Schaeffer's Trading Floor Blog

Buzz Stocks: Citigroup Inc, Wal-Mart Stores, Inc., and Aegerion Pharmaceuticals, Inc.

Today's stocks to watch include C, WMT, and AEGR

by 10/31/2014 9:20 AM
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The market is ready to rally this morning, after the Bank of Japan (BoJ) announced a fresh stimulus plan overnight. Among specific equities to watch today are financial firm Citigroup Inc (NYSE:C), retailer Wal-Mart Stores, Inc. (NYSE:WMT), and drugmaker Aegerion Pharmaceuticals, Inc. (NASDAQ:AEGR).

  • C downwardly revised its third-quarter profit to $2.8 billion from $3.4 billion -- resulting in a per-share decrease of 19 cents to 88 cents -- due to a "$600 million increase in legal accruals." Additionally, Citigroup Inc said it is being investigated by five domestic and international agencies over its forex operations. On the charts, the equity has rallied more than 10% since hitting an intraday low of $48.11 -- two sessions after it initially unveiled its third-quarter results -- toppling the round-number $50 mark along the way. This uptrend hasn't convinced option traders, though, as evidenced by C's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.70, which ranks just 7 percentage points from an annual bearish peak. On Thursday, C closed at $53.15.

  • It's Halloween, but retailers like WMT and, Inc. (NASDAQ:AMZN) have their sights set on the holiday shopping season. This weekend, in fact, Wal-Mart Stores, Inc. is unveiling its first round of massive price cuts, attempting to lure in an early round of bargain hunters ahead of its rivals. Technically speaking, WMT is sitting on a 2.8% year-to-date deficit, but is positioned to pare a portion of this in today's session, with the stock up about 0.7% ahead of the bell. Option traders are keeping the faith, per the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 5.53, which ranks higher than all other readings taken in the past year. Analysts, meanwhile, are more skeptical -- the consensus 12-month price target of $78.84 for WMT stands just 3.1% above the equity's current perch at $76.45.

  • AEGR is poised for a 32% plunge out of the gate -- and to hit a new annual low -- after the company reported worse-than-expected third-quarter earnings, and downwardly revised its full-year revenue forecast. The news was met with a round of bearish brokerage notes, including a downgrade to "hold" from "buy" at Needham, and a price-target cut to $25 from $36 at Cowen and Company. Today's projected price move only echoes the withstanding technical troubles of a stock that's shed nearly 52% in 2014 to churn near $34.21. Should the security's struggles continue, analysts could continue to reduce their ratings on Aegerion Pharmaceuticals, Inc. At present, 88% of those covering the shares maintain a "strong buy" suggestion, with not a single "sell" to be found. Additionally, the average 12-month price target of $57.33 sits at a 68% premium to present trading levels, and in territory not charted since early March.

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Analyst Upgrades: Expedia Inc, GoPro Inc, and Yahoo! Inc.

Analysts upwardly revised their ratings on EXPE, GPRO, and YHOO

by 10/31/2014 9:04 AM
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Analysts are weighing in today on travel website Expedia Inc (NASDAQ:EXPE), mobile camera concern GoPro Inc (NASDAQ:GPRO), and Internet media mogul Yahoo! Inc. (NASDAQ:YHOO). Here's a quick roundup of today's bullish brokerage notes on EXPE, GPRO, and YHOO.

  • Following a better-than-expected third-quarter earnings report, EXPE was met with a round of price-target hikes from no fewer than nine brokerage firms. Most ambitious thus far was Benchmark, which lifted its target to $97 from $94 and echoed a "buy" rating. As a result, the shares -- which are already up nearly 16% in 2014 to trade at $80.73 -- are 4% higher ahead of the bell. Should Expedia Inc sustain this upward momentum, it could result in a short-covering rally, as 10.6% of the stock's float is currently sold short.

  • GPRO has surged more than 15% ahead of the bell, after posting stronger-than-anticipated third-quarter results and current-quarter guidance. The analyst community also cheered these results, as J.P. Morgan Securities, Baird, and Wedbush raised their respective price targets on the equity, and the latter reiterated an "outperform" recommendation. On the charts, GoPro Inc has been volatile since its public debut in late June -- jumping as high as $98.47 earlier this month, but sagging in recent weeks to its current perch at $68.25. That said, if the shares can resume their previous uptrend, a capitulation among the remaining skeptics -- and/or additional bullish initiations -- on Wall Street could spell tailwinds. Specifically, eight out of 11 covering analysts rate GPRO a "hold" or "strong sell," compared to just three total "buy" recommendations.

