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Analysts are weighing in today on mining magnate Freeport-McMoRan Inc (NYSE:FCX), semiconductor specialist Freescale Semiconductor Ltd (NYSE:FSL), and discount airline Southwest Airlines Co (NYSE:LUV). Here's a quick look at today's brokerage notes on FCX, FSL, and LUV.
- Shares of FCX are continuing to struggle -- down 3% today to $17.83, after touching a five year low of $17.65. The stock received price target cuts from no fewer than seven brokerage firms after reporting a drastic fourth-quarter loss last night (subscription required). Brean and BB&T both downgraded Freeport McMoRan Inc to "hold" from "buy," while Nomura and BMO both slashed their price targets by $5, to $30 and $23, respectively. Not surprisingly, sentiment in the options pits is nearing a bearish climax, with FCX's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.09 reading higher than 97% of all similar readings taken over the past year. Looking elsewhere, there's plenty of room for additional downgrades, as 75% of covering analysts rating the stock a "buy" or better, with no "sell" recommendations to be found.
- On the other hand, FSL is enjoying an 18.4% gain this afternoon to flirt with $31.20 -- and earlier notched a record high of $33.54 -- after releasing an impressive fourth-quarter earnings report last night. In response, at least 12 brokerage firms have raised their price targets on the stock, including a $10 hike from Needham to $45, which also raised its rating to "strong buy" from "buy," and an $8 increase from J.P. Morgan Securities to $29, which reiterated its "neutral" rating. However, Freescale Semiconductor Ltd bears could be spooked, with over 19% of the equity's available float sold short, which would take eight sessions for short sellers to cover, at average daily trading volumes. What's more, FSL's 10-day ISE/CBOE/PHLX put/call volume ratio of 2.39 sits in the 67th percentile of its annual range, showing a preference for puts over calls over the past two weeks. Traders were paying above-average prices for their short-term bets ahead of earnings, with FSL's Schaeffer's Volatility Index (SVI) of 57% reading higher than 65% of all similar annual readings.
- LUV has added 2.4% to trade at $46.98, and reached an all-time high of $47.08, after Credit Suisse raised its price target to $62 from $48 and upgraded its rating to "outperform" from "neutral." The upbeat attention is well-deserved, as LUV has advanced a staggering 128% over the past 52 weeks. However, sentiment in Southwest Airlines Co's options pits is still bearish, with its 50-day ISE/CBOE/PHLX put/call volume ratio of 0.31 reading higher than four-fifths of all comparable annual readings. An unwinding of pessimism amongst options traders could result in additional tailwinds for the soaring stock.
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Analysts are weighing in today on tech titan Apple Inc. (NASDAQ:AAPL), network infrastructure specialist Juniper Networks, Inc. (NYSE:JNPR), and video game guru Electronic Arts Inc. (NASDAQ:EA). Here's a quick roundup of today's bullish brokerage notes on AAPL, JNPR, and EA.
- AAPL has popped 8.3% out of the gate, after the company posted better-than-expected fiscal first-quarter earnings thanks to record iPhone sales. Wall Street has taken kindly to the news, with Apple Inc. receiving no fewer than 13 price-target hikes, including one to $160 from $143 at Cantor, and one to $130 from $125 at UBS, with both brokerage firms underscoring their "buy" ratings. While AAPL has been a long-term technical standout -- and is up 50.8% year-over-year -- the shares had more recently been lingering in the $106-to-$114 range, since topping out at an all-time peak of $119.75 in late November. Options traders have kept the faith, though. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day call/put volume ratio of 2.39 ranks in the bullishly skewed 71st annual percentile.
