Stocks are entering 2019 in bear market territory and posted its worse quarter since the Great Depression after imploding in Q4 of 2018. Disney (DIS) has been a diamond in the rough given the negative backdrop albeit down from its 52-week high by 8%. This stock has bucked the negative trend and has demonstrated its resilience during this period. As this sell-off presents itself, long-term investors may want to take advantage of this weakness and initiate a position in this high-quality company at a discount. All the initiatives that Disney has taken over the previous two years to restore growth appear to be coming to fruition, namely its Fox (FOX) acquisition and its streaming initiatives. The Fox acquisition is complete now that the U.S. and China provided the green light for the combined entity thus Fox’s assets are now definitively being absorbed by Disney. As part of the contingencies, Disney is divesting its 39% Sky ownership stake that it acquired via the Fox acquisition to Comcast (CMCSA). This divestiture enables Disney to reduce its debt that was required to purchase the Fox media assets and will allow more investment into its streaming services such as Hulu, ESPN Plus and its Disney branded streaming service that will directly compete with Netflix (NFLX). The Fox acquisition brings a majority stake in Hulu (60% ownership) while its ESPN Plus launched earlier this year and had over 1 million subscribers in its early phases of being rolled out. Disney continues to dominate at the box office while posting great growth at its theme parks translating into a robust and durable revenue stream. The company is evolving to meet the new age of media consumption demands of the consumer via streaming and on-demand content. To this end, shareholders and analysts are beginning to resonate with Disney’s vision for future growth. This was reflected in its stock and had appreciated to a 52-week high before the market wide meltdown. Disney offers a compelling long-term investment opportunity in light of the recent weakness given its reinvention catalysts that will continue to bear fruit over the coming years. Continue reading "Disney - Compelling Long-Term Investment In 2019 and Beyond"
I previously wrote an article walking through the anatomy of an options trade and the mechanics behind long-term successful options trading to generate high probability win rates for consistent premium income. In this article, I will provide empirical data over my first 100 options trades as a supplemental follow-up to this article above. These data are particularly noteworthy for a variety of reasons, most notably due to the market wide sell-off during this period where the Dow and S&P 500 erased all of its gains while turning negative for 2018. Furthermore, a week in December marked the worst percentage drop since the 2008 financial crisis while the Dow and S&P 500 posted their worse December since the Great Depression in 1931. This negative market backdrop provided a true test to the high probability trading and durability of this options trading method. Albeit my portfolio over this timeframe still produced a negative return these returns outperformed the S&P 500 by a wide margin (-8.8% versus -17.2%)
Options trading can mitigate risk; provide consistent income, the lower cost basis of underlying stock positions and hedge against market movements while maintaining liquidity. Risk mitigation is particularly important given the market wide sell-off throughout October-December of 2018. Maintaining liquidity via maintaining cash on hand to engage in covered put option selling is a great way to collect monthly income via premium selling. Heeding critical variables such as implied volatility, implied volatility percentile and probability, one can optimize option selling to yield a high probability win rate over the long term given enough trade occurrences. I’ll demonstrate via empirical data how these critical elements translate from theory to reality. In the end, options are a bet on where the stock won’t go, not where it will go and collecting premium income throughout the process. These empirical data demonstrate that the probabilities play out given enough occurrences over time. Despite a small sample size (100 trades) in a period where the market erased all of its gains for the year and posted the worst quarter since 1931, an 80% win rate was achieved while outperforming the broader market by a wide margin. Continue reading "My First 100 Options Trades"
I wrote a piece back in July “Visa: The Valuation Conundrum In A Frothy Market” putting forth my belief that Visa Inc. (NYSE:V) did not possess the growth characteristics to justify its valuation and its appreciation was largely a function of its Visa Europe acquisition and the overall bull market. This bull market was rewarding stocks with sky-high valuations particularly in the technology sector which has recently fallen out of favor. The recent market wide sell-off in equities during the fourth quarter has erased all gains for the broader S&P 500 index and many individual stocks. Despite this market wide sell-off, Visa has delivered great returns in 2018, appreciating 23% and currently sits at $137 per share against a 52-week high of $151. Visa faces emerging threats in the digital payments space, blockchain technology and maturing markets in the traditional payments space leading to slower growth prospects. I’ve been reluctant to get behind the stock of Visa considering its valuation, slowing growth and trends away from the traditional credit card space among the younger demographics that embrace PayPal (PYPL) and PayPal’s Venmo for payment options and exchanging payments between multiple parties. There’s also Zelle that is now powering transfers to and from bank accounts, adding to the digital evolution in the payments space. Amazon (AMZN) may be disrupting the credit card transaction space with its potential launch of Amazon financial services and Amazon Pay. I feel that shareholders have become overly enthusiastic about Visa’s growth prospects. The stock has appreciated over 20% this year, boasts a P/E of over 30 and a PEG of over 1.7 in the midst of a frothy market that has only recently sold off. This scenario doesn’t provide a great benefit-reward profile at these levels in my opinion unless the market wide pull back brings Visa more in-line with its growth profile.
Visa Fiscal Q4 Earnings and Valuation Paradox
Visa reported its fiscal Q4 earnings that beat on EPS by $0.01 (EPS of $1.21) and missed on revenue estimates by $10 million (revenue of $5.43 billion) which grew by 11.7% year-over-year. Visa also provided guidance for its fiscal 2019, “annual net revenue growth: Low double-digits on a nominal basis, with approximately one percentage point of negative foreign currency impact.”
