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Option Volume Surges on this Home Décor Superstore as Earnings Approaches

Posted: 21 May 2020 04:30 AM PDT

If you've never been in an At Home Group Inc (HOME) superstore, you're really missing out. So many home décor options, reasonable prices and did I mention all of the options? While the store may be attractive for people looking to decorate their home, the hard reality of our current economic climate makes the prospects for HOME really intriguing.

On the positive side, the company was quicker to reopen than many other companies. They opened nearly half of their stores on May 1. The company does offer online options and store pick-up that may have helped sales limp along. Analysts are currently projecting a 1Q loss of $0.30, which is down from $0.03 a year ago. The earnings have been downgraded from $0.04 to the current estimate within the past 60 days. The question is whether the bar is lowered enough for it to jump over and if it will prompt its 26% short interest to cover.

With earnings coming up on June 4, after the market closes, we'll get to see how they did.

On Wednesday, call volume surged to over 27,000 contracts, which is over 8 times the average. 39% of the volume was traded at the ask and 30% between the market. Where the activity was most interesting was for the 17 JUL 20 $5 call option. It traded over 18,000 contracts at the end of the day, but 9,000 contracts bought early in the session.

Action to Take: The stock has made a significant move over the past week. It's a bit overbought at the moment leading into the earnings, but the intermediate-term potential if for the stock to retest its February high near $7.50.

Speculators may want to consider the 17 JUL 20 4/5 long call vertical for around $0.35. The max gain of $65 or 185% ROR is achieved if the price is above $5 by expiration. Consider closing early for $0.75 or more.

5 Ecommerce Companies that Have Thrived Amidst COVID-19 Closures

Posted: 21 May 2020 04:30 AM PDT

As storefronts were being forced to shutter as part of the lock-down that COVID-19 prevention policies required, it accelerated an already rapidly changing shift to online shopping. For example, year-over-year (YOY) online revenue growth through mid-April increased 68%. That is higher than its earlier peak in January at 49%.

As regulators call for a "new normal" going forward under the best of circumstances, it is becoming increasingly clear that the changes we're seeing in spending patterns may be more permanent than anyone would have imagined in January. That means this paradigm shift of virtual services and online buying will likely be with us for the foreseeable future.

As an investor, it's important to figure out who's likely going to be winners in those "new normal." There is the obvious example of Amazon.com Inc (AMZN), but what are the real growth opportunities.

The following is a list of companies that have proven their resilience and likely their role in the "new normal."

Ecommerce Company #1: Wayfair Inc (W)

In 2019, the U.S. home category for online sales increased to $39 billion. That's an increase of $5.1 billion from 2018. Of the $5.1 billion increase, Wayfair estimates that they took home nearly $2 billion of the increase in sales. Not only does it appear that their market share increased, it is an indication that they may take home 38% of additional online spending in this category.

While Wayfair is currently generating negative non-GAAP EPS, expectations are improving since the last report and revenue projections are significant. Current analyst estimates for 2020 and 2021 revenue growth is 20% and 19.9% respectively. EPS estimates for 2020 have increased from a $9.04 loss to $8.67 in the past 30 days. EPS estimates for 2021 have similarly increased from a loss of $8.08 to $7.02 within the past 60 days. Analyst estimates for their projected 5-year EPS growth is 14%.

So far, year-to-date the company is up nearly 70%. Since the earnings, the company has pulled back, but in the longer-term, this company may have the best opportunity to shine.

Ecommerce Company #2: Shopify Inc (SHOP)

Shopify is a cloud-based shopping cart solution for small and medium-sized businesses. The business owner pays a monthly fee and they're able to create an online store to sell their products. In their recent earnings report, the company saw a 62% increase in new stores created from March 13, 2020 to April 24, 2020.

Current analyst estimates for 2020 and 2021 revenue growth is 25.5% and 37.7% respectively. EPS estimates for 2020 have decreased from a $0.14 profit to a $0.09 loss in the past 30 days. EPS estimates for 2021 have similarly decreased from a profit of $0.71 to $0.54. Analyst estimates for their projected 5-year EPS growth is 48.91%.

So far, year-to-date the company is up over 85%.

Ecommerce Company #3: Everquote Inc (EVER)

Everquote is an online marketplace for insurance. If you were ever more inclined to purchase insurance online it is probably now. In the first quarter, EVER delivered 56% revenue growth and variable margin growth of 72%. One of the issues with online shopper is they come to you page and don't move forward, and you don't capture their information.  The company saw an 80% increase in quote request volume.