- JNPR received a bevy of bullish brokerage notes, as aggressive cost-cutting measures helped the company report stronger-than-forecast fourth-quarter earnings. Included in the bunch was a price-target hike to $25 from $22 at J.P. Morgan Securities, as well as an upwardly revised price target by $2 to $27 at Barclays, with both brokerage firms reiterating their "overweight" recommendations. On the charts, JNPR is up 6.7% at $23.30, and is poised to topple its 200-day moving average for the first time since July. However, the stock is still off 18% from its mid-February high of $28.39, and sentiment is tilted toward the skeptical side. Two-thirds of covering analysts maintain a tepid "hold" rating on the shares, while the average 12-month price target of $22.72 stands at a discount to JNPR's current price. Elsewhere, Juniper Networks, Inc.'s 10-day ISE/CBOE/PHLX put/call volume ratio of 1.76 ranks in the 88th annual percentile.
- EA is up 9.5% at the open to trade at $53.02 -- and hit a six-year high of $53.06 -- after the company's better-than-expected fiscal third-quarter earnings report was met with a round of positive analyst notes. Benchmark, for example, boosted its price target by $7.30 to $61.68 -- territory not charted since November 2005 -- while Brean Capital raised its target price by $3 to $57. Heading into today's session, the stock was up a modest 3% on the year, yet short-term speculators have shown a distinct preference for puts over calls. In fact, Electronic Arts Inc.'s Schaeffer's put/call open interest ratio (SOIR) of 1.72 ranks just 1 percentage point from a 52-week peak.
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Analysts are weighing in today on metal manufacturer AK Steel Holding Corporation (NYSE:AKS), software developer Open Text Corporation (USA) (NASDAQ:OTEX), and virtualization specialist VMware, Inc. (NYSE:VMW). Here's a quick roundup of today's bearish brokerage notes on AKS, OTEX, and VMW.
- AKS reported better-than-expected fourth-quarter earnings yesterday, but was nonetheless hit with a pair of price-target cuts from BMO (to $5) and Jefferies (to $4.75), with both firms reiterating the equivalent of a "hold" rating. Ahead of the bell, the shares are sitting nearly 3% higher, poised to extend yesterday's advance. Longer term, this represents a change of pace for AKS, considering the stock has shed more than two-fifths of its value in the last year to land at $4.25. If AK Steel Holding Corporation starts to make some headway on the charts, there's plenty of sideline cash to fuel a run higher. Specifically, 26.5% of AKS' float is sold short, which would take one week to buy back, at its typical daily trading levels.
- OTEX issued mostly disappointing fiscal second-quarter results last night -- highlighted by weaker-than-anticipated sales. The brokerage bunch responded with a trio of price-target reductions, from BMO (to $57), Credit Suisse (to $60), and National Bank Financial (to $60), with the latter pair downgrading the shares to the equivalent of a "hold" rating. However, Susquehanna boosted its price target on Open Text Corporation by $2 to $52. In electronic trading, the stock is sitting 5.5% below breakeven, threatening to take it south of year-to-date breakeven. Longer term, however, the shares have rallied more than 21% year-over-year to perch at $59.59. This technical tenacity has prompted a rush of bullish options betting on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Across those exchanges, OTEX's 50-day call/put volume ratio of 2.33 ranks in the 95th annual percentile.
- After issuing lackluster guidance, VMW was hit with no fewer than 10 price-target cuts -- the severest of which came from Cantor, which lowered its target to $82 from $88. On the flip side, Piper Jaffray boosted its price target by $5 to $74, but maintained its "underweight" opinion. It's been a rough year for VMware, Inc., which has dropped 15% in the last 12 months to rest at $80.61. Understandably, options traders are in the bears' corner, per VMW's 50-day ISE/CBOE/PHLX put/call volume ratio of 1.08 -- which sits just 1 percentage point from a 52-week peak. Ahead of the open, the stock is down 2.9%.
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Markets are poised to bounce back from Tuesday's steep losses, thanks to a round of well-received earnings reports. Elsewhere on the corporate front, today's stocks to watch include Internet issue Yahoo! Inc. (NASDAQ:YHOO), medical device maker ABIOMED, Inc. (NASDAQ:ABMD), and media and electronics firm Sony Corp (ADR) (NYSE:SNE).
