Adding a holiday position in this digital commerce giant
KEY POINTS FROM THIS ALERT
- We are issuing a Buy on Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000). We would be buyers up to 40.00. We are setting a stop loss on this position at 25.00
- Heading into tonight’s earnings report we continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a Buy. We continue to have a 1.30 stop loss for this position.
- Because of the Thanksgiving holiday and shortened market hours on Black Friday, the next edition of Tematica Options+ will be coming to you a bit earlier than usual next week on Tuesday.
We’re seeing a rather different stock market this week as investors continue to grapple with what may happen tax reform. In yesterday’s Tematica Investing, I pointed out some of the similarities, as well as the differences, between the House and Senate tax bills. Today we’ll see if the House has enough votes to pass its version. As that happens, we have a new wrinkle in the mix as Senator Ron Johnson, Republican of Wisconsin, came out against both chambers’ tax plans yesterday. What this means is the market and investors will continue to watch this drama unfold, but the growing feeling is reform will be pushed into 2018 with more changes to be had.
The tax reform drama certainly weighed on the market, as did a disappointing holiday season forecast from brick & mortar retailer Target (TGT), which offered EPS guidance of $1.05-$1.25 vs. the consensus of $1.25. Alongside that outlook, Target shared that it expects this holiday season to be “highly competitive.” Not the news struggling brick & mortar retailers could use right now, but candidly we see that as more having to do with Target playing catch up to the likes of Walmart (WMT) and Tematica Investing Select List holding Amazon (AMZN).
On the other hand, we see Alibaba’s (BABA) blowout Singles Day sales confirming the accelerating shift to digital commerce that we talk about as part of our Connected Society investing theme. This year Alibaba generated $25.3 billion in sales from Singles Day across 225 countries, a 39% increase year over year. What really jumped out at us here at Team Tematica was that roughly 90% of the transactions were done via mobile and at its peak, the company’s processors handled 256,000 transactions per second. As I mentioned in this week’s Cocktail Investing podcast that will be out later today, no wonder Amazon decided to create Prime Day.
Over the last week, we’ve seen a drift lower in Amazon shares, which led to a larger pullback in corresponding call options and to me that makes for a compelling entry point as we move full force into the holiday shopping season. Odds are Walmart’s earnings report out this morning, which was better than expected and included a boost to its current quarter outlook, will bode very well for AMZN shares and calls and Black Friday to Cyber Monday data will most likely do the same over the coming 12 days.
That is prompting us to add the Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000) that closed last night at 34.00 to the Tematica Options+ Select List. In keeping with our comments regarding the market and tax reform, we will set stop loss at 25.00, and given the Walmart news, we’re going to be prudent and not chase the calls above $40. This strike data ensures we’ll capture both the pre as well as post-holiday shopping activity.
- We are issuing a Buy on Amazon (AMZN) January 2018 1150 calls (AMZN180119C01150000).
- We would be buyers up to 40.00
- We are setting a stop loss on this position at 25.00
Waiting on Applied Materials earnings after today’s market close
After today’s market close, Applied Materials (AMAT) will be reporting its quarterly results. The results come on the heels comments made earlier in the current earnings season regarding growing chip demand due to the expanding roster of connected devices, artificial intelligence, gaming, data center expansion and China’s goal of building its own semiconductor capacity. We’ve also heard bullish display commentary from not only our own Universal Display (OLED), but also LG Display and Samsung as they increasingly focus on organic light-emitting diodes for smartphones, TVs and eventually other applications like automotive and general lighting.
In short, we expect a bullish report and guidance to be had relative to the consensus expectations that have Applied Materials achieving EPS of $0.91 on revenue of $3.94 billion for the quarter.
- Heading into tonight’s earnings report we continue to rate the Applied Materials (AMAT) January 2018 60 calls (AMAT180119C00060000) a Buy.
- We continue to have a 1.30 stop loss for this position.
Housekeeping!
Because of the Thanksgiving holiday and shortened market hours on Black Friday, the next edition of Tematica Options+ will be coming to you a bit earlier than usual next week on Tuesday.
