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- SunTrust, MoffettNathanson Upgrade Square (SQ) to Buy
- Unusual Options Activity: ExxonMobil (XOM)
- Insider Activity: FGL Holdings (FG)
- Wolfe Research Upgrades Big Banks
| SunTrust, MoffettNathanson Upgrade Square (SQ) to Buy Posted: 04 Sep 2019 03:00 AM PDT
Consumer payments company upgraded from neutral. Payment company Square (SQ) has dropped 24 percent in the past six months, far underperforming the broader information technology space. That's led to an upgrade in shares from MoffettNathanson, citing the likelihood of financials "grinding higher." Square's sale of its Caviar division, and the larger-than-expected scale of its Cash App outlook also makes the company look like a compelling buy here. Separately, SunTrust also upgraded Square to a buy rating on the same day. SunTrust's analyst sees the company investing appropriately to address the complex issues that it faces, and also the sale of its Caviar division as a first step in repositioning the company. Overall, analysts had a neutral rating on the company before these upgrades. Square provides payment and point-of-sale solutions including contactless and chip reading technologies. Action to take: With the company's poor recent performance and with upgrades shifting the overall market view on the stock, shares could move higher in the next few months. Investors should buy shares up to $65.00, with an eye towards taking profits near $75, a price point where shares have previously had a difficult time holding up in the past. Traders should look at the January 2020 $70 calls, which can be bought for under $3.75 or $375 per contract. That trade should move higher with shares in the coming months, offering a more leveraged return.  |
| Unusual Options Activity: ExxonMobil (XOM) Posted: 04 Sep 2019 03:00 AM PDT
Bet on major share price decline by June. Over 1,070 contracts traded on the June 2020 $40 puts on ExxonMobil (XOM), a 10-fold surge in volume based on the prior number of open contracts. With a current share price of the major integrated oil company around $68 per share, the $40 bet implies a $28 per share downside in the next nine months, or about 42 percent. While such moves are common in many energy stocks, they're unusual in major integrated companies such as Exxon. ExxonMobil shares have never traded under $60 in the past five years, let alone anywhere near a strike price of $40. However, shares of the oil giant are near five-year lows and could slide lower on a price decline in oil. Action to take: Investors should look for any opportunity to buy shares of the company under $70. At that price, shares have a dividend yield north of 5 percent and the company's long operating history makes it a solid buy. Speculators looking at a further downside in oil in the next few months would be better buying an option such as the April 2020 $65 puts. This gives investors plenty of time for a further drop in oil, but at a strike price that shares could potentially drop to. The April $65 puts trade for around $3.75 or $375 per contract, a reasonable price for a hedge on a surprise drop in oil.  |
| Insider Activity: FGL Holdings (FG) Posted: 04 Sep 2019 03:00 AM PDT
Major hedge fund owner adds to stake of life insurer. Hedge fund Blackstone Group, already a 10 percent owner, has added to FGL Holdings (FG) with a 167,000 share buy. With a cost of $1.3 million, it increases the fund's share count in FGL to just over 45 million shares. This is the second recent buy from Blackstone of FGL shares in the past week, with the second buy coming in at just under 290,000 shares at a cost of $2.3 million. Founded in 2016, FGL Holdings sells individual life insurance products and annuities in the United States. The company also provides reinsurance on life polices and annuities. Action to take: Life insurance policies have a higher threshold for making an underwriting profit relative to property and casualty insurance, making them less profitable than alternatives in general. The company's relatively low profit margins, underperformance relative to other insurers, and negative levered free cash flow point to a company where investors should trade with caution. Investors should hold off on buying shares until they get back near the 52-week low of under $6 per share. With shares near $8, there's too little profit and too much uncertainty priced in for the time being. With the limited number of options available, speculators in the insurance space should look elsewhere.  |
| Wolfe Research Upgrades Big Banks Posted: 04 Sep 2019 03:00 AM PDT
Trading revenue likely to rise in coming quarters. Although big banks have struggled as fears of lower interest rates indicate a slower economy and slower lending activity, some analysts are seeing potential upside ahead. In a research note, Wolfe Research upgraded big banks like JPMorgan Chase (JPM), Citigroup (C) and Bank of America (BAC), citing the likelihood to surprise investors with higher trading revenue in the coming quarters, "if activity levels hold steady." Additionally, lower funding costs for banks from the decline in interest rates could increase their profitability, even if new lending activity remains muted. While the overall levels may only boost the profits at bank trading desks by 10 percent or so, there could be more upside to shares given how unattractive these firms look to analysts right now. Action to take: While the big banks certainly look oversold, there is too much interest rate sensitivity, and other factors going into the banks besides trading desk revenues, which can vary even during periods of heightened trading. We remain cautious on the big banks, preferring smaller banks with more upside potential from deeper valuation, merger potential, and higher dividend yields to offset the risk of ownership. So while investors may want to avoid buying shares right now, speculators could consider buying call options on any of the big banks during a large market down day to bet on a short-term rebound.  |
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