Tax Vote, Bitcoin, Nike, Micron, Red Hat: Investing Action Plan

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Validea Peter Lynch Strategy Daily Upgrade Report - 12/9/2017


Here’s your weekly Investing Action Plan: what you need to know as an investor for the coming week.

[ibd-display-video id=3025730 width=50 float=left autostart=true] Tax cuts that could deliver a massive investor windfall via dividend increases and share buybacks could be signed into law, while the last bonanza du jour could moderate further as new Bitcoin futures contracts open for trade. Also, a final burst of earnings reports will land before everyone leaves town for the holidays and will include Nike ( NKE ), Micron Technology ( MU ), Red Hat ( RHT ), FedEx ( FDX ) and Winnebago ( WGO ).

Stocks To Watch

CES, where the latest and greatest car technology is expected to be a hot topic, is just a couple of weeks away. Your stocks to watch this week are five names that are focusing business efforts on the intersection of cars and technology: Tesla (TSLA), Intel (INTC), Fiat Chrysler (FCAU), General Motors (GM) and Ford (F).

After retaking both the 50-day and 200-day lines on Dec. 11, Tesla is now working on a new consolidation base with a 389.71 buy point. Shares are 12% below that level. Tesla’s retaking of the 50-day in strong volume could also be a buying opportunity for aggressive traders.

Intel shares are trading 6% below a flat base buy point of 47.40. The stock is seeing strong volume on the rebound from the 50-day line, though the action we’re seeing in Friday’s trading could be inflated by triple witching, which occurs when weekly, monthly and quarterly options expire on the same day.

Fiat Chrysler is trading 4% below a buy point of 18.43 in flat base. Shares are finding support at the key 50-day moving average.

General Motors is looking to form a flat base with a 46.86 buy point. Depending on how the stock trades in the coming days and weeks, the pattern could turn into a double-bottom base , with the buy point being 10 cents above the middle peak of 45.35.

Ford is trading in buy range from a saucer-with-handle entry point at 12.55. The stock was able to find support at the 50-day moving average before clearing the entry point in strong volume in late November. Ford shares are trading well below their all-time highs, so this could be considered a bottoming base.

Tax-Cut Payoff

Republicans appear on track to get their near-$1.5-trillion tax bill to President Trump’s desk in the coming week. The final deal will feature a 21% corporate tax rate starting in 2018. Republicans don’t have any time to spare, since the new Democratic senator from Alabama will be sworn in sometime after Christmas, shrinking their margin of error in the Senate to just one vote. A Senate vote is expected on Monday or Tuesday, with the House following shortly after. The tax legislation would lower individual tax withholdings starting early in 2018, increasing take-home pay.

The GOP has said its tax cuts will fuel more investment and boost growth, though companies are already sitting on hefty cash piles that they have been using recently for acquisitions, dividend hikes and stock repurchases. In the short term, markets expect the tax cuts to spur more payout increases, as evidenced by recent rallies in popular dividend stocks like Boeing (BA).

Still Crazy For Bitcoin?

CME Group (CME) will launch Bitcoin futures trading on Monday, just over a week after Cboe Global Markets (CBOE) inaugurated futures on the hot digital currency. TD Ameritrade (AMTD) will also allow Bitcoin futures trading on Monday. Meanwhile, Interactive Brokers (IBRK) now allows investors to short Bitcoin on its trading platform. The increased market exposure seems to have moderated the price of Bitcoin, which saw wild swings (mostly to the upside) before futures trading began, though the futures contracts have been on a bumpy ride. The start of trading on CME could add another check on volatility. If that continues, other cryptocurrencies like Ethereum, which surged over the past week, could gain more attention from speculators looking for the next Bitcoin.

Nike Earnings To Drop Sharply

When the world’s leading sports apparel and footwear brand reports fiscal Q2 results late Thursday, analysts are expecting a 22% drop in EPS to 39 cents, while sales are seen growing 2.5% to $8.39 billion. The bottom-line drop would be the worst in years. In late October, Nike rolled out at its investor day a new vision for retail, one that includes special displays at stores and a focus on direct-to-consumer sales. Look for signs that Adidas’ outperformance has been taking a toll on the company, and updates on its partnership with Amazon (AMZN). Nike shares have shot up just in the last month to the highest level since late 2015, due in part to hopes for a lower corporate tax rate.

