Burger King (NYSE: BKC - option chain) shares are falling today after posting a fourth-quarter profit of $51 million, or 37 cents per share, beating analysts' estimates of 34 cents per share. However, BKC shares are falling this morning after the company reported its total restaurant margins decreased to 13.1 percent in the quarter, hurt largely by higher commodity costs like more expensive beef and chicken. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BKC or other similar stocks like MCD or YUM.
This morning, BKC opened at $27.29. So far today the stock has hit a low of $25.17 and a high of $27.29. As of 12:21, BKC is trading at $26.03, down $1.42 (-5.2%). The chart for BKC looks neutral and S&P gives BKC a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $30 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in three months as long as BKC is below $30 at October expiration. Burger King would have to rise by more than 15% before we would start to lose money. Learn more about this type of trade here.
BKC hasn't been above $30 for more than a few days out of the past year and has shown resistance around $29 recently.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BKC.
By all accounts, Salesforce.com (NYSE: CRM) is on its way to being a legendary software company. Based on the latest quarterly results, announced Wednesday after the close, the revenues are on track to reach $1 billion.
The company also continues to grow at a blistering rate. In Q2, revenues surged 49% to $263.1 million. Net income came to $10 million, or $0.08 per share. Actually, for the past 12 months, Salesforce.com generated about $270 million in operating cash flow. In all, there is $823 million in the bank.
Q2 saw the addition of roughly 4,100 new customers for a total of 47,700. What's more, Salesforce.com continues to get traction with its existing major customers, such as Dell (NASDAQ: DELL), Citi (NYSE: C) and Canon. It certainly helps that the company has a highly customizable platform (known as force.com).
Something else: Salesforce.com announced the acquisition of InStranet, which develops knowledge-based management systems for call centers. There has been much demand for such offerings, so why not buy a leading company in the space? Salesforce.com considers the market opportunity to be about $3 billion.
The issue? Well, the deal will mean a 5 cents charge per share for the full-year.
That's not appetizing to Wall Street. So far in today's trading, Salesforce.com's shares are down 15% to $55.31.
BJ's Wholesale Club (NYSE: BJ - option chain) shares are falling today despite reporting second-quarter profit that beat estimates and announcing a share buyback. This is possibly because discretionary item spending slowed. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BJ or similar companies like COST.
This morning, BJ opened at $38.60. So far today the stock has hit a low of $37.11 and a high of $38.98. As of 12:45, BJ is trading at $37.99, down $2.69 (-6.6%). The chart for BJ looks neutral and S&P gives BJ a neutral 3 STARS (out of 5) hold ranking.
For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in two months as long as BJ is below $45 at October expiration. BJ's would have to rise by more than 18% before we would start to lose money.
BJ hasn't been above $45 at all in the past year and has shown resistance around $43 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in BJ.
Saks (NYSE: SKS - option chain) shares are falling today after the company reported second-quarter losses of $31.7 million, or $0.23 a share, this morning, less than analysts' estimates of -0.17. The company also forecast lower operating margins. If high-end retailers are hurting, then there is definitely some behavior of the average American consumer that is changing as well. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on SKS.
This morning, SKS opened at $10.60. So far today the stock has hit a low of $9.60 and a high of $10.61. As of 12:10, SKS is trading at $9.92, down $1.30 (-11.6%). The chart for SKS looks neutral while S&P gives SKS a positive 4 STARS (out of 5) buy ranking.
For a bearish hedged play on this stock, I would consider a November bear-call credit spread above the $12.50 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in three months as long as SKS is below $12.50 at November expiration. Saks would have to rise by more than 26% before we would start to lose money. Learn more about this type of trade here.
SKS hasn't been above $120 since late June and has shown resistance around $12 recently. Brent Archer is an options analyst and writer at Investors Observer.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SKS.
Investors in shares of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) went wild on speculation today that the government would put new funds into the mortgage agencies and wipe out common shareholders. The market was dragged down over 200 points at some point on a ripple of concerns about the financial sector:
Early in the day, the chance of a hurricane moving into the Gulf of Mexico pushed oil up and knocked equities down. Once the storm moved over Florida and away from deep-water rigs, oil went back down.
The trading was so bleak and depressing that most traders probably went home to watch the last few events of the Olympics. Those who stayed saw a few notable moves:
BRCM opened this morning at $28.23. So far today the stock has hit a low of $27.76 and a high of $28.39. As of 12:20, BRCM is trading at $27.86, up 40 cents(1.5%). The chart for BRCM looks bullish and S&P gives BRCM a positive 4 STARS (out of 5) buy ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just three months as long as BRCM is above $20 at November expiration. Broadcom would have to fall by more than 27% before we would start to lose money. Learn more about this type of trade here.