Current analyst estimates for 2020 and 2021 revenue growth is 28% and 22% respectively. EPS estimates for 2020 and 2021 have remained stable in the past 30 days at a loss of $0.20 and $0.01, respectively. Analyst estimates for their projected 5-year EPS growth is 151.8%.

So far, year-to-date the company is up over 42%.

Ecommerce Company #4: Chewy Inc (CHWY)

Chewy is an ecommerce company that sells pet food, supplies, medications and other pet-related products. With people staying at home and acquiring new animals, it seems like it's in a good position. The company saw net sales grow 35% and operating margins expand by 3.2%. The net loss of $252.4 million included share-based compensation of $136.2 million.

Current analyst estimates for 2020 and 2021 revenue growth is 33.6% and 19.1%, respectively. EPS estimates for 2020 have decreased from a $0.48 loss to $0.51 in the past 30 days. EPS estimates for 2021 have increased from a loss of $0.28 to $0.24 within the past 30 days. Analyst estimates for their projected 5-year EPS growth is 132.1%.

So far, year-to-date the company is up over 32%.

Large Seller of this Company Really Stands Out

Posted: 21 May 2020 04:30 AM PDT

PNC Financial recently completed its sale of BlackRock, inc. (BLK). The sale, after some options were exercised, added up to nearly 33.5 million shares and nearly $14 billion in value. The investment in BlackRock was a profitable one for PNC, but they are selling at a time where cash is king. The management, commenting on the sale, said that the company needed to raise cash to bolster their balance sheet.

Beyond just the liquidity considerations, the sale allows PNC to get out of regulatory obligations. As formerly a 10% owner and the largest investor in BLK, does this mark the time to sell for other investors? The position was held for over 20 years. There's speculation that the cash can be used for the company to make an acquisition, like they did in 2008 with National City Corp. However, that opportunity may not arise without more market volatility and further downside.

Nobody knows the perfect time to sell, but the timing and the amount of volume traded leading up to its completion makes you wonder if BlackRock's magic is running out as the Fed steps in to buy bond ETFs and selects BLK to facilitate it. The reality is that some of their products may not have the degree of liquidity that investors think is available. Carl Icahn spoke of the exact issue in 2015.

Action to Take: BLK is a short opportunity with a close below $450 with a $350 price target.

Speculators may want to consider the 17 JUL 20 510/500 long put vertical for around $4.50. The max gain of $550 per contract or 122% ROR is achieved if the stock closes below $500 at expiration. Consider closing the trade for $8 or more.

Option Traders Looking for Profits, Not Just Clearer Vision

Posted: 20 May 2020 04:30 AM PDT

Bausch Health Companies Inc (BHC) produces and sells pharmaceutical, medical device and over-the-counter (OTC) products used for eye health, gastroenterology and dermatology. If you have contacts, it's hard to avoid their products for lens care.

The company is working on potential treatments for COVID-19. They have an antiviral nebulizer called Virazole that is intended to help with respiratory distress. The product is in clinical trial in Canada. They're also working toward clinical trials in the U.S. of Xifaxan. This drug is intended for gastrointestinal distress and pulmonary compromise associated with COVID-19.

Over the past week, option traders and insiders have been migrating toward BHC. On May 12 through May 14, John Paulson, director at BHC, bought 5 million shares, increasing his position by 25%. On Monday, option traders began to buy 22 MAY 20 $18 calls for as much as $0.27, and then on Tuesday began buying the 29 MAY 20 $18 calls for around $0.65. The option activity on Tuesday was over four times the average with 42% occurring at the ask price.

Action to Take: BHC is a long opportunity with a near-term price target of $24.

Speculators may want to consider the 17 JUL 20 $17 call option for around $2.30 or less. The option will be worth $7 if the price is at $24 by expiration for over a 300% ROR. Consider rolling that strike to a higher strike price with a 0.60 to 0.70 delta if the option delta goes from 0.65 to 0.80. This process allows you to remove risk and eventually lock in gains as the price continues to advance.

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Insiders of this Company May be Buying Their Own Products but Are Selling Their Stock

Posted: 20 May 2020 04:30 AM PDT

It's hard to avoid the products of Proctor and Gamble Company (PG). You're literally being touched by one of their products every day and the demand for them tends to be fairly stable no matter how the economy is doing. That's what defines consumer staples and specifically companies in the personal and household products industry. PG is the top holding in the Consumer Staples Select Sector SPDR Fund (XLP) at 16.25%.

