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Posted by Martin May 01, 2016
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Herbalife, Still Trying to Shake Bill Ackman, Could Beat on Q1 Earnings


The much put upon Herbalife (NYSE: HLF) will post its earnings for the first quarter of fiscal 2016 on Thursday, and I’m going to go out on a limb and anticipate it will meet analysts’ estimates, if not beat them.

When I say “much put upon,” and “going out on a limb,” I’m referring to hedge fund manager and activist Bill Ackman who took controversial steps to run the company out of business. Claiming that Herbalife is a pyramid scheme, he shorted the supplier of weight management and nutrition supplements by $1 billion in 2012.

Ackman is convinced that Herbalife preys on minority communities who reap little in financial gains for being distributors of Herbalife products. Through extensive lobbying efforts, hours-long Power Point presentations, Ackman has managed to convince some lawmakers to join his cause in getting federal regulators to investigate and shut down Herbalife.

Although Ackman’s cause seems notable, on the surface, beneath it smacks the type of greed that could lead even the most well-intentioned causes failing to bear fruit.
 

 · Smooth sailing until Ackman

 
Prior to Ackman’s crusade to shut it down, Herbalife had posted 12 straight quarters of record earnings. It had enjoyed 12 straight record quarters and was trading around $52 in 2011, which was before Ackman’s billion-dollar short announcement.

Shortly after Ackman made his short position public in December 2012, Herbalife fell almost 50% in one day to close at $27.27. Over the course of 2013, and amidst volatile trading of its stock, the price slowly, but steadily, rose. It even hit an all-time high of $81.81 in January 2014. It closed Friday at $57.95.
 

 · Traders vs. investors

 
The volatility that Herbalife has experienced since Ackman’s attacks started make the company’s stock attractive to traders who can watch the stock’s movements like hawks and profit from them. After all, volatility is a trader’s best friend because of the potential for huge profits.

Volatility is not so good for long-term investors. It has a five-year beta of 1.4, which means it’s roughly 40% more volatile than the stock market. So long-term investors may want to shy away from Herbalife right now; at least there is some kind of resolution of squashing of Ackman’s allegations.

Interesting about analysts’ views on Herbalife are their reports. Since December 2012, there have been only two analyst downgrades. The others were reiterations, and there was even an upgrade. There have been mostly “buy” recommendations over that period.
 

 · When Wall Street meets Capitol Hill meets The Feds

 