Weekly Issue: Pull Back in Netflix Shares Offers and an Opportunity for Call Position

Weekly Issue: Pull Back in Netflix Shares Offers and an Opportunity for Call Position

Key points inside this issue:

 

A few weeks ago, we added shares of Netflix (NFLX) to the Tematica Investing Select List as the pole position play for our newly christened Digital Lifestyle investing theme. Since then, the shares have come under pressure following what some saw as a disappointing June quarter earnings report, even though the company continued to add more than 25 million net new paid subscribers year over year. As more proprietary content from Netflix geared toward more countries rolls out in the coming months and as more consumers look to cut the cord, Netflix and its increasing content library remain very well positioned in my view.

Historically speaking, the company’s business has been favorably skewed toward the second half of the year. That seasonality, combined with the recent more than 12% pullback in the shares has me adding the Netflix (NFLX) Jan 2019 400.00 (NFLX190118C00400000) calls that closed last night at 17.00 to the Options+ Select List. For now, I’ll hold off adding a stop loss to the position as I intend to use any late summer weakness to improve the position’s cost basis. On the flip-side, subscribers should not chase these calls above 25.00.

 

Costco calls move higher, and we’re adding a stop loss to limit downside risk

Last week we added a call position on Middle-Class Squeeze company Costco Wholesale (COST). As those COST shares have continued to climb over the last week and our January 2019 $230 calls have soared in response. As of last night’s close, those calls finished up at 8.40, up more than 27%. As Costco wins additional bullish investors and analysts, and the company continues to win consumer wallet share and open additional warehouse locations, I continue to see more upside in both COST shares and our call position here at Tematica Options+.

As bullish as I am on these securities, we need to keep in mind potential downside and that has me instilling a stop loss for our COST calls at 6.60, which is the same as our initial buy-in. Worst case, should we get stopped out, we’ll have a de minimus loss, but as we head into the seasonally strong spending season that is the second half of the year, I suspect that stop-out probability to be low.

 

Remaining patient with our Dycom calls

While we’ve seen little movement in the calls for Dycom Industries (DY), the specialty telecom contractor that counts AT&T (T) and Verizon (VZ) as well a Comcast (CMCSA) as core customers, I remain bullish given the positive commentary from mobile infrastructure companies Ericsson (ERIC) and Nokia (NOK) as well as network spending commentary from AT&T and Verizon on during their respective June quarter earnings conference calls.

The key here will be to remain patient with the rollout of 5G spending over the coming months and our Dycom calls, but with Motorola already announcing the first 5G capable smartphone and T-Mobile (TMUS) inking a multi-billion 5G contract with Nokia it looks to me that 5G will soon go from a slow boil to a roiling one in the coming months. Let’s remember that 5G devices can’t connect to a network that isn’t built.

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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