CVS - Earnings Implosion And Opaque Near-Term

The pharmaceutical supply chain cohort is simply unable to obtain firm footing in the backdrop consolidation within the sector, legislative backdrop, drug pricing pressures, rising insurance costs and a market that has lost patience with these stocks. All of these factors culminate into sub-par growth with a level of uncertainty as this sector continues to face headwinds from multiple directions. Many of the stocks that comprised this cohort presented compelling valuations in a very frothy market. CVS Health (CVS) was one stock that stood out as compelling value sitting, near multi-year lows in December of 2018. During the market rebound in January and February, CVS began to appreciate to new highs moving from $63 in mid-January to $70 in mid-February or an 11% move to the upside. Upon the release of its Q4 earnings, the narrative quickly changed as the transition to growth and Aneta integration is proving to be much slower than investors had anticipated, yielding an opaque situation near term for the stock. CVS has a healthy balance sheet and growing its dividend while seizing partnerships and acquisitions to propel growth into the future. It’s no secret that these companies have been faced with several headwinds that have negatively impacted the growth and the changing marketplace conditions have plagued these stocks. Regardless, until growth is restored and Aneta is fully integrated to yield a fully functional bumper-to-bumper healthcare colossus, the stock remains range bound. However, the long-term picture looks rewarding for value investors as growth initiatives and acquisitions bear fruit.

Market Challenges

The political backdrop has been a major headwind for the entire pharmaceutical supply chain (i.e., drug manufacturers, pharmaceutical wholesalers, and pharmacies/pharmacy benefit managers). Exacerbating the political climate, the drug pricing debate continues to rage on throughout political and social media circles weighing on the sector. This backdrop erodes pricing power and margins of drugs that ultimately move from drug manufacturers to patients with insurers and other middlemen playing roles in the supply chain web. Continue reading "CVS - Earnings Implosion And Opaque Near-Term"

Hasbro: "We're Past the Toys "R" Us Debacle"

The Toys “R” Us bankruptcy has proven to be an albatross around Hasbro’s neck despite the confident, forward-looking narrative that’s been put forth for the previous two quarters by its CEO. The recent fourth-quarter earnings were disappointing, to say the least, capping off its historically best quarter. Revenue declined on an annual and quarterly basis by 12% and 13%, respectively. Despite these Toys “R” Us headwinds, Hasbro remains confident as the company annualizes the inventory glut caused by the liquidation. Hasbro (HAS) has a compelling future across its portfolio with many catalysts on the near and long term time horizon. This confident future was reinforced with an 8% increase in its quarterly dividend payout despite its revenue declines.

Hasbro is setting the post-Toys “R” Us bankruptcy narrative and laying out a business roadmap for long term profitable growth across its brands. 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. There's 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.

Jim Cramer’s Mad Money 2018 Interviews

Hasbro’s CEO Brian Goldner has had a string of interviews with Jim Cramer on Mad Money. Over the past year, Goldner has had the tough task of getting out in front of the Toys “R” Us bankruptcy and glut of merchandise. Continue reading "Hasbro: "We're Past the Toys "R" Us Debacle""

January Market Rebound Provides 100% Options Win Rate

Previously, I authored a piece covering options trading and the mechanics behind long-term successful options trading to generate high probability win rates for consistent premium income. I provided empirical data via 100 options trades during the market wide sell-off in Q4 of 2018 where the Dow and S&P 500 erased all of its gains while turning negative for the year and posting their worse December since the Great Depression in 1931. Despite this negative backdrop, I was able to successfully close 80% of my trades at a profit, demonstrating the resiliency of high probability options trading regardless of market condition. These trading mechanics resulted in a total portfolio return of -5.9% against the S&P 500 return of -14.0% in Q4 of 2018, outperforming the broader index by a wide margin.

Since then, the month of January presented the polar opposite market scenario with the S&P closing out the best January in over 30 years. Maintaining the same trading mechanics deployed in Q4 of 2018 into January produced a portfolio return of 9.26% against the S&P 500 return of 7.87%, outperforming the index by a healthy margin. This seesaw from a negative to a positive market backdrop provided unique opportunities to capitalize on option trading via capturing a higher percentage of premium income, closing contracts early in the option lifecycle and relinquishing previously assigned contracts, which allowed the repurposing of capital for further options trading. In January, I was able to achieve a 100% options win rate by closing 30 out of 30 option contracts while maintaining capital liquidity.

Terse Overview

Options trading can be a fantastic avenue to mitigate risk; provide consistent income, lower cost basis of underlying stock positions and hedge against market movements while maintaining liquidity. Risk mitigation is particularly important given the market wide melt-down during Q4 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. Continue reading "January Market Rebound Provides 100% Options Win Rate"

Fed Chairman Powell Resuscitates Financial Cohort

The market-wide sell-off in the fourth quarter of 2018 was largely induced by the Federal Reserve and its alleged commitment to sequential interest rate increases into 2019. This was largely viewed as reckless and misguided while turning a blind eye to broader economic data-driven decision making about further interest rate hikes. The stock indices responded to the sequential interest rate hike stance with overwhelming negative sentiment, logging double-digit declines across the broader markets. Many market observers were questioning the Federal Reserve’s aggressive stance as companies issued weakness in ancillary economic metrics (slowing global growth, strong U.S. dollar, trade war, government shutdown, weak housing numbers, retail weakness, auto sluggishness, and oil decline) as an indication that cracks in the economic cycle were materializing. The strong labor market and record low unemployment served as a basis to rationalize increasing rates to tame inflation however these aforementioned economic headwinds appeared to cause the Federal Reserve to pivot in its aggressive stance. As Chairman Jerome Powell began to issue a softer stance on future interest rate hikes, January saw very healthy stock market gains after being decimated for months prior. On January 30th, Jerome Powell issued language that the markets were craving to levitate higher as he left interest rates unchanged and exercised caution and patience as a path forward. Using data-driven decision making as a path forward was cheered by market participants as the broader indices popped for healthy gains on top of the already robust gains throughout January.

Financial Cohort Squeezed

The financial cohort was stuck in a precarious situation in the latter half of 2018. On the one hand, a rising interest rate environment would provide boosts to bottom line revenue as a function of the increased rates on their deposit base. Banks had domestic and global economic expansion tailwinds at their back while posting accelerating revenue growth, increasing dividend payouts, engaging in a record number of share buybacks, benefiting from tax reform and deregulation. Augmenting this positive backdrop was a record number of IPOs, a record number of global merger and acquisitions along with consulting fees regarding mergers and acquisitions and trading around market volatility. All of these elements ostensibly provided an ideal confluence that boded well for the financial sector. JP Morgan (JPM), Citi (C), Wells Fargo (WFC), Goldman Sachs (GS) and Bank of America (BAC) seemed to be poised to continue to benefit from the favorable economic backdrop. Despite all these elements, 2018 was terrible for the financials which performed horribly, especially during the fourth quarter as rapid rate hikes were in the cards. Continue reading "Fed Chairman Powell Resuscitates Financial Cohort"