Schaeffer's Trading Floor Blog

Analyst Downgrades: Costco Wholesale Corporation, Toll Brothers Inc, and VMware, Inc.

Analysts downwardly revised their ratings on COST, TOL, and VMW

by 12/12/2014 9:39 AM
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Analysts are weighing in today on bulk retailer Costco Wholesale Corporation (NASDAQ:COST), housing issue Toll Brothers Inc (NYSE:TOL), and virtualization specialist VMware, Inc. (NYSE:VMW. Here's a quick roundup of today's bearish brokerage notes on COST, TOL, and VMW.

  • COST is down 0.9% at $140.09, after Janney downgraded the shares to "neutral" from "buy." The downgrade has overshadowed a price-target hike to $150 from $141 at Wolfe Research (which also reiterated its "outperform" rating) late yesterday, and comes on the heels of Costco Wholesale Corporation's recent earnings report. On the charts, COST hit a record high of $146.82 on Wednesday, but is on pace for a third straight close beneath its 10-day moving average -- which hasn't happened since the broad-market swoon in mid-October. Off the charts, most analysts are optimistic -- 13 out of 20 offer up "buy" or better ratings -- but short-term options traders are more put-heavy than usual. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.58 stands higher than 94% of all other readings from the past year.

  • TOL is 1.3% lower at $31.72, extending its post-earnings retreat. Weighing on the stock are a pair of price-target cuts, as Barclays and Compass Point each trimmed their targets by $3, to $34 and $32, respectively. However, both brokerage firms maintained "neutral" or equivalent ratings. More negative analyst attention could be on the horizon for Toll Brothers Inc, which has shed more than 8.6% this week. Currently, six out of 13 analysts consider TOL a "buy" or better.

  • Finally, VMW is 1% lower at $77.44 -- and touched an annual low of $76.87 out of the gate -- after Piper Jaffray resumed coverage with an "underweight" opinion and chilly $69 price target. VMware, Inc. has underperformed the broader S&P 500 Index (SPX) by 20 percentage points during the past three months, and could be vulnerable to more bearish brokerage notes. Eighteen out of 27 analysts maintain "buy" or better ratings, and the consensus 12-month price target of $102 represents a significant premium to VMW's current price. In the options pits, traders are already upping the bearish ante. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.89 stands just 2 percentage points from an annual pessimistic peak.

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Analyst Upgrades: GoPro Inc, Microsoft Corporation, and Delta Air Lines, Inc.

Analysts upwardly revised their ratings on GPRO, MSFT, and DAL

by 12/12/2014 9:07 AM
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Analysts are weighing in today on mobile camera maker GoPro Inc (NASDAQ:GPRO), blue chip Microsoft Corporation (NASDAQ:MSFT), and airline issue Delta Air Lines, Inc. (NYSE:DAL). Here's a quick roundup of today's bullish brokerage notes on GPRO, MSFT, and DAL.

  • GPRO is headed 4.1% higher ahead of the bell, after J.P. Morgan Securities upgraded the stock to "overweight" from "neutral." The brokerage firm said GoPro Inc is a "strong growth-stock at a more reasonable price ahead of catalysts," including January's Consumer Electronics Show. The shares of GPRO have hit a rough patch in recent weeks, landing at $60.05 on Thursday, but the stock has more than doubled since inception in late June. Nevertheless, today's upgrade marks a change of pace for GPRO, which sports just three "strong buys," compared to seven tepid "holds" and one "strong sell."

  • MSFT is pointed modestly lower in pre-market action, despite a pair of upbeat analyst notes. FBR upped its price target by $4 to $57, and reiterated an "outperform" opinion, while Piper Jaffray launched coverage with an "overweight" endorsement. Microsoft Corporation yesterday said it will host a Jan. 21 event to reveal more features of Windows 10 -- slated for release next fall -- and that it will allow bitcoin payments for online games and apps. MSFT has advanced more than 26% in 2014, closing at $47.17 yesterday, yet the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.23 stands higher than 95% of all other readings from the past year. In other words, near-term options traders are more put-biased than usual right now.