I feel Visa’s stock price is still misaligned with its overall revenue growth prospects with an unjustified P/E and PEG ratio that remains higher than the majority of large-cap growth stocks that have a greater growth profile. Visa’s management has forecasted continued revenue growth in the low double digits with EPS growth in the mid-teens, artificially high due to share buybacks. This forward-looking revenue growth rate is a shape divergence from the post-Europe Visa acquisition revenue growth numbers. Visa’s growth rate is slowing from these artificially high post Visa numbers thus misaligned with its growth profile. Continue reading "Visa: The Valuation Conundrum In A Frothy Market - Part Two"
The market-wide sell-off in equities during the fourth quarter has disproportionally impacted growth stocks that possess high price-to-earnings multiples translating into rich valuations. The market appears to have lost its appetite for the high growth and steep valuation equities that had huge upward moves throughout this record-setting bull market. HealthEquity Inc. (HQY) continues to post quarter after double-digit quarter growth in revenue and EPS and has been rewarded with a rich valuation as a function of its impressive growth. This high price-to-earnings multiple may be in jeopardy as the market moves into a risk-averse environment. As high-flying equities come down in the broader market sell-off, Health Equity may come down as a result and erase some of its monster gains that were witnessed in 2018. To be clear, Health Equity is an intermediary servicing the secular growth Health Savings Account (HSA) space that’s largely independent of legislative actions, drug pricing, rising insurance costs and not playing any role in the pharmaceutical supply chain. HealthEquity manages funds allocated for medical, dental and vision expenses that are deducted on a pre-tax basis and deposited into a dedicated HSA account. The company blew out the numbers when it reported its Q3 FY19 results and beat on both the top and bottom line.
HealthEquity manages $7.1 billion in assets across 3.7 million accounts against a potential market maturity of $1 trillion in assets across 50-60 million accounts. The durability of this growth has a long runway due to the secular growth in the HSA market. The company is sitting on largely untapped revenue sources where the vast majority of account holders have yet to invest any HSA money in investment offerings. Expanding margins for greater profitability is also unfolding as the older the account, the greater the gross margins. HealthEquity is currently sitting on a healthy balance sheet with $330 million in cash and cash equivalents with no debt. The company is posting accelerating revenue, cash flow, margin expansion and income growth with a strong balance sheet. I feel that HealthEquity will continue to post strong growth as it services the double-digit HSA growth market and manages more assets, accounts, and investments within these accounts. HealthEquity may be a great long-term investment in the healthcare space that’s independent of the health insurances, pharmaceutical supply chain companies, drug makers or pharmacies. Previously, I warned that the “current valuation is rich in an already frothy market thus caution at these levels is wise” and now it appears this heeding was responsible as the stock has sold off from $101 to $74 shedding 26% of its market value during the fourth quarter. Health Equity looks compelling after this healthy correction as the long-term narrative remains intact. Continue reading "HealthEquity Inc. - Rich Valuation Concerns?"
The retail cohort reported a mixed bag during the most recent earnings season with Target (TGT), Khol’s (KSS), Gap (GPS), WalMart (WMT), Best Buy (BBY) and the Retail ETF (XRT) all experiencing downward pressure. This pressure has been exacerbated by the market wide sell-off in the broader indices. Hasbro (HAS) has struggled to find its footing moving into its historically biggest quarter. Hasbro is setting the post Toys R Us bankruptcy narrative and laying out a business roadmap for long-term profitable growth across its brands. The headwinds attributable to the bankruptcy of Toy R Us appear to be subsiding. This sentiment has been further bolstered by positive commentary from its CEO that the company will absolve itself of this Toy R Us related bankruptcy headwind come 2019. As Hasbro realigns and effectively manages the Toy R Us liquidation, this challenging backdrop is beginning to resolve itself to Hasbro's benefit. There are many current and future growth catalysts for Hasbro in movie franchises such as Marvel, Star Wars and other Disney (DIS) properties (Hasbro is the exclusive toy maker). Potential e-sports with Dungeons and Dragons and Magic: The Gathering, newly acquired Power Rangers franchise which will emulate Hasbro’s My Little Pony and Transformers’ Bumblebee within Hasbro Studios and its legacy games such as Monopoly and Nerf. Hasbro may benefit from a strong consumer, record low unemployment, a strong and growing dividend yield, clear skies post Toy R Us liquidation and putting forth initiatives within Hasbro Studios to further propel growth thus presenting a compelling long-term buy.
E-Commerce Channels Mitigating Toys R Us Bankruptcy
Analysts are predicting e-commerce toy orders to balloon to 40% of overall sales this year, up from 28% last year. Since Toys R Us has gone bankrupt, this puts a void of ~14% of last year’s U.S. toy sales that needs to be bridged, translating into $2.5 billion in revenue. This void will likely be filled by Target, Walmart and Amazon (AMZN) which recently, for the first time it will offer free shipping to everyone through the day before Christmas with no minimum purchase required. Per Jefferies analyst Stephanie Wissink, 70% of toy sales occur during the holiday season. Target and Walmart have announced expanded free-shipping programs of their own to drive online sales. Wissink sees Hasbro’s stock hitting $120 within a year and notes that the overall set-up for 2019 looks better than 2018. As other retail chains close the gap with the Toys R Us vacancy, Hasbro will likely return to form and growth across its brands. Hasbro has one more quarter to report earnings in which the Toys R Us issues will be impacting its numbers. 2019 will be free of this headwind, and all numbers will come full circle and be compared to post Toys R Us landscape. Continue reading "Hasbro Stock Struggling To Find Footing"