Schaeffer's Trading Floor Blog

Analyst Downgrades: Microsoft Corporation, Altera Corporation, and Xilinx, Inc.

Analysts downwardly revised their ratings on Microsoft Corporation (MSFT), Altera Corporation (ALTR), and Xilinx, Inc. (XLNX)

by 3/30/2015 9:43 AM
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Analysts are weighing in on blue chip Microsoft Corporation (NASDAQ:MSFT), as well as semiconductor concerns Altera Corporation (NASDAQ:ALTR) and Xilinx, Inc. (NASDAQ:XLNX). Here's a quick roundup of today's bearish brokerage notes on MSFT, ALTR, and XLNX.

  • RBC cut its price target on MSFT by $3 to $47, but reiterated an "outperform" rating. Nevertheless, MSFT is higher along with its blue-chip peers. The company over the weekend said it's extending its deadline to re-negotiate its search partnership with Yahoo! Inc (NASDAQ:YHOO) by 30 days. What's more, Microsoft Corporation announced the release date (Oct. 27) for the fifth installment in its extremely popular "Halo" videogame series via a live-action commercial during the season finale of AMC's "The Walking Dead" television show. On the charts, MSFT has been a technical laggard of late -- largely due to a dismal earnings report in January -- with the shares down 10.9% year-to-date at $41.40. However, sentiment in the options pits has been nearing a bullish peak, as MSFT's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 2.15 ranks higher than 98% of all similar readings taken over the past year.

  • No fewer than three brokerage firms revised their opinions on ALTR this morning, after The Wall Street Journal reported that Intel Corporation (NASDAQ:INTC) is considering buying out the semiconductor firm. The report hit the Street late Friday, sending INTC significantly higher and ushering ALTR to a three-year peak of $45. Drilling down, Macquarie and Morgan Stanley both downgraded Altera Corporation to "neutral" or equivalent ratings, with the former raising its price target by $3 to $45, and the latter bumping its price target by $8 to $44. Today, the shares of ALTR -- which closed Friday at $44.39 -- are about 3.7% lower to hit $42.75, bringing their year-to-date lead to 15.7%. Puts have been prominent in the stock's options pits, as ALTR's 50-day ISE/CBOE/PHLX put/call volume ratio of 0.49 reads in the 80th percentile of its annual range.

  • XLNX -- which followed sector peer ALTR higher Friday -- woke up to a pair of downgrades, as both Morgan Stanley and MKM lowered their rating on the equity to "neutral" or equivalent opinions. At last check, Xilinx, Inc. is 2.2% lower at $41.40, steepening its year-over-year deficit to 23.7%. However, calls have been popular in the options pits, as XLNX's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.54 ranks in the 67th percentile of all similar readings taken over the past year.

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Buzz Stocks: UnitedHealth Group Inc., Teva Pharmaceutical Industries Ltd, and Horizon Pharma PLC

Today's stocks to watch in the news include UnitedHealth Group Inc. (UNH), Teva Pharmaceutical Industries Ltd (ADR) (TEVA), and Horizon Pharma PLC (HZNP)

by 3/30/2015 9:41 AM
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U.S. benchmarks are following their European counterparts into the green today. Meanwhile, M&A Monday is in full swing, with healthcare concern UnitedHealth Group Inc. (NYSE:UNH), as well as drugmakers Teva Pharmaceutical Industries Ltd (ADR) (NYSE:TEVA) and Horizon Pharma PLC (NASDAQ:HZNP) unveiling new acquisitions.

  • UNH is up 4% at the open -- and hit a fresh record high of $123.76 -- after the blue chip said it will purchase pharmacy benefit manager Catamaran Corp (USA) (NASDAQ:CTRX) in a deal valued at roughly $12.8 billion, or $61.50 per CTRX share. CTRX, meanwhile, has soared 24.6% to its own all-time peak of $60.24. Today's price move for UNH is more of the same, with the stock boasting a 50% year-over-year lead. Should UnitedHealth Group Inc. continue this momentum, another round of upbeat analyst attention could be on the horizon. Currently, the average 12-month price target for UNH sits at $127.19, just 3.5% from the equity's current perch at $122.87.