  • Finally, DAL settled at an all-time closing high of $48.33 yesterday, as airlines capitalized on crude's journey to five-year lows. DAL is set to extend its quest for record peaks today, too, with the shares pointed 1.5% higher in electronic trading. Last night, Delta Air Lines, Inc. and Republic Airways Holdings Inc. (NASDAQ:RJET) announced an expansion of their partnership, and this morning DAL was greeted with several bullish brokerage notes. Deutsche Bank upped its price target by $12 to $60, Cowen and Company lifted its target by $13 to $58, and Buckingham hiked its target by $16 to $70; all three reiterated "buy" or equivalent ratings. DAL is no stranger to positive analyst attention, though, as 10 out of 11 brokerage firms consider the stock a "buy" or better.

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Buzz Stocks: Tesla Motors Inc (TSLA), Adobe Systems Incorporated, and Baidu Inc (ADR)

Today's stocks to watch in the news are TSLA, ADBE, and BIDU

by 12/12/2014 9:02 AM
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Futures are lower this morning, as crude gets dealt another blow. Meanwhile, among specific stocks to watch are electric car maker Tesla Motors Inc (NASDAQ:TSLA), software specialist Adobe Systems Incorporated (NASDAQ:ADBE), and Beijing-based Internet issue Baidu Inc (ADR) (NASDAQ:BIDU).

  • TSLA's president of its China operations, Veronica Wu, has resigned. Wu has been on the job for less than nine months, and will be replaced by Tom Zhu, who currently leads the charging network development division in China. Although TSLA is sporting a nearly 39% year-to-date gain, the stock has struggled in recent weeks. In fact, since hitting its most recent high of $259.99 on Nov. 18, shares of Tesla Motors Inc have shed 19.7%, and closed last night at $208.88. This is likely music to the ears of options traders, who have been initiating long puts over calls at a rapid-fire rate. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, TSLA's 10-day put/call volume ratio of 1.09 ranks just 2 percentage points from an annual bearish peak.

  • ADBE is ready to rally 5% out of the gate, after the company announced better-than-expected fiscal fourth-quarter earnings, as well as the $800 million all-cash acquisition of Fotolia -- a "microstock" firm that specializes in photo licensing. Wall Street has taken kindly to the news, with ADBE receiving no fewer than five price-target hikes. The most generous outlook came from Jefferies, which boosted its target by $7 to $90 -- and underscored its "buy" rating -- representing expected upside of 29% to yesterday's close at $69.74, as well as a trek into uncharted territory. Heading into today's session, shares of Adobe Systems Incorporated were already up an impressive 16.5% year-to-date, yet traders have shown a preference for puts over calls among options slated to expire in three months or less. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.98 ranks in the 68th annual percentile, meaning short-term speculators are more put-heavy than usual toward ADBE.

  • BIDU is buying a minority stake in car-booking service Uber Technologies Inc. According to reports, the roughly $600 million investment will provide Uber with cash, as well as exposure to BIDU's online resources in China. On the charts, BIDU has had a standout year, advancing nearly 29% to its current perch at $229.23. More recently, Baidu Inc (ADR) has been consolidating near its 50-day moving average, after hitting a record peak of $251.99 in mid-November. As such, sentiment is tilted toward the bullish side. In the options pits, the stock's 10-day ISE/CBOE/PHLX call/put volume ratio of 2.13 ranks higher than 84% of similar readings taken in the past year. Elsewhere, all 13 analysts covering the shares maintain a "strong buy" rating, and the consensus 12-month price target of $271.55 stands at an 18.5% premium to Thursday's closing price.

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How to Trade a Surging VIX, By the Numbers

There's more than one way to capitalize on a CBOE Volatility Index (VIX) pop

by 12/12/2014 8:55 AM
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In honor of our latest CBOE Volatility Index (VIX) pop, I decided to renovate my overbought VIX table a bit. From now on, I'm going to "Just Say No" to overlaps. If VIX goes overbought 29 days after the last time it went overbought, that data point will not make the cut into the one-month returns column.

This tweak didn't actually impact the one-month returns much, though it did knock down the three-month returns -- more on that in a few.