With that understanding, it's hard to understand why PG is the second-most sold company in shares and in terms of value since April 1, 2020. In fact, the selling began on April 20, 2020, the day after an earnings report that beat analyst estimates.

The selling occurred across 6 different transactions and four different insiders. Since April 20, 20.25 million shares have been sold for a cumulative value of $2.36 billion. Most of the selling was done by Trian Find Management, who has reduced their position from over 30 million shares to 10.8 million since April 22. The most recent sell transaction was for 8.57 million shares on May 15. Typically, these large shareholders sell when the outlook of the company begins to fade.

Action to Take: The price has been retracing for a few weeks since the earnings and declined around 3% on Tuesday. There is potential for an oversold bounce to $125 if the price closes above its $116.50 resistance.

The stock is a short opportunity on a close below $111 with a target of $100. The objective is to use the insider activity to reduce bullish expectations on a positive move or go bearish on a break of support.

3 Top Performers Trading Below Their 52-Week Highs

Posted: 20 May 2020 04:30 AM PDT

One of the difficult things with the market at its current level is that its at a crossroads. Does the S&P 500 hold $2950 and run to the all-time high, or is it vulnerable for a more significant pull-back at the current level?

There isn't a clear answer to this. As you look at what's happening to earnings projections for the next couple quarters and the current fiscal year, it should raise all sorts of concerns about the intermediate term risk and reward of being long the market. However, with tremendous Federal Reserve stimulus, there is the tendency for investors to just go with it.

As you look for opportunities, do you want companies that have taken off on a rocket ship and trading at exorbitant prices, or do you look for strong performers that are still trading below their 52-week high?

This list focuses on those companies that have a market cap over $500 million, trading with reasonable liquidity, trading below their 52-week high, but have been some of the best performers in the 1-month, 3-month and 6-month timeframes. The final criteria is that the 1-week performance has to be less than 5%.

Top Performer #1: Farfetch Ltd. (FTCH)

Farfetch Limited (Farfetch) is a technology platform for the global fashion industry. The Company operates the global digital marketplace at scale, connecting brands, retailers and consumers. The CEO and Co-Chair Jose Neves discussed the current COVID-19 climate for their business in their most recent earnings announcement:

"But one thing that has become evident over the past weeks, is that the world will not go back to the same 'normal' as we knew it pre-COVID-19. As we consider the structural changes that will likely impact the luxury industry, I am confident that our unique set of capabilities position Farfetch to be even stronger in the future."

The company is currently trading nearly 35% below their 52-week high, but has risen 55% in the past 6 months, 16% in the past 3 months and 20% in the past month. The price is currently testing its support near $13.50 and is a long opportunity on a close above $15.

Top Performer #2: Range Resources Corp (RRC)

Range Resources Corporation is an independent natural gas, natural gas liquids (NGLs) and oil company. The Company is engaged in the exploration and production of natural gas, NGLs and oil in the United States. Commenting on the challenges of the current environment, CEO Jeff Ventura said:

"The Range team has met the unique challenges of working through this pandemic with dedication and compassion, making sure that our business plans remains on track, while prioritizing health and safety. Range continues to make steady progress on key near-term objectives: improving our cost structure, bolstering liquidity, and operating safely while maintaining peer-leading capital efficiency. These efforts have positioned Range to successfully navigate the current commodity environment and benefit from an improved outlook for natural gas and natural gas liquids, particularly given Range's peer-leading drilling inventory."

The company is currently trading nearly 35% below their 52-week high, but has risen 51% in the past 6 months, 81% in the past 3 months and 22% in the past month. The price is currently bouncing off of its support near $4.89 and is a long opportunity with a close above $6.75.

Top Performer #3: Merit Medical Systems (MMSI)

Merit Medical Systems, Inc. is a manufacturer and marketer of disposable medical devices used in a range of interventional, diagnostic and therapeutic medical procedures. The Chairman and CEO Fred P. Lampropoulos discussed the limitations and the effect on their business during their most recent report where they suspended guidance:

"The COVID-19 pandemic has been a historic shock to the economy, our industry and our country. I have been very impressed with how my colleagues at Merit have come together to support our customers, our patients and our company. While we anticipate headwinds in several of our business lines, I am confident that the diversity of the business, the strength of our people and our strong balance sheet position us well for recovery when that becomes more clear."

The company is currently trading nearly 21% below their 52-week high, but has risen 61% in the past 6 months, 6% in the past 3 months and 14% in the past month. MMSI is a long opportunity with it's close above it's recent resistance around $43 on above average volume.

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