2 Stocks to Buy on U.S.-China Pact, Say Analysts

Options players are showing an unusual appetite for Micron calls after U.S.-China trade talks

Dec 3, 2018 at 10:55 AM
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The temporary trade truce between the U.S. and China has lifted several stocks today, and garnered bullish analyst attention for the likes of Caterpillar (CAT), Roku (ROKU), and more. In fact, construction issue Masco Corp (NYSE:MAS) and semiconductor concern Micron Technology, Inc. (NASDAQ:MU) have received upbeat attention of their own this morning.

RBC upgraded MAS stock to "outperform" from "sector perform," and lifted its price target by $1 to $38. The analyst said the U.S.-China agreement to delay 25% tariffs "lifts one major near-term overhang on the stock, even if there remains some uncertainty around trade beyond the next 90 days."

As such, Masco shares were last seen 1.6% higher at $32.22, and set to end atop their 50-day moving average for the first time since mid-September. The equity has recovered roughly 21% since its Oct. 29 low of $27.15, and is on pace to take out subsequent resistance in the $32 area.

Most analysts were already bullish on MAS. The stock sports 10 "strong buy" endorsements, compared to six "holds" and not a single "sell" rating. The average 12-month price target of $38.94 represents expected upside of about 18% from the equity's current perch.

Chip stocks are higher after the trade truce, and Micron is no exception. In fact, Mizuho analysts said they are buyers of MU (subscription required) and several other semiconductor stocks after the U.S.-China cease-fire.

MU shares were last seen 3.9% higher to trade at $40.08, set to overtake their 40-day moving average for just the second time since June. The equity has struggled since its May 30 high of $64.66, but recent rebound attempts have stalled in the $40 area.

Options traders today have shown a strong appetite for Micron calls -- a change of pace for the chip stock. So far in the session, roughly 43,000 calls have changed hands -- a little less than two times the average intraday pace. For comparison, just about 23,000 MU puts have traded so far.

Prior to today, speculators were showing a greater-than-usual interest in bearish bets. The stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 0.75, in the 95th percentile of its annual range. This indicates that while MU calls have still outnumbered puts on an absolute basis, traders have bought to open Micron puts at an accelerated clip in the past two weeks. 

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