Previously, I only tracked the one-month and three-month returns of a strategy that goes long SPDR S&P 500 ETF Trust (SPY) anytime VIX closes greater than 20% above its 10-day simple moving average (SMA). Now, I will track a third strategy. What if you buy SPY when VIX closes greater than 20% above the 10-day SMA, and hold until VIX closes back below? I include that in the "VIX Close <10 Day" column. And, finally, I include the duration (in trading days) of that "new" strategy.

I will still go back to March 2009 so as to compare VIX Regime Apples to VIX Regime Apples. Spoiler alert -- no strategy that involved buying anything and holding for any measurable time period worked well in 2008. So, without further ado, here we go.

SPY Returns After Overbought VIX Signal since 2009

We now have 19 distinct overbought VIX instances since March 2009. Buying SPY on the first overbought VIX close has worked eight straight times, although the instance on July 17, 2014, only produced a 0.01% win. Overall, the trade won 10 times in 15 tries, for an average win of 2.22% and a median win of 4.83%. That compares very favorably with a randomly timed one-month hold, which has had an average return of 1.31% and a median return of 1.83%.

Going out three months minus the overlaps, we find some serious sample size issues. We now have only 10 occurrences, with five of them produced winning trades -- but just randomly buying and holding for three months worked better. Again, there's not enough data, but it's likely this isn't a useful signal out three months.

And, finally, buying SPY and holding until VIX closes back below the 10-day SMA has produced average returns of 0.13% and median returns of 0.57%. It has won 11 out of 18 times. This trade has taken an average of 5.5 days to hold.

I wouldn't get carried away with these returns so much as the bigger-picture concept. It suggests that the market typically has stabilized within a week of VIX going overbought. There are also very few clustered incidents.

Also, if you prefer buying into strength off the low, as opposed to fading the initial VIX pop, the numbers suggest you are barely the worse for wear. If you wait until VIX has dropped below the 10-day SMA, and then hold for three to four weeks, you will come close to replicating the results of buying when VIX goes overbought and holding for a month.

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


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Analyst Update: Altera Corporation, Eli Lilly and Co, and Vertex Pharmaceuticals Incorporated

Analysts adjusted their ratings on ALTR, LLY, and VRTX

by 12/11/2014 1:37 PM
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Analysts are weighing in today on semiconductor firm Altera Corporation (NASDAQ:ALTR), as well as drug developers Eli Lilly and Co (NYSE:LLY) and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX). Here's a quick look at today's brokerage notes on ALTR, LLY, and VRTX.

  • ALTR is nearly 3% higher at $38.20, following a round of price-target hikes from no fewer than five brokerage firms. The most ambitious among them is courtesy of Raymond James, which lifted its target by $5 to $45, and reiterated a "strong buy" opinion. Earlier, in fact, shares of Altera Corporation hit an annual high of $38.34, and longer term, they're up 17.5% year-to-date. Options traders remain unconvinced, however. ALTR's 10-day put/call volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is a brow-raising 29.91, as nearly 30 puts have been bought to open for every call over the last two weeks. What's more, this number ranks just 1 percentage point shy of a 12-month high. However, a portion of these bearish positions may have been initiated by shareholders protecting against a pullback.

  • LLY has tacked on 3.1% to trade at $73.25, and earlier hit a fresh decade peak of $75.10, after Morgan Stanley upgraded the stock to "overweight" from "underweight," and boosted its price target to $85 from $60. On the charts, the shares have put on a show, advancing nearly 44% in 2014, ushered higher by their ascending 20-week moving average. That said, additional bullish brokerage notes could be forthcoming, potentially providing a tailwind. Three-fifths of covering analysts rate Eli Lilly and Co a "hold" or worse, and the stock's consensus 12-month price target of $68.16 represents a discount to current trading levels.

  • VRTX is benefiting from a massive price-target hike to $130 from $94 at Credit Suisse -- though the brokerage firm reiterated a tepid "neutral" opinion on the shares. Specifically, the stock has rallied almost 4% to trade at $121.78, and earlier touched an all-time high of $122.26. What's more, year-to-date, Vertex Pharmaceuticals Incorporated has gained roughly 64%. Not surprisingly, traders at the ISE, CBOE, and PHLX have been betting bullishly in recent weeks. VRTX's 10-day call/put volume ratio across these exchanges is 9.24, or in the 97th percentile of its annual range.

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