  • Finally, J.P. Morgan Securities resumed coverage of YHOO with an "overweight" opinion and $55 price target. Technically speaking, the shares have posted a strong year-over-year performance, rallying 38.5% to settle at $45.63. Nevertheless, in recent weeks, options traders have placed downside bets over bullish at a faster-than-usual pace. Specifically, the stock's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.42 ranks in the 89th percentile of its annual range. A capitulation among these option bears could buoy Yahoo! Inc. going forward.

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Oil Bears: Smart Money, or Contrarian Signal?

What heavy put volume on the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) means for contrarians

by 10/31/2014 8:53 AM
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Even though the market has recovered most of its gains, oil really has not. The rolling crude near-ish future (now December) peaked at $107.68 in late June, and then dropped to just under $80 by mid-October. It bottomed at $79.44 on Monday, and is still hovering near $80.

And, all that punk action has of course transferred into stocks in the industry, and lately has sparked a flood of put trading. This, via Bloomberg:

Even after valuations for an index tracking the shares slumped 40 percent, investors are loading up on bearish options. The cost of puts on the SPDR S&P Oil & Gas Exploration & Production ETF jumped to the the [sic] highest level in seven years versus calls. The exchange-traded fund tracks companies including Exxon Mobil Corp., Chevron Corp. and ConocoPhillips, which are down more than 9 percent from their highs this year.

… Companies in the index that the oil ETF (XOP) tracks trade at 26.6 times reported earnings, data compiled by Bloomberg show. Multiples fell as much as 39 percent from June to a one-year low on Oct. 14. The benchmark Standard & Poor's 500 Index has a valuation of 17.6 times.

Both volume and the number of options outstanding on the oil ETF surged this month, and nine out of the 10 most-owned contracts are bearish. Those hedging against a 10 percent decline in the fund cost 10.7 points more than calls betting on a 10 percent gain on Oct. 28, according to three-month implied-volatility data compiled by Bloomberg. That's the widest spread since September 2007.

On the surface, it sounds bullish, from a contrarian basis. It's an old saying that you want to get greedy when others are fearful, and there sure is plenty of fear around.

Implied volatility in the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) did make quite the move, as well. The XOP "VIX" was as low as 21 in late August, then peaked as high as 58 in mid-October. Then again, that's pretty much in line with the percentage move in the actual CBOE Volatility Index (VIX). Unlike the actual VIX, though, XOP volatility has only dropped back to the low 40s.

One warning, though: Be careful deriving too much signal when options are telling you the same story as the stocks themselves. If we saw all this put interest while the energy patch was booming, it would tell me that no one believes in the boom, and the public at large is trying to catch a top. That rarely works in the aggregate. But, a spike in put interest in a weak group? That makes some sense.

Now, don't get me wrong: I'm not saying that action is bearish. It's not likely "sharps" are loading up on puts now. It's just that it's a weak bullish signal.

It is interesting that XOP has recovered better than crude itself. It bottomed at $52.15 in mid-October, about when crude was first hitting lows. It has since popped to the mid-$59s. So, maybe the masses already have backed up the volatility truck at the bottom? If nothing else, it's a level to lean against.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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U.S. stocks are mixed at midday, with blue-chips enjoying a halo lift from Visa Inc (NYSE:V), while tech stocks are sticking close to the flat line. Among equities attracting the attention of analysts are electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA), as well as battered commodity concerns Barrick Gold Corporation (USA) (NYSE:ABX) and Goldcorp Inc. (USA) (NYSE:GG).

  • TSLA is down 0.4% at $237.15, despite a fresh "buy" initiation and $320 price target at Ascendiant Capital. The brokerage firm opined that TSLA's "valuation will increase on growth from new product introductions and geographic expansions," and said it's "remarkable … that the traditional automobile industry is unable or unwilling to respond to this clear threat" from Tesla Motors Inc's Model S. On the charts, TSLA remains nearly 58% higher year-to-date, but option traders have grown increasingly put-heavy ahead of the company's earnings release next Tuesday night. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.54 sits just 3 percentage points from a 12-month peak, suggesting short-term traders have rarely been more put-biased during the past year.

