Schaeffer's Trading Floor Blog

Analyst Update: Aruba Networks, Inc., Priceline Group Inc, and Verizon Communications Inc.

Analysts offered their two cents on ARUN, PCLN, and VZ

by 11/24/2014 1:28 PM
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U.S. stocks are flat in early afternoon action, as traders sit on the sidelines amid a holiday-shortened week. Among equities attracting the attention of analysts are tech concern Aruba Networks, Inc. (NASDAQ:ARUN), travel site Priceline Group Inc (NASDAQ:PCLN), and telecom issue Verizon Communications Inc. (NYSE:VZ).

  • ARUN is 1.6% higher at $19.12, paring a portion of Friday's 13.7% post-earnings plunge. In fact, Raymond James waxed optimistic on Aruba Networks, Inc., predicting the company will "grow 17% this fiscal year" -- outpacing expected industry growth -- "while expanding margins at the same time." As such, the brokerage firm upgraded ARUN to "outperform" from "market perform," overshadowing a downgrade to "underperform" from "neutral" at BofA-Merrill Lynch. In the wake of last week's bear gap, ARUN's 14-day Relative Strength Index (RSI) dropped to 31 -- on the cusp of oversold territory, suggesting a short-term rebound may have been in the cards. Meanwhile, most analysts remain devoted to ARUN, as 11 out of 21 maintain "buy" or better opinions.

  • PCLN is 0.4% higher at $1,156.01, after Credit Suisse launched coverage with an "outperform" rating. Priceline Group Inc's sector peers weren't so fortunate, with Orbitz Worldwide, Inc. (NYSE:OWW) and HomeAway, Inc. (NASDAQ:AWAY) earning new "neutral" opinions. On the charts, PCLN is just south of its year-to-date breakeven level, with recent rally attempts stalling in the $1,200 neighborhood -- home to the equity's 40-week moving average. Nevertheless, Wall Street remains upbeat, as 16 out of 17 analysts offer up "buy" or better endorsements. Plus, the consensus 12-month price target of $1,334.60 represents expected upside of 15.4% to the stock's current perch, and stands in territory not explored since mid-March.

  • Finally, VZ has shed 1.7% to linger near $49.35 -- and is in danger of ending south of $50 for the first time this month -- after a downgrade to "neutral" at Citigroup. The negative note is relatively rare for Verizon Communications Inc., which boasts 17 "strong buys" and two "buy" ratings, compared to five lukewarm "holds" and not a single "sell." Echoing that optimism, option buyers have been upping the bullish ante on VZ, even though the Dow component has lagged the blue-chip barometer in 2014. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 5.24 sits just 1 percentage point from a 12-month peak. In other words, option traders have picked up VZ calls over puts at a near-annual-high clip during the past two weeks.

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U.S. stocks are extending their record-setting run today, as Wall Street continues to applaud overseas stimulus measures. Among the names making significant moves are 3-D printer maker 3D Systems Corporation (NYSE:DDD), fertilizer firm Potash Corp./Saskatchewan (USA) (NYSE:POT), and alternative energy issue Trina Solar Limited (ADR) (NYSE:TSL). Here's a quick look at how DDD, POT, and TSL are faring on the charts today.

  • DDD is 3.1% higher at $36.21, on news the firm will buy Cimatron Ltd. (NASDAQ:CIMT) for about $97 million. From a longer-term perspective, 3D Systems Corporation remains 60% lower year-to-date, and has underperformed the broader S&P 500 Index (SPX) by more than 36 percentage points during the past three months. As such, it's no surprise to find short interest represents more than 35% of DDD's total available float, though some of those skeptics may be picking up options hedges. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.22 stands higher than 86% of all other readings from the past year, pointing to a healthier-than-usual appetite for long calls over puts of late.

  • POT is down 4.8% at $34.84, on reports that Russian rival Uralkali is preparing to restart operations at half its damaged mine. Last week, news that production at the mine was halted sent POT and most of its sector peers soaring, though the equity's rally was stifled in the $37 region -- where the security sat before an early July bear gap. Prior to today's retreat, the stock's 14-day Relative Strength Index (RSI) soared to 72 -- in overbought territory, suggesting a pullback may have been in the short-term cards. In the options pits, Potash Corp./Saskatchewan's (USA) short-term contracts are flying off the shelves, as the equity's 30-day at-the-money implied volatility has popped 9.7% to 23.1%, and overall options volume is running at three times the average intraday pace. While bears are seemingly buying to open the weekly 11/28 34.50-strike put, it looks like bulls are purchasing to open weekly 11/28 35-strike calls.