Meanwhile, athletic gear retailer Finish Line (FINL) reports before the open Thursday.

Micron Earnings To Soar Nearly 600%

The memory-chip maker is scheduled to report fiscal Q1 results after the market close on Tuesday, and analysts expect EPS to shoot up to $2.20 from 32 cents a year ago. Revenue is seen jumping 61% to $6.39 billion in the November quarter. Boise, Idaho-based Micron has been buoyed in recent quarters by strong demand and pricing for its memory and data-storage chips. But memory-chip stocks fell last month after Morgan Stanley downgraded several names on concerns that prices will fall, though Micron was seen as less threatened by the expected fall in Nand prices due to its strength in DRAM memory chips.

IBD’S TAKE: Buying or holding a stock can be risky heading into an earnings report. Here’s an earnings options strategy that can help you cash in on post-earnings stock gains, while minimizing the risk from a weak quarter.

Air War To Heat Up

On Monday, the U.S. International Trade Commission will hear arguments about Bombardier’s sale of C Series jets to Delta Air Lines (DAL). Boeing said the Canadian company receives unfair subsidies and can offer artificially low prices. The commission could overrule the U.S. Commerce Department’s decision in September to levy a 300% tariff on C Series jets sold domestically. But Bombardier is already trying to get around the tax by teaming up with Airbus (EADSY) to build the jets in Alabama for U.S. customers. The trade spat has spread into the defense market, and Canada recently ditched plans to buy Boeing F/A-18 Super Hornets.

Winnebago Near Record As Demand Grows

The RV giant reports fiscal Q1 results Wednesday, and analysts see EPS of 50 cents on revenue of $373 million, a 52% jump. Winnebago acquired towable RV-maker Grand Design in November 2016. Specialty-vehicle maker REV Group (REVG) – which owns RV companies Fleetwood and Renegade but also sells firetrucks, ambulances and other vehicles – is expected to report EPS of 8 cents on revenue of $743 million when fiscal Q4 results come out on Tuesday. The reports come as the RV industry enjoys a resurgence, helped by some big acquisitions, cheaper towable RVs, and younger consumers who have found more ways to use the vehicles.

Red Hat Is Red Hot

The No. 1 provider of open-source Linux software for corporate data centers reports  Q3 earnings late Tuesday. Analysts expect EPS growth of 15% to 70 cents per share with revenue rising 19% to $735 million. The company’s biggest revenue generator is Red Hat Enterprise Linux. But analysts have been looking for traction in Red Hat’s public cloud business as customers shift computing workloads to cloud service providers such as Amazon Web Services, part of Amazon and a Red Hat partner. Red Hat shares have surged more than 80% this year.

Can FedEx Keep Up With Holiday Rush?

The delivery giant reports Tuesday and is expected to see EPS climb 2% to $2.86 as revenue grows 5% to $15.7 billion, battling disruptions from hurricanes and other recent natural disasters. Analysts will focus on FedEx’s outlook for the current holiday quarter, which is seeing another surge of online orders. Earlier this month, rival UPS (UPS) said it’s struggling to handle the flood of e-commerce demand, warning of delays and more overtime, despite major investments in capacity. Still, FedEx stock pegged a record high in early December and is extended from its September breakout past a 220.09 entry in a first-stage flat base.

Other Earnings

  • Paychex (PAYX), a provider of payroll and HR software, releases fiscal Q2 results Thursday before the market open, and analysts see EPS rising 5% to 59 cents, on revenue of $823 million, up 7%.
  • Cintas (CTAS), a uniform company, reports fiscal Q2 results late Thursday, and Wall Street sees EPS rising 8.7% to $1.25 as revenue grows 22% to $1.59 billion. Shares are in buy range.
  • Darden Restaurants (DRI), the operator of Olive Garden and LongHorn Steakhouse chains, is scheduled to report fiscal Q2 results before the market opens Tuesday. Analysts expect EPS to climb 9.4% to 70 cents with revenue rising 12.7% to $1.85 billion.
  • Accenture (ACN), a tech consulting and services company, reports fiscal Q1 earnings early Thursday, and analysts expect EPS growth of 19% to $1.67 with revenue rising 8.8% to $9.26 billion. Accenture also has been investing in digital, cloud and security services.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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