Making some tactical moves as earnings go into overdrive

Key Points from this Alert

With September quarter earnings kicking into high gear, it means the stock market is on the cusp of what could be a significant recalculation when it comes to earnings expectations for the December quarter. We know you’ve heard us prattle on about this over the last few weeks, so much so that you might think we’re a broken record, but over the coming days the earnings rubber is about to hit the stock market road.

Yesterday more than 100 companies reported earnings compared to 82 this past Monday and Tuesday, and we’ve got another 140 coming before we exit the week. Next week more than 970 companies will be reporting their September quarter earnings, which means team Tematica will be stocking up ahead of coffee beans as we burn the midnight oil.

Given the growing number of companies that have reported either missed revenue or earnings for the quarter, or offered a softer than expected outlooks, rather than add to our existing ProShares Short S&P500 (SH) position, we’re going to take advantage of the recent pullback in SH shares to add a layered option position to the Tematica Pro Select List. We are adding the following position:

As we do this, we will continue to hold the ProShares Short Russell 2000 (RWM), ProShares Short Dow30 ETF (DOG) and ProShares Short S&P500 (SH) shares that are on the Tematica Pro Select List.

 

Updates on Amazon, Under Armour and Universal Display

In yesterday’s Tematica Investing, we shared a number of updates that also reaffirm our bullish stance on our Amazon (AMZN), Under Armour (UA) and Universal Display (OLED) call positions:

 

Scaling into Costco calls

Before we close out and get ready to mine through today’s earnings reports for thematic data points, we want to visit with our in Costco Wholesale (COST). Earlier this month we added the Costco Wholesale (COST) January 2017 $170 calls (COST170120C00170000), and along with the underlying Costco shares those calls have come under pressure. Even so, the latest retail sales report issued last Friday showed general merchandise stores in September fell 2.5% year over year. By comparison, Costco captured consumer wallet share during the month as its U.S. same-store sales were flat year over year in September.

Stepping back, let’s remember that one of the key aspects of Costco is its membership business model, which generates high margin fees that contribute significantly to the company’s operating profit and bottom line. Costco will open nine more warehouse locations before the end of 2016, including one relocation. In our view, these additional locations bode well for member growth and high-margin membership fees as well as retail sales growth over the coming months. Bolstering those fees, earlier this month Costco increased annual membership fees by about 10% in three Asian locations — Taiwan, Korea and Japan — as well as in Mexico and the U.K.

 

About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

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