  • TSL is 6.4% lower at $10.23, after the company reduced its full-year solar module shipment guidance. The post-earnings reaction is likely music to options traders' ears, as speculators were upping the bearish ante ahead of this morning's report. The stock is now sitting on a 25% year-to-date loss, and could be vulnerable to downgrades and price-target cuts, should bullish analysts jump ship. Currently, four out of six brokerage firms offer up "strong buy" opinions of Trina Solar Ltd. (ADR), and the consensus 12-month price target of $18.31 represents expected upside of 79% to the stock's perch.

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Analyst Downgrades: Barrick Gold Corporation (USA), Keurig Green Mountain Inc, and Pandora Media Inc

Analysts downwardly revised their ratings on ABX, GMCR, and P

by 11/24/2014 9:28 AM
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Analysts are weighing in today on precious metals producer Barrick Gold Corporation (USA) (NYSE:ABX), coffee concern Keurig Green Mountain Inc (NASDAQ:GMCR), and Internet radio issue Pandora Media Inc (NYSE:P). Here's a quick roundup of today's bearish brokerage notes on ABX, GMCR, and P.

  • Raymond James weighed in on a number of mining issues, including ABX, where the brokerage firm cut its price target to $17 from $18, and underscored its "market perform" rating. On the charts, the shares are down more than 27% year-to-date, and have seen a recent rebound contained by their descending 40-day moving average. Not surprisingly, the brokerage crowd is pretty united in its skeptical stance toward Barrick Gold Corporation (USA). Specifically, 15 of the 17 analysts following the security have assigned it a "hold" or "strong sell" recommendation, mirroring the recent pessimism noted in ABX's options pits. On Friday, ABX settled at $12.85.

  • GMCR was started with a "neutral" rating at Longbow Research, despite the stock more than doubling in value year-over-year to trade at $140.37. Late last week, though, the equity plummeted below its previously supportive 40-day moving average, following a disappointing current-quarter forecast. This pullback is likely being cheered in the options pits, as Keurig Green Mountain Inc's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.94 sits above 73% of other readings taken in the last year. However, it's possible some of these bearish positions may have been initiated by shareholders seeking a pre-earnings hedge -- a smart move, given the post-event sell-off.

  • Finally, P saw its price target slashed by $10 to $35 at Pacific Crest -- though the brokerage firm reiterated its "outperform" rating. Technically speaking, it's been a tough year for Pandora Media Inc, which has lost 27% of its value to rest at $19.40. In fact, during the past three months, the stock has lagged the broader S&P 500 Index (SPX) by 30 percentage points. Inexplicably, 72% of analysts covering the shares maintain a "buy" or better assessment, compared to six "holds" and one "strong sell." Plus, P's consensus 12-month price target of $30.61 stands about 58% above current trading levels. In other words, the equity is at risk of getting hit with additional price-target reductions and/or downgrades.

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Buzz Stocks: Tesla Motors Inc (TSLA), Lions Gate Entertainment Corp. (USA), and Starz

Today's stocks to watch in the news include TSLA, LGF, and STRZA

by 11/24/2014 9:17 AM
Stocks quoted in this article:

U.S. stocks are set to kick off a holiday-shortened week with modest gains. Among the equities in focus are electric vehicle maker Tesla Motors Inc (NASDAQ:TSLA), as well as media companies Lions Gate Entertainment Corp. (USA) (NYSE:LGF) and Starz (NASDAQ:STRZA).

  • TSLA is pointed 1% higher ahead of the bell, after CEO Elon Musk said the firm is in talks to collaborate with Germany's BMW on "battery technology or charging stations." On the charts, TSLA has added 61.4% in 2014, with pullbacks contained by its 200-day moving average. More recently, the shares finished Friday at $242.78 -- just below their bearishly crossed 10-week and 20-week trendlines -- and have underperformed the S&P 500 Index (SPX) by about 13 percentage points during the past three months. As such, Tesla Motors Inc's short-term options crowd has grown increasingly pessimistic, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.58 stands higher than 98% of all other readings from the past year -- implying that near-term traders have rarely been more put-heavy.