BRCM hasn't been below $20 since April and has shown support around $23 recently.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in BRCM.
SPWR opened this morning at $87.64. So far today the stock has hit a low of $87.57 and a high of $93.93. As of 12:55, SPWR is trading at $93.26, up $14.69 (18.7%). The chart for SPWR looks neutral and S&P gives SPWR a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $55 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think, but willstill leverage nice returns. For this particular trade, we will make an 11.1% return in just four months as long as SPWR is above $55 at December expiration. Sunpower would have to fall by more than 40% before we would start to lose money. Learn more about this type of trade here.
SPWR hasn't been below $55 since March and has shown support around $71 recently. With the way the political climate is shaping up, it looks like some form of solar power should be here for quite a while.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in SPWR.
General Motors Corp. (NYSE: GM) stock finished the day up nearly 11%, or $1.09 to $11.35 after two days of losses. It seems that overall sentiment for blue chip stocks was stronger today as buyers looked for bargains. With the recent slide in oil prices, including another decline today, many stocks previously hit by the runup in oil prices, like car companies, found themselves back in favor.
But that's just the beginning. Ray Young, GM's chief financial officer, spoke with analysts Wednesday evening at a JPMorgan automotive conference, saying efforts are being made to speed up cost savings. GM, he said, may be able to reap more of the $10 billion in projected savings this year instead of in 2009.
With the faster savings, the plan to boost GM's liquidity seems more plausible, and the solvency problems less severe. Young's announcement came right after Moody's Investors Service lowered GM's credit rating, and seems it was indeed small comfort. Some analysts believe that the chance of a bankruptcy is lower than is priced in, despite balance sheet and operating concerns.
Today was another very volatile day with stocks posting triple-digit DJIA losses. Shares opened and traded lower, then recovered sharply before falling back down at the end of the day. Oil and commodities rose. Oil was up over $3.00 to over the $116 a barrel mark on soft inventory levels and reports Russia is seizing a Georgian pipeline. With gold rising almost $17.00 and the dollar falling, it almost felt like the commodity trades were coming back on. There was a drop in import prices, but that wasn't enough to keep the bears from roaring today.
Here are Wednesday's unofficial closing bell numbers:
Google Inc. (NASDAQ: GOOG) saw shares down marginally today as the stock was down 0.8% at $498.53 in the final minutes before the close. Jim Cramer interviewed Google's CEO & Chairman on CNBC today and he brought back that $750 Target.
Dr. Pepper Snapple Group (NYSE: DPS - option chain) shares are flying higher today after the company reported this morning earnings that beat expectations by 5 cents and set its full-year forecast about 3 cents higher than previous analyst estimates. Even if consumers are spending less, it seems that charging $1.50 for two liters of soda that cost only a few cents to produce is still a good business model. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on DPS.
DPS opened this morning at $22.21. So far today the stock has hit a low of $22.12 and a high of $23.77. As of 12:45, DPS is trading at $22.94, up $1.28 (5.9%). The chart for DPS looks neutral, but improving.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $20 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 16.3% return in just three and a half months as long as DPS is above $20 at November expiration. DPS would have to fall by more than 12% before we would start to lose money. Learn more about this type of trade here.
Nvidia (NASDAQ: NVDA) turned in putrid earnings. It also announced that it would buy back a ton of its own shares.
The graphics chip company took a charge of nearly $200 million in its last quarter for product problems. Nvidia also admitted it did not see strong competition coming from rival AMD (NYSE: AMD). Nvidia lost $120 million in the quarter and revenue dropped slightly. Under most circumstances, especially in a weak market, the company's shares would be punished.
But according toThe Wall Street Journal, "On a positive note, Nvidia announced a $1 billion increase to its stock-buyback program." For a company with a market cap of only $6 billion that is a big deal.
Share buybacks often do not do much for a company's stock price, but in a market where earnings are having a rough time in most sectors, the idea that EPS can be pushed up by a falling number of shares in the float could become more attractive. It is a form of "reverse dilution," which could find a new place in a bear market.
Nvidia share shares rose 10% after hours [shares are rising 6% in premarket as of 8:10 a.m.]. It may be a signal to management at other companies that buybacks are a sign that a firm thinks its shares are undervalued. The market cares more about that than it used to.
Douglas A. McIntyre is an editor at 247wallst.com.
Fossil, Inc. (NASDAQ: FOSL), the maker of watches and trendy apparel, surprised the Street this morning with stronger-than-expected second-quarter earnings. The retailer multiplied the positive momentum by boosting its full-year forecast. This double dose of good news has sent shares of Fossil more than 8% higher in early-morning trading.
