Schaeffer's Trading Floor Blog

Analyst Downgrades: Salesforce.com, inc., Paychex, Inc., and Yelp Inc

Analysts downwardly revised their ratings on CRM, PAYX, and YELP

by 9/16/2014 9:28 AM
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Analysts are weighing in today on cloud computing firm Salesforce.com, inc. (NYSE:CRM), HR services provider Paychex, Inc. (NASDAQ:PAYX), and business review website Yelp Inc (NYSE:YELP). Here's a quick roundup of today's bearish brokerage notes on CRM, PAYX, and YELP.

  • RBC cuts its price target on CRM to $72 from $75, but maintained its "outperform" rating. Technically, however, the shares have been a force -- outperforming the broader S&P 500 Index (SPX) by more than 10 percentage points during the past two months. In fact, the stock has advanced nearly 16% on a year-over-year basis to trade at $57.57. Elsewhere, short sellers have shown an interest in Salesforce.com, inc., as 6.5% of its float is sold short -- which would take nearly a week to buy back, at average daily trading levels. If CRM can maintain its positive momentum, a short-squeeze situation could materialize.

  • Bernstein started coverage on PAYX with an "underperform" recommendation. This is par for the course, as 15 out of 16 covering analysts have given the stock a "hold" or worse assessment. Also, the security's consensus 12-month price target of $42.46 is less than 1% away from the current share price of $42.11. Taking a step back, Paychex, Inc. has staggered to a 7.5% loss this year.

  • Finally, YELP was initiated with a "neutral" rating and an $80 price target at Baird. This less-than-glowing assessment is relatively uncommon on the Street, where 18 of 26 covering analysts sport "buy" or better opinions of the shares. Technically, Yelp Inc has had it rough since hitting a record high of $101.75 in early March, losing a quarter of its value since then -- including a 6.3% loss on Monday -- to trade at $76.62. If the security continues to languish on the charts, it could force the Wall Street bulls to lower their expectations of YELP via a round of downgrades.

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Buzz Stocks: General Motors Company, SIGA Technologies, Inc., and Sears Holdings Corp

Today's stocks to watch include GM, SIGA, and SHLD

by 9/16/2014 9:03 AM
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Futures are signaling a slow start ahead of today's kick-off of the Federal Open Market Committee's (FOMC) two-day policy-setting meeting. On the corporate front, today's stocks to watch include automaker General Motors Company (NYSE:GM), biopharmaceutical firm SIGA Technologies, Inc. (NASDAQ:SIGA), and department store chain Sears Holdings Corp (NASDAQ:SHLD).

  • GM's European division Adam Opel AG -- is reducing production in Russia amid signs of declining sales and uncertainty surrounding geopolitical developments. In a statement, Opel CEO Karl-Thomas Neumann said, "Last year Russia was our third-largest market after the U.K. and Germany -- now this market is embroiled in serious turbulence." The news follows yesterday's reports that the death toll from the company's recalled vehicles has increased to at least 19 people. On the charts, the stock has struggled amid GM's fundamental woes -- down nearly 18% year-to-date at $33.63. In spite of this, 64% of covering analysts maintain a "buy" or better rating toward General Motors Company, leaving the door wide open for another round of bearish brokerage notes, which could pressure the shares lower.

  • SIGA is poised to plunge 35% right out of the gate, after the smallpox drug supplier filed for Chapter 11 bankruptcy in Manhattan, in order to avoid paying damages to PharmAthene over a contract dispute. Technically speaking, the stock has had a terrible year, and is down 56% to churn near $1.44. Should the security extend this decline in today's session, there is certain to be one group of traders pleased with the sell-off -- short sellers. At present, more than 12% of the equity's float is sold short, and would take north of 12 sessions to cover, at SIGA Technologies, Inc.'s average daily pace of trading.

  • SHLD's cash troubles have been fodder for the Street for some time, and most recently, the struggling retailer said it secured a $400 million loan from CEO Eddie Lampert's hedge fund. The infusion of cash comes on the heels of last Thursday's credit downgrade to CC from CCC at Fitch Ratings, with the brokerage firm expressing concern the company's current funding "may not be enough to support operations beyond 2016." The stock has been in a downward spiral since hitting its most recent high of $45.81 in early May, off 27% to linger near $33.52. Option traders think more losses are ahead, as evidenced by the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.57, which ranks just 6 percentage points from an annual bearish peak.

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Analyst Upgrades: Microsoft Corporation, MasterCard Inc, and Visa Inc

Analysts upwardly revised their ratings on MSFT, MA, and V

by 9/16/2014 8:55 AM
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Analysts are weighing in today on software titan Microsoft Corporation (NASDAQ:MSFT), and credit card rivals MasterCard Inc (NYSE:MA) and Visa Inc (NYSE:V). Here's a quick roundup of today's bullish brokerage notes on MSFT, MA, and V.

  • MSFT received an upgrade to "outperform" from "sector perform," and a $7 price-target hike to $54, from RBC. This isn't surprising, given the stock's market-beating 23.6% year-to-date lead. Still, a number of analysts remain skeptical of Microsoft Corporation, which yesterday confirmed plans to buy Mojang for $2.5 billion. Eleven of the 20 brokerage firms following the shares have designated it a "hold," while the equity's average 12-month price target of $47.56 is just a chip-shot away from the current share price of $46.24. Should MSFT sustain its longer-term technical tenacity, additional bullish notes could usher in a fresh wave of buying power.

