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- Citigroup Sours on Altria-Philip Morris Merger
- Unusual Options Activity: Netflix (NFLX)
- Insider Activity: 8×8 (EGHT)
- Deutsche Bank Argues for Micron Rally
| Citigroup Sours on Altria-Philip Morris Merger Posted: 05 Sep 2019 03:00 AM PDT
Bank cites weak arguments for merger. Citigroup weighed in on the potential merger between tobacco giants Altria (MO) and Philip Morris (PM) —and sees little upside or reasons for shareholders to approve a deal at the current time. The evidence for a stronger merged company looks weak, and recombining the two companies back into one offers little upside for the business of either company. Philip Morris investors may even be worse off, as the international company would add the risks of investing in the U.S. tobacco market. Both tobacco companies have stated that they are "in talks" to potentially merge, but no substantial details how that would occur have developed. Altria spun off Philip Morris to create a division between its U.S.-based business and its international business. Action to take: With the tobacco stocks at multi-year lows and trading at relatively high dividend yields, both companies may try to take some increased action to boost the share price, even without a mega-merger. While some investors don't care for the tobacco companies, the companies aren’t disliked at these prices either. Altria shares look like a solid buy up to $45, and Philip Morris shares up to $75. Given the high dividend yields of both companies and the lack of apparent upside in shares anytime soon, speculators may want to look elsewhere for an options trade.
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| Unusual Options Activity: Netflix (NFLX) Posted: 05 Sep 2019 03:00 AM PDT
Shares to head higher through October. Over 10,500 contracts traded on the October $285 call option on Netflix (NFLX), a 76-fold increase in volume given the contract's prior open interest of 140. With 43 days to go before expiration, the option is a bet that shares will trend higher. Netflix shares trade around $288, putting these $285 calls $3 in-the-money. Any change in Netflix shares from here should cause the option to move dollar-for-dollar, less the decline of the remaining time premium. Netflix is set to post its next earnings report just before the option expires. The distributer and creator of media content has seen shares drop 20 percent in the past year, but still looks like an attractive buy here. Action to take: The option is an interesting bet, being already in-the-money with just over one month to go before expiration. Investors may want to pick up shares below $300. Speculators may want to look at a January 2020 option or later, given the relatively short duration of time left on the option. The October option, currently trading around $19, or $1,900 per contract, has about $1,600 of time premium that could easily disappear before shares can move higher. On a risk-reward basis, the trade looks too speculative unless it's for a quick profit before the company's next earnings report.
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| Posted: 05 Sep 2019 03:00 AM PDT
CEO adds over 3,000 shares. Vikram Verma picked up over 3,000 shares of 8×8 (EGHT), where he serves as CEO. The buy cost just over $73,000 and leaves the CEO with just over 889,000 shares of the company. This marks his second buy this year, following a 4,200 share purchase in August. Insiders have a mixed track record at the company, with these CEO buys being offset by sales by the Chief Product officer year-to-date. 8×8 is a cloud communications company offering solutions for small and midsized businesses worldwide. The company's business model includes software-as-a-service and also offers virtual office, communication, and workflow services. Action to take: While the cloud space looks like it will see further growth, 8×8 is still struggling with profitability as it expands. That explains some of the insider sales. With shares near their 52-week high of $26 per share, investors may want to wait to buy on a pullback to a lower price closer to the 52-week low, say $17.50. Should insiders make bigger bets, or should the company's fundamentals improve, shares will likely move up and down with the overall market for the time being. With the limited number of options trades available, speculators should look elsewhere to profit from short-term trends in the cloud space.
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| Deutsche Bank Argues for Micron Rally Posted: 05 Sep 2019 03:00 AM PDT
Business set to improve. A research note released by Deutsche Bank suggests that shares of Micron (MU) are set to rally, as the business is likely to improve. The analyst note suggests that the Q4 DRAM price action was a temporary trough for business. Other fears surrounding shares, specifically Japan-Korea trade issues, are unlikely to result in supply problems for Micron as well. Deutsche reiterated their "Buy" rating on Micron, with a price target of $55, about 17 percent higher than current prices. Micron manufactures and sells memory and storage solutions, including DRAM, Flash, and other data memory storage, including cloud storage and other services as well. Action to take: Shares of Micron still look attractive here, and have performed better than many other big tech names in the past year (we liked shares back in June under $35). At less than 6 times earnings, and with fat 37 percent profit margins, the company should trade substantially higher to trade in-line with other tech names. A price target of $55 is achievable for shares in the coming months. Speculators may want to look at the April 2020 $50 calls. Last trading for around $5.50, or just $550 per contract, these options could double in value should shares continue moving higher at the rate they have been in recent months.
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