  • TEVA, meanwhile, announced it will acquire biotherapeutic firm Auspex Pharmaceuticals Inc (NASDAQ:ASPX) for about $3.2 billion in cash, or $101 per share of ASPX. This represents a roughly 42.4% premium to the latter's close at $70.91 on Friday. Technically speaking shares of Teva Pharmaceutical Industries Ltd have put in a solid performance this month, adding 10% thus far. Additionally, the stock hit a multi-year peak last Monday, but was last seen trading at $62.79. In the options pits, put buying has picked up speed in recent weeks. Specifically, TEVA's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio has jumped to 0.74 from 0.06 over the past two weeks, and now ranks in the 69th annual percentile.

  • HZNP will increase its portfolio for treating genetic disorders with its roughly $1.1 billion purchase of Hyperion Therapeutics Inc (NASDAQ:HPTX). This equates to about $46 per share of HPTX, which closed Friday at $42.74. HZNP is up 14.2% out of the gate -- and hit its highest perch on record of $25.50 in early trading. However, the stock has already put in a strong showing in 2015 -- thanks in part to a stellar quarterly earnings report in late February -- tacking on 93% to trade at $24.91. Against this backdrop, sentiment is skewed toward the bullish side. At the ISE, CBOE, and PHLX, Horizon Pharma PLC's 50-day call/put volume ratio of 6.38 rests higher than 79% of similar readings taken in the past year. Additionally, five analysts have levied a "strong buy" rating toward the equity, versus one "hold" and not a single "sell."

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How to Prove Your VIX Thesis in One Easy Step

Arbitrary time frames are the key to calling 'trends' in the CBOE Volatility Index (VIX)

by 3/30/2015 9:29 AM
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I know I harp on this a lot, but TV seems dedicated to giving the impression of a volatility surge that just doesn't exist. Here's something I heard Friday: "VIX is up 18% in this really volatile week."

Now, that's factual -- or rather, I presume it was factual when the host said it. Even with Friday's volatility sell-off, the CBOE Volatility Index (VIX) rallied a shade under 15% on the week. But it's a really misleading characterization of the current state of volatility.

Using percentages to contextualize moves when the absolute value of the underlying is low always serves to mislead. If I said, "VIX was up 2 points this week," I would get nothing but yawns. But that's what happened. Conversely, if I said, "VIX rallied 15% this week!!!!", you would take more notice. So, I totally get why TV sticks toward the latter. But it doesn't make it a good way to describe what's going on. As an investor/trader, it's much better to view VIX (or any volatility indicator) in point moves and point premiums (realized vol vs. implied vol) as opposed to percentage moves.

Even if we set that aside and use percentage moves, that statement of "18% VIX POP!" still serves to mislead. It just picks an arbitrary endpoint and uses it as gospel. Remember all the way back two weeks ago? The investing world waited with bated breath as the Fed descended from Mt. Sinai with their "Biggest Statement Ever." On March 17, VIX closed at 15.66. And then, on March 18, it suffered its third worst percentage decline of 2015.

Someone could have come on TV last Friday and said "VIX down 4% in sleepy eight-day trading stretch." In other words, you can prove any volatility thesis quite easily these days. Just pick the right endpoints. I would best describe VIX as "meandering within a modest range." It has closed between 13 and 17 every session since February 11 -- and it's right in the middle of that range now.

Ten-day realized volatility in the S&P 500 Index (SPX) sits in the low 13s now, a bit off the recent highs, but considerably off the lows of early March, near 4. So, it's fair to say actual volatility had an upswing this past month, even if forward-looking implied volatility really didn't do much. But much of that pop is already in the rearview.

I do believe that the basic confusion lies in the frequent definition of market volatility as "stocks not going up." And in that context, yes, the churn of 2015 does equal "volatility." But by the actual definition of volatility, we're neither here nor there right now.

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

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Analyst Upgrades: The Madison Square Garden Company, Analog Devices, Inc., and BioMarin Pharmaceutical Inc.

