Air Transport (NSDQ: ATSG) Takes Flight, Santa Delivers on Retail Sales (but not stocks) and more…

Since my last update on December 17, the S&P is down a mere 2.4%. However, the moves in between these last 8.5 trading days were jolting. As I’m sure you all know, the market saw its worst Christmas Eve on record (SANTA- where are you?) followed by a sharp 5% jump on December 26.

Luckily we had some bearish exposure via the three “burger” put positions I suggested in early December. Longtime subscribers know that I typically jump at the chance to lock in a double-digit gain on options. You might be surprised to hear that a veteran hedge fund warrior is risk averse, but I have too many battle scars of seeing options’ value fade to zero to not book these gains.

I suggested selling the Wendy’s Company (NYSE: WEN) puts on December 18, the McDonalds (NYSE: MCD) puts on December 21, and the Restaurant Brands (NYSE: QSR) puts on December 26. The trades generated roughly 57%, 80%, and 70% gains respectively.

However, if you were off on a desert island without internet access for a bit, you might have realized even larger gains. Each put traded much higher than my suggested exit price, at least for a few days.

It is harrowing to issue option trade purchase suggestions when the market is so volatile. Stepping in front of a significant move up or down with an option purchase can leave you in a deep hole.

This unfortunate timing is what we have suffered from with the Urban Outfitters (NSDQ: URBN) call. I issued the option purchase to coordinate with a sales and earnings release. I got the fundamentals correct (both sales and earnings were above consensus), but the market sell-off wiped out the stock anyways. These calls expire on January 18. I will be monitoring them carefully with the plan that a bounce will help us recover some of the purchase price.

I’d like to see some trading sessions that tread water before issuing some of the buy recommendations on which I’ve been working. I know that the turning of the calendar page does not usher in a market sentiment change, but I have seen some green shoots in stocks behaving better, and my list of potential longs is significantly longer than my possible shorts one.

I wish all of you a very happy and safe New Year’s celebration and look forward to delivering some prosperity and hopefully helpful market insight to you in the coming year.

Around the Portfolio:

AbbVie (NSDQ: ABBV) rose 8% on a new Buy recommendation by brokerage firm Standpoint and due to the news that is has submitted an NDA (new drug application) to the FDA and a marketing authorization application to the European authorities for upadacitinib, an oral immunology drug, for the treatment of adult patients with moderate to severe rheumatoid arthritis. The applications are supported by data from the global upadacitinib SELECT Phase 3 rheumatoid arthritis program.

If approved, this could help put AbbVie’s drug portfolio back on the growth track.

Air Transport Services Group (NSDQ: ATSG), while one of the market’s best performers in the past two weeks (up 25%), is still down slightly from my recommendation price. However, the news that Amazon (NSDQ: AMZN) is expanding and extending contracts for its aircraft leasing and operating justify a much higher stock price.

The company announced agreements to lease and operate ten additional Boeing 767s for Services, Inc., and extended leases for twenty 767 aircraft.

The deal extension also includes a warrant deal that could potentially expand Amazon’s equity ownership of ATSG to 33%.

Analysts at Seaport Global and Imperial Capital hiked their targets on the news release.  Seaport Global analyst Kevin Sterling said on Friday that Amazon (AMZN) gave “an early Christmas gift” to Air Transport Services shareholders by extending and expanding its plane-leasing pact.

Imperial Capital analyst Michael Derchin upgraded Air Transport Services to Outperform from In-Line and raised his price target on the stock to $27 from $19 after the Amazon agreement. The new pact with Amazon is likely to lead to substantial revenue and earnings growth through at least FY20, contends Derchin.

Despite a Mastercard report describing enthusiastic  U.S. holiday season retail sales, our retail plays were up just marginally. According to Mastercard SpendingPulse, U.S. holiday sales from November 1 through December 24 increased 5.1% to more than $850B this year, calling this “the strongest growth in the last six years.” Online shopping also saw gains of 19.1% compared to 2017. Total apparel had a strong season with a growth rate of 7.9% compared to 2017, while electronics and appliances were down 0.7%.

Standpoint upgraded Target from Hold to Buy and Tapestry (NYSE: TPR) was named a top pick by Nomura Instinet and Needham analysts.

NXP Semi (NSDQ: NXPI) enjoyed little traction despite being initiated with an Overweight and a $100 price target at Piper Jaffray.

Stock Talk

Add New Comments

You must be logged in to post to Stock Talk