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Insider Activity: Beacon Roofing Supply Inc. (BECN)

Posted: 27 Sep 2019 03:00 AM PDT

Major investor on verge of majority stake.

CD&R Investment Associates picked up 3.2 million shares of Beacon Roofing Supply Inc. (BECN). The firm, already a major holder, increased their stake by 30 percent by making the buy. The total cost came out to just over $102 million, and leaves the fund with 13.7 million shares of the company.

In the past year, CD&R has picked up over 28 million shares, and corporate insiders have also been net buyers, with only two small sales.

Beacon Roofing distributes residential and commercial roofing materials through various suppliers, and also provides complimentary building products. The company has a network of 550 branches in all 50 states. Shares are down 8 percent in the past year, and sales have been flat.

Action to take: This company is a good way to play trends in the housing market. The latest data there suggests a bit of a pickup following a significant slowdown earlier in the year, and at current valuation the company trades around 11 times earnings.

Investors should consider buying shares at or under $35, and speculators should look to the April 2020 $35 calls as a way to profit from the rise in shares. With CD&R now owning nearly half of the company's shares outstanding, some kind of buyout offer may be on the table in the coming months.

 

Citi Research Upgrades AbbVie (ABBV)

Posted: 27 Sep 2019 03:00 AM PDT

Bank cites potential ahead of merger.

Shares of AbbVie (ABBV) have struggled thanks to fears of increasing regulation in the pharmaceutical sector as well as the company's announcement to buy competitor Allergan. While the potential merger still faces regulatory approval, Citi Research has upgraded shares of the company to buy from neutral, with a target price of $90.

With shares just under $75, the price target gives shares a 20 percent potential upside, even before the merger is finalized.

At the same time, the FDA approved an eight-week treatment cycle for the company's Mavyret drug. AbbVie also develops and markets products for autoimmune disease, leukemia, lymphoma, HIV, and cancer treatments. Shares are down 23 percent over the past year, but have rallied nearly 12 percent from their merger announcement lows.

Action to take: Shares are attractive under $75. Investors who simply buy shares are getting nearly 6 percent from the dividend alone, and with the current uptrend, shares could easily hit the Citi price target of $90, which would still be well below the company's old lows.

Speculators should look at the June $80 calls, which look reasonably priced should shares continue to their bullish trend. Trading around $3.00, or $300 per contract, any move higher in shares will see a higher return here, and the option will likely trade higher if shares get up into the $80 range.

 

JP Morgan Upgrades Whirlpool (WHR)

Posted: 27 Sep 2019 03:00 AM PDT

Bank cites modest growth, stable commodity pricing.

Shares of Whirlpool (WHR) saw heavy trading following an upgrade by JP Morgan. The bank raised its rating on the appliance manufacturer to overweight from neutral.

The bank sees sales at Whirlpool likely to stabilize this year, with modest growth for next year. One of the company's biggest input costs, for steel, are likely to stay at or near current levels. The upgrade came after the company beat earnings and revenue expectations when it last reported earnings back in July.

JP Morgan further cited the valuation of the company, indicating that shares trade at a discount to its industry peers.

Whirlpool, maker of durable goods such as refrigerators and dishwashers, trades around 11 times earnings, yields over 3 percent, and shares are already up 26 percent over the past year.

Action to take: We see further upside in shares, given the earnings discount between the company and the average S&P 500 stock, as well as the fact that durable goods orders continue to hum along in spite of fears of an economic slowdown. Investors should consider buying shares up to $160.00.

Traders could play the company's continued move higher with a trade like the March 2020 $170 call, which trades for around $8.50, or $850 per contract, to control 100 shares at a fraction of buying them outright.

 

Unusual Options Activity: Freeport McMoRan (FCX)

Posted: 27 Sep 2019 03:00 AM PDT

At-the-money puts suggest potential decline.

The December 20th $10 put options on Freeport McMoRan (FCX) saw over 8,100 contracts trade, a 57-fold increase over the prior open interest of 143 contracts.

With 84 days left to go, and with shares right at $10.00, the option should increase in value with any dollar-for-dollar drop in shares. With the option trading around $0.80, shares would need to only drop to $9.20 for the option holder to start making money on the trade.

Freeport McMoRan has seen shares trade as high as $14 and as low as $8.50 in the past year. At the low, the option holder would see their options trade around $1.50 at expiration, nearly a double.

Action to take: Given the volatility in the copper space thanks to multi-year lows for the metal, there are plenty of ways to play this company. Investors may want to consider buying shares under $10, and selling an $11 or $12 call option a few months out to offset some of the volatility. Traders who think copper is going higher could buy a call option, such as the June 2020 $10 call.

For a bearish bet, the December trade is a play on a market selloff or surge in trade war fears before the end of the year. We prefer the June $10 puts instead, which have more time for a selloff in shares to play out.

 
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