  • LGF is set to surrender 3.2%, after the latest "The Hunger Games" installment fell short of forecasts at the box office. While the movie raked in an estimated $123 million in the U.S. and Canada its opening weekend -- marking the biggest domestic debut of the year -- the numbers lagged the two series predecessors. The shares of Lions Gate Entertainment Corp. (USA) dropped 5% on Friday, settling at $33.25, amid early signs of weakness for the movie. The stock is now trading south of its 10-day and 20-day moving averages for the first time since Oct. 20. Should LGF extend its pullback, a flood of bearish brokerage attention could exacerbate selling pressure, as all nine covering analysts maintain "buy" or better opinions. Plus, the average 12-month price target of $39.69 stands in uncharted territory for the stock.

  • Finally, LGF is also making headlines as a potential suitor for STRZA. According to The New York Post, Starz is looking to sell itself for $5 billion, with LGF and CBS Corporation (NYSE:CBS) emerging as the most likely buyers. Against this backdrop, STRZA is poised to pop 10.3% at the opening bell, and could explore all-time highs north of $35. The equity has already added 10.1% in 2014, and today's jump could spook a few shorts into hitting the exits. Short interest represents nearly eight sessions' worth of pent-up buying demand, at STRZA's average pace of trading -- plenty of fuel for a short squeeze to push the security even higher.

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More Data, More Problems

When it comes to market data, look for quality over quantity

by 11/24/2014 9:11 AM
Stocks quoted in this article:

Coming soon to a theater near you -- Big Data! Not the band, the data.

I'll let CNBC's Bob Pisani Pisani-splain it.

"Did you ever hear or read a comment about a market trend and wonder how accurate it was over a certain time period? Or when some trader says, 'We are entering a seasonally strong period of the year,' did you ever wonder exactly how often that was true, and under what circumstances?

Sure you have. All of us who cover the markets engage in this kind of research every day.

Today, CNBC has announced a strategic partnership with Kensho, a company that was set up to answer complex financial questions...in a few seconds."

It all sounds great on the surface. I mean -- more info, more ways to find out if Event X really leads to Market Reaction Y.

But here is the problem: Data isn't about pure access. It's about asking the proper questions and, perhaps more importantly, it's about putting the answers in the proper context.

Sports broadcasts are filled with this sort of stuff all the time. Ever watch a football game and find out such-and-such team is 20-1 every time Random Running Back has rushed for over 100 yards? Or that Pick Any Baseball Team is 70-3 when leading after eight innings? Both stats sound impressive on the surface, but minus any context, they don't necessarily mean much.

What NFL teams with a 100-yard rusher and baseball teams with leads after eight innings don't win 95% of the time? That team-specific data above looks more expected than exceptional.

We would never fall into that trap here in finance -- probably. Back to Pisani:

"For example, a couple months ago the 50-day moving average of the Russell 2000 crossed the 200-day moving average to the downside, a much-feared technical pattern known as the 'Death Cross.' There was much discussion of this on-air, as well as in print.

The Russell did decline that day, but the historical pattern is very mixed. This has happened 20 times since 1988, and five days later the Russell has been down 55 percent of the time, up 45 percent. That is a fairly mixed result, though the downs are somewhat bigger than the ups.

But two months later, the Russell has been UP 63 percent of the time. In other words, for most intermediate-term investors, simply holding would have been better than selling immediately."

Now, that last statement is true on the surface. But there's zero context attached to it. Maybe two months later, the market is higher 75% of the time on random dates, so that Death Cross actually was a modest negative. Or alternately, in the 37% of the time the market did poorly after the Death Cross, it did very poorly. Remember when we ran through numbers on SPDR S&P 500 ETF Trust (SPY) simply crossing below the 200-day moving average? If you bought that first day and held until it crossed back above, you won the trade something like 90% of the time. But the times you lost, you often really lost.

What other errors can we make via this new CNBC toy? Well, sample size comes to mind. Guessing we'll see a lot of cases where Stock or Sector X lifted seven of the last nine times Event Y happened. There's also the fact that markets have so many moving parts that it's more or less impossible to control for all of them so as to isolate how one factor might really influence one sector.

They use large oil price declines as an example, which actually highlights both of these issues. Do we have a statistically significant sample size? Did we control for any other background factors? Without that info, I'm not sure the relationships are terribly predictive.

Look, more data can only help. I really, really, really, strongly advise not taking it at face value, though. It is always meaningless independent of proper context.

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


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