- YHOO is up more than 4% in electronic trading, after the company announced it would spin off its $40 billion stake in Alibaba Group Holding Ltd (NYSE:BABA) into a separate investment company, SpinCo. The news was met with a round of bullish brokerage notes, including one from Jefferies, which boosted its price target by $8 to $61, and Cantor, which raised its target price by $17 to $60, with both brokerage firms reiterating their "buy" ratings. What's more, just two days after cutting its price target on YHOO, FBR upped its outlook by $2 to $58. Should Yahoo! Inc. continue to add to its 25.6% year-over-year advance, another round of price-target hikes could be on the horizon. At present, the stock's average 12-month price target of $51.36 stands at a slim 7% premium to last night's close at $47.99.
- ABMD is ready to rally 38% out of the gate -- and into record-high territory -- after the Food and Drug Administration (FDA) granted approval for the firm's heart pump, Impella RP. Additionally, ABIOMED, Inc. reported better-than-expected fiscal third-quarter earnings results, and upped its full-year revenue forecast. Wall Street was quick to weigh in on the news, with Jefferies raising its price target by $11 to $56, and Northland Securities upwardly revising its rating to "market perform" from "underperform." More bullish brokerage notes could come down the pike, considering the majority of analysts covering the shares currently maintain a "hold" or "strong sell" recommendation. Plus, the consensus 12-month price target of $38 stands at a discount to Tuesday's close at $38.63.
- SNE is reportedly planning to cut 1,000 jobs in its smartphone division -- adding to the 1,000 layoffs it announced in October -- sending the shares up nearly 4% ahead of the bell. On the charts, the stock has done well this year, tacking on nearly 13%. What's more, SNE hit a fresh three-year peak of $23.47 on Monday, before easing back to its current perch at $23.06. In spite of this, options traders have grown increasingly bearish, as evidenced by SNE's Schaeffer's put/call open interest ratio (SOIR) of 0.77, which ranks higher than 86% of similar readings taken in the past year. Simply stated, short-term speculators are more put-heavy than usual on Sony Corp.
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So what if I've now joined the entire world in saying that volatility will trend higher? It's easy to predict something into the ether. It's especially easy if you do it on TV, as there's no repercussion for making a bad prediction … and then coming back on the air three months later and making the same prediction again. And again … and again ... it will eventually look prescient.
I could do it here in print too. Suppose the CBOE Volatility Index (VIX) is 13 in July? I can just say that the overall long-term trend is higher, not some sort of "day versus day" with random endpoints. But I am actually saying it will trend higher over time -- and day-over-day comps are kind of meaningless through that lens.
A better lens is the year-over-year means that I ran yesterday. I do say the 2015 mean will end higher than the 2014 mean. But that's honestly an easy prediction. We've already booked a month of elevated (versus 2014) means in 2015; if nothing else it's a positive expected value call. It's not actually a value-added prediction, so I'll clarify it to say that it's a call on the next 11 months going forward.
But it's more important to see how the masses vote with their feet. VIX futures are a decent way to gauge expectations for future volatility. On the surface, it looks pretty "eh." Here's the current VIX term structure:
It's a modest premium to VIX itself, and it's relatively flat. Nothing to see here, right? Well, I always like comparing the term structure to other sessions that had a similar VIX backdrop. And here we go -- it's yesterday's term structure versus those on Oct. 24 and Feb. 7 of last year.
And as you can see, the volatility guess-timates going forward are indeed more bullish (for VIX) now than they were at similar backdrops in 2014. On the surface, that's bearish for volatility on a contrarian basis. But in context, I'm not so sure. We've now had nearly a year of repeated volatility pops. So it makes some sense to internalize that this is a more permanent sea change taking place. We're also further along in the long-term low-volatility regime, which suggests VIX is creeping up anyway.
So yes, people are indeed voting with their feet, and they're quietly saying "higher volatility." But it's tough to make the case that's anything but a sensible call.
Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.