contract, it's an inexpensive bet that could give the trader a lopsided return if shares move even higher. If Vale shares hit $13 at expiration, the option could be worth $0.50, or more than three times the current cost. It's a bit of a risk, however, as Vale is a Brazilian company with operations in the iron ore production market. Action to take: Vale is an interesting commodity play, and a nice long-term bet on both Brazil and the attractive iron ore space. Shares of Vale have certainly traded higher in the past year—as high as $16. But with such a short term before the option expiration, this trade looks heavier on the potential risk than the reward. Speculators should consider a January 2020 option instead to give themselves more time for a rally to play out—and investors should look for a chance to buy under $11.50 per share.  |
| Tobacco Giants Pushing Toward a Merger Posted: 12 Sep 2019 03:00 AM PDT
Sources say talks are going well, but final outlook is uncertain. Altria (MO) and Philip Morris International (PM) have seen their shares move recently on a potential merger, which would again combine what was once one company before they went their separate ways. A recent report by inside sources suggest such a deal is looking more likely, as both companies have made progress on the economic issues between combining the two firms. However, there are still many issues on the social side to be resolved. Tobacco companies have struggled in recent years as a declining user base and high costs per pack, largely taxes to government, have significantly reduced demand domestically and internationally. Both companies are well off their recent highs, and consequently pay investors willing to buy shares large dividends here. Action to take: We see both companies as a reasonable value in today's markets, given where they've traded historically. We see some potential antitrust issues holding up any merger, and wouldn't be opposed to buying shares of either company at current prices—PM under $75 and MO under $47.50, although we see limited long-term growth for the sector. However, we don't see too much upside until such a merger is completed, and analysts are mixed on the merger, so speculators may want to play on a potential merger play elsewhere.  |
| Analysts Bullish on Chesapeake Energy’s Debt-for-Equity Swap Posted: 12 Sep 2019 03:00 AM PDT
Company plans to issue 250 million shares to reduce debt. Shares of Chesapeake Energy (CHK) traded flat, following the release of a plan to issue 250.7 million common shares in exchange for convertible preferred stock and some senior notes. The proceeds from the stock issuance, to a large asset manager, would allow the company to pay down its debt and improve its capital structure. Several analysts weighed in, citing that the program would give the company better financial flexibility and also reduce the total debt on its balance sheet. One analyst at SunTrust Bank cited the proposal as a "good faith move" that the company was looking to reduce its debt load without resorting to more asset sales or other measures that could impair its ability to generate earnings. Action to take: Chesapeake Energy is one of the best-positioned independent gas companies in terms of the locations of its assets. The asset sales of recent years have pinched on that somewhat, and the move to swap equity for debt, while dilutive to existing shareholders, could do much to improve the company's prospects while waiting for natural gas prices to turn around. We like shares under $2.00, and see them moving higher in the next few months on a seasonal demand increase for natural gas. Speculators may want to look at the January 2020 $2 calls, if we get a cold winter as expected and shares move to $3, those options could move from $0.28 to $1, or more than triple their current value.  |
| Insider Activity: At Home Group (HOME) Posted: 12 Sep 2019 03:00 AM PDT
Multiple insiders buy this week. In the past week, multiple insiders have been buyers at At Home Group (HOME). That includes a 4,000 share buy by the company's Chief Development Officer, a 64,000 share buy from the CEO and President, a 6,400 share buy from the COO, a 21,000 share buy from a director, and a 10,000 share buy from the company CFO. These buys have all occurred in the past few days, and represent over $750,000 of purchases from insiders on the open market. At Home Group operates home décor stores in the United States, including furnishings, mirrors, rugs, wall art, and other various indoor and outdoor décor. The company operates 205 stores in 39 states. Action to take: This batch of insider buying looks attractive, particularly as it includes the CEO and CFO, the two most visible corporate officers. And looking at shares, we see a nice discount to book value, and a reasonable valuation at 11 times forward earnings. However, the company does have substantial debt of nearly three times the company's market cap, a fact that has only looked worse as shares have declined 74 percent year-to-date. Investors who buy shares at or under $9.50 could see a nice bounce, given the severity of the selloff, and given that traders have gotten more bullish on retailers in the past few weeks. Speculators may want to consider the March 2020 $10 call to bet on a further rally in shares following the large insider buys in the past week.  |
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