  • ABX is down 4% at $12.32, and earlier touched a new 22-year low of $12.20, due to the combination of sinking gold prices and concerns about the company's Lumwana copper mine. While Barrick Gold Corporation (USA) reported stronger-than-expected quarterly earnings, the firm said it will cut debt next year to curb weak gold prices, and warned that it may be forced to close its Zambia-based mine if the government executes a plan to hike mineral royalties. While Cowen and Company lifted its price target on ABX to $10.96 from $10.90, BMO trimmed its target to $17 and reiterated a "market perform" rating. Outside of the analyst community, ABX's recent crop of option bears are likely cheering today's post-earnings swoon, though the stock has yet to breach the recently popular 12 strike.

  • In similar fashion, GG is 10.2% lower at $19.33, and earlier touched a near-six-year low of $19.19, after confessing to weaker-than-expected third-quarter earnings. The stock is now 10.8% lower year-to-date, yet analysts at J.P. Morgan Securities said now could be an opportune time to buy Goldcorp Inc. (USA) on a dip. "The market should look through this result to the stronger company with a portfolio of young, lower-cost assets that should crystallize by year-end market," the brokerage firm said. Most analysts are already in GG's bullish camp, as the stock boasts 10 "buy" or better endorsements, compared to five "holds" and just one "sell." Likewise, the consensus 12-month price target of $36.02 represents a premium of 86.3% to GG's current price. Should the shares extend their retreat, a round of downgrades and/or price-target cuts could exacerbate selling pressure on the equity.

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Stocks On the Move: Visa Inc, TASER International, Inc., and Twitter Inc

V, TASR, and TWTR are moving sharply in Thursday's trading

by 10/30/2014 12:44 PM
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Markets are mostly higher at midday, with credit card concern Visa Inc (NYSE:V) helping send the Dow to a triple-digit lead. Among other equities seeing notable moves are stun gun maker TASER International, Inc. (NASDAQ:TASR) and microblogging giant Twitter Inc (NYSE:TWTR). Here's a quick look at how V, TASR, and TWTR are performing on the charts so far.

  • V's better-than-expected fiscal fourth-quarter earnings report -- and upbeat outlook for the mobile payment industry -- was met with a round of price-target hikes, including one from Morgan Stanley, which upped its outlook by $22 to $270, while underscoring its "overweight" rating. FBR also weighed in, raising its recommendation on Visa Inc to "outperform" from "market perform." Against this backdrop, the shares have surged 9% to trade at $234.06 -- into the black on a year-to-date basis -- after earlier tagging a fresh record peak of $235.53. Today's bullish gap is most likely disappointing option traders, who had grown increasingly bearish on the equity in the months leading up to last night's report. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the stock's 50-day put/call volume ratio of 0.98 ranks just 6 percentage points from a 52-week peak.

  • Also surging in the wake of a strong earnings report is TASR, which was last seen 7.3% higher at $17.67. Heading into today's session, the stock was sitting on a modest 3.7% year-to-date gain, and should the security continue its post-earnings momentum, a capitulation from some of the weaker bearish hands could help propel TASR higher. On the options front, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.58 ranks in the 89th percentile of its annual range, meaning short-term speculators have rarely been as put-skewed toward TASR as they are now. Elsewhere, short interest jumped 28.2% over the past two reporting periods, and now accounts for more than 16% of the stock's available float. What's more, it would take more than four sessions to cover these bearish bets, at TASER International, Inc.'s average daily pace of trading.

  • TWTR is still reeling in the wake of its earnings report , and last night, was dealt another fundamental blow when it was reported two of the company's key executives were hitting the bricks. The stock is down 0.8% at $41.73 as a result, and earlier breached the round-number $40 mark for the first time since late July. Thanks to today's slide, the equity is on pace to log a weekly loss of more than 16%. Given Twitter Inc's recent struggles, the door is wide open for a round of downgrades and/or price-target cuts, which could pressure the shares even lower. In fact, more than half of analysts covering the security maintain a "buy" or "strong buy" rating, while the consensus 12-month price target of $52.06 stands at a 24.3% premium to current trading levels.

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