Analysts upwardly revised their ratings on The Madison Square Garden Co (MSG), Analog Devices, Inc. (ADI), and BioMarin Pharmaceutical Inc. (BMRN)

by 3/30/2015 9:27 AM
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Analysts are weighing in today on entertainment issue The Madison Square Garden Co (NASDAQ:MSG), semiconductor firm Analog Devices, Inc. (NASDAQ:ADI), and biotech BioMarin Pharmaceutical Inc. (NASDAQ:BMRN). Here's a quick roundup of today's bullish brokerage notes on MSG, ADI, and BMRN.

  • MSG announced on Friday evening plans to split into two publicly traded companies. The news has been met with applause on the Street, where Stifel upped its price target on the stock to $90, Morgan Stanley raised its target to $94 and its rating to "overweight," and Topeka Capital boosted its opinion to a "buy." Also, the shares are sitting about 6% higher ahead of the bell, putting them on track for an all-time peak out of the gate. Longer term, The Madison Square Garden Co has been a technical beast, adding more than 42% year-over-year to trade at $80.73 -- just a chip-shot from its record high of $81.62, touched last Wednesday. That said, additional bullish notes could be on the way, considering 80% of covering analysts rate MSG a "hold," and its consensus 12-month price target of $82.81 is just a stone's throw away.

  • Barclays boosted its assessment of ADI to "overweight" from "equal weight," and its price target to $70 from $55, citing a contract the company has in place with Apple Inc. (NASDAQ:AAPL) as one reason for optimism. As such, the shares are pointed 5% higher in electronic trading, which could help them overcome recent sector-wide headwinds, and add to their 6% year-to-date advance as of Friday's close at $58.84. What's more, as recently as March 20, Analog Devices, Inc. hit a 14-year high of $61.32. In the options pits, though, puts have been much more popular than calls. 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 3.83 indicates nearly four puts have been bought to open for every call during the past two weeks. This ratio ranks in the 91st percentile of its annual range.

  • Finally, BMRN saw its price target upped to $151 from $125 at SunTrust Robinson, which also reiterated a "buy" assessment. This development has the shares perched 2% higher ahead of the bell. From a longer-term perspective, BioMarin Pharmaceutical Inc. has nearly doubled in value on a year-over-year basis, and is within striking distance of its all-time peak of $133.54, reached on Friday. Not surprisingly, the brokerage crowd is largely in BMRN's bullish corner. Thirteen of 16 covering analysts have handed out "buy" or better ratings, compared to three "holds" and not a single "sell." However, the equity's consensus 12-month price target of $123.63 -- a discount to Friday's close at $128.78 -- suggests more room is available for additional price-target hikes.

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Calls Popular as Skyworks Solutions, Inc. (SWKS) Bounces Back

Skyworks Solutions Inc (SWKS) traders are buying April calls

by 3/27/2015 1:50 PM
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Skyworks Solutions Inc (NASDAQ:SWKS) is roughly 4.7% higher at $97.43, erasing some of the losses from a semiconductor swoon earlier this week. Although the shares are still down more than 4% on the week, SWKS has been a technical outperformer, up 165% year-over-year and just off an all-time high of $102.77 on March 23. Some speculators are betting on SWKS to resume its journey to new highs in the next month, as call activity in the options pits is heating up.

In afternoon action, calls are changing hands at three times the average daily rate, and have nearly tripled puts in volume. Among the most active contracts are the April 92 and 96.50 calls, where potential buy-to-open activity has been detected. By purchasing these calls, traders expect the security to continue its push above the respective strikes through the close on Friday, April 17, when the options expire.

However, today's appetite for calls marks a change of pace in the options pits. Before today, puts had been more popular than usual, as SWKS' 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.46 stands in the 89th percentile of its annual range.

On the other hand, the brokerage bunch has been very optimistic on Skyworks Solutions Inc (NASDAQ:SWKS). Out of the 14 analysts covering the stock, 12 rate it a "strong buy" with the remaining two doling out ambivalent "hold" ratings. What's more, SWKS' average 12-month price target of $96.82 sits below current trading levels, implying that more bullish brokerage attention could be on the way.

Daily Chart of SWKS Since March 2014

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