  • MA was started with an "outperform" assessment at Bernstein, a "buy" endorsement at Sterne Agee, and an "overweight" rating at Piper Jaffray. This is pretty typical for Wall Street, where 15 analysts have doled out "buy" or better opinions on the credit card name, versus eight "holds." However, MasterCard Inc has struggled on the charts, losing nearly 10% in 2014 -- compared to the broader S&P 500 Index's (SPX) 7.3% gain -- to rest at $75.24. Should this downtrend continue, the brokerage crowd may be forced to re-evaluate the equity in a bearish direction, which could pressure the shares even lower.

  • Finally, V received the exact same trio of upgrades as MA, yet this stock, too, has struggled technically. Specifically, on a year-to-date basis, Visa Inc is down 3.6% to trade at $214.64, and has recently had trouble in the $215-$219 range. Option bears have taken notice of this lackluster price action. During the past 10 weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a put/call volume ratio of 0.89, which ranks in the bearishly skewed 93rd percentile of its annual range.

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Two Bad Ideas for Volatility Traders

What does it mean when interest wanes in the VelocityShares Daily Inverse VIX Short-Term ETN (XIV)?

by 9/16/2014 8:27 AM
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Despite the impression that I gave yesterday, not everyone in the trading/investing world wants to go long volatility.

As Bloomberg notes, the picture for the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) has changed.

Short sellers are abandoning an exchange-traded fund that becomes more valuable during times of market tranquility after it soared 24 percent this year. Bearish bets on the fund, known as the VelocityShares Daily Inverse VIX (XIV) Short-Term ETN, make up 0.2 percent of outstanding shares, a record low, compared with 19 percent in June, according to data compiled by Markit Ltd.

This product makes everyone's head spin already, and doubly so when you start talking about shorting it, so let's unpack it a bit.

The iPath S&P 500 VIX Short-Term Futures ETN (VXX), as we know, proxies a 30-day rolling CBOE Volatility Index (VIX) future. It does terribly over the course of time, thanks to constantly having to roll out in time on an upwards-sloping VIX futures curve.

XIV inverse-tracks VXX. So, going long XIV is more or less equivalent to going short VXX. But, it's not identical. All trackers underperform when the basis product churns. So, even though VXX declines over pretty much any time frame, there's enough churn in there that an XIV long will modestly underperform a VXX short. The tradeoff is that any short has open-ended loss potential, whereas a long can only go to zero. If you're on the wrong side of a directional move, the XIV long will do better than the VXX short.

Now, let's take all that and look at it backwards. Shorting XIV is mostly similar but not identical to going long VXX. It will modestly outperform in a VXX churn, but with open-ended risk if VXX tanks. VXX is unlikely to abruptly tank ... VIX itself isn't going to abruptly tank from here, and VIX futures are extremely unlikely to give up all their premiums overnight. So, it's safe to say that shorting XIV is a better trade than going long VXX.

But, it's only better in the sense that it's less bad. They're both bad ideas. VXX will virtually always dribble lower over time, and XIV will always grind higher, albeit at a slower pace.

Shorting XIV is indeed a bet on a volatility lift -- so reduced interest in shorting this vehicle is an indication that there's less demand to bet on a volatility lift. Thus, on a contrarian basis, it's bullish for volatility and bearish for the market on the margins. I'd just like to emphasize, though, that it's really in the margins in this case. We're talking a reduction of a bet against a multi-tiered derivative. And, it's a play itself (shorting XIV) that will lose money over any longer time frame, so it's not shocking that the masses will not have much interest in it at times.

It is a data point against the argument that everyone wants to own volatility, I will give it that.

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


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Analyst Update: Anheuser Busch Inbev SA (ADR), VeriFone Systems Inc, and Wal-Mart Stores, Inc.

Analysts adjusted their ratings on BUD, PAY, and WMT

by 9/15/2014 1:32 PM
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Analysts are weighing in today on brewing company Anheuser Busch Inbev SA (ADR) (NYSE:BUD), electronic payment provider VeriFone Systems Inc (NYSE:PAY), and big box retailer Wal-Mart Stores, Inc. (NYSE:WMT). Here's a quick look at today's brokerage notes on BUD, PAY, and WMT.

  • Similar to fellow beer stock Molson Coors Brewing Company (NYSE:TAP), BUD started strong today, after Stifel raised its price target to $130 from $121. The stock is up nearly 3% today to trade at $114.15, and has gained over 7% year-to-date. Moreover, five out of six analysts have Anheuser Busch Inbev SA (ADR) rated as a "strong buy." The equity's Schaeffer's Volatility Index (SVI) of 17% is in the 19th percentile of its annual range, implying BUD's short-term options are on the inexpensive side, from a volatility standpoint.


  • Despite a new "buy" recommendation from Monness Crespi Hardt, PAY is off 0.5% today, sputtering at $36.60. Still, the stock has been strong on the charts in 2014, up 36% year-to-date. Elsewhere, the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.68 is 12 percentage points from an annual peak, meaning short-term speculators are more put-skewed toward VeriFone Systems Inc than usual. However, additional upgrades may be in store for PAY, considering seven of 13 covering analysts maintain a tepid "hold" recommendation.


  • WMT shares are stagnant today after Citigroup initiated coverage of the stock with a "neutral" rating -- the shares were last seen trading fractionally lower at $75.76. The tepid brokerage note shouldn't be surprising, as Wal-Mart Stores, Inc. has dropped 3.7% year-to-date. However, options traders are looking for the stock to rebound, as its International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 10-day call/put volume ratio of 2.37 is in the 88th percentile of its annual range, meaning calls are being picked up at a faster-than-normal rate.

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