For the recently concluded quarter, net income soared 71% to $25.1 million, or 36 cents per share, while net sales jumped 15% to $353.2 million. The results exceeded Fossil's own forecast, provided in May, for a profit of 29 cents per share on sales growth of 12% to 14%. Analysts had even more modest expectations, with the consensus calling for a profit of 25 cents per share on $346.9 million in revenue.
Digging deeper into the second-quarter figures, gross margin rose from 49.1% to 53.9%, thanks to cost-cutting initiatives and inventory management. Same-store sales climbed 5.7%, while direct-to-consumer sales surged 25%. Domestic watch sales grew by 2.3%, and international wholesale sales rose 20% (or 9.5%, excluding currency fluctuations).
LDK Solar Co. (NYSE: LDK) American Depository Shares are jumping nearly 20% to $40.01, up from a close of $33.58, after the solar wafer manufacturer reported second-quarter results after the close.
LDK experienced some 200% sequential growth in net earnings to $149.5 million, or $1.29 per ADS. Even excluding the change in fair value of prepaid forward contracts, the company earned 82 cents a share, according to Reuters Estimates. That beat -- more like trounced -- analyst estimates of 40-42 cents a share. Revenues for the quarter were $441.7 million, up 345.9% year-over-year from $99.1 million, beating consensus of around $282 million.
The China-based multicrystalline solar wafer, solar cells and solar modules manufacturer said additional manufacturing capacity, which exceeded its own expectations, allowed the company to sell more solar wafers.
LDK didn't just beat estimates, it also raised guidance. It sees third-quarter revenue of $486-496 million vs. consensus of $307.05 million. It raised its 2008 revenue estimate from $1.08-1.18 billion to $1.65-1.75 billion. This is again far higher than analysts estimates of $1.15 billion.
LDK has been a hot stock in a hot sector. Its shares have enjoyed a wild ride in 2007 as concerns over soaring oil prices and global warming have boosted the sector, culminating in LDK recording a 52-week high of $76.75 in late September of '07. Since then, new concerns over Spanish government cutting subsidies sent solar stocks lower.
The effect of these lower subsidies on the sector and LDK remains to be seen as perhaps they could be offset by orders from other European countries. LDK, though, is also trying to control its raw material costs by building polysilicon plants, the progress of which has been "tremendous" according to the company.
After a rather nasty stock slide in earnings, share price and reputation MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance, has finally reported good news for its depressed investors; for the second quarter of 2008 the company's net income was $1.7 billion, or $7.14 per share, an improvement, compared with $211.8 million, or $1.61 per share for the corresponding period of 2007(see more earnings news).
MBIA is generating revenue from existing business but new business has been harder to come by since Moody's and Standard & Poors both downgraded the company from a financial rating of AAA to AA.
Since I recommended the stock on July 29, 2008 it is up 74% rising from $4.92 to the close last Friday of $8.57. It is trading mid-day at $8.80. I will update after todays close.
In other news the company has also announced a law suit against Bill Ackman who shorted the stock and made many public claims that MBIA was destined to become insolvent. MBIA (MBI) And Ackman: Killing The Messenger.
SYSCO (NYSE: SYY - option chain) shares are soaring higher today after the company reported a fourth-quarter profit of $334.1 million, or 55 cents per share, beating analysts' estimates of 52 cents per share(see more of today's earnings news). It turns out that low-cost, bulk food products are still in high demand, especially at a time when consumers pocketbooks are feeling the pinch, so fancier fare may be out of the question. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on SYY.
SYY opened this morning at $30.29. So far today the stock has hit a low of $29.50 and a high of $31.47. As of 12:30, SYY is trading at $31.21, up $1.34 (4.5%). The chart for SYY looks neutral and S&P gives SYY a neutral 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $27.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.6% return in just three and a half months as long as SYY is above $27.50 at November expiration. SYSCO would have to fall by more than 11% before we would start to lose money.
SYY hasn't been below $27.50 for more than a few days in the past year and has shown support around $28.50 recently.
Brent Archer is an options analyst and writer at Investors Observer. At publication time, Brent neither owns nor controls positions in SYY.
Burger King (NYSE: BKC - option chain) shares are falling today after posting a fourth-quarter profit of $51 million, or 37 cents per share, beating analysts' estimates of 34 cents per share. However, BKC shares are falling this morning after the company reported its total restaurant margins decreased to 13.1 percent in the quarter, hurt largely by higher commodity costs like more expensive beef and chicken. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BKC or other similar stocks like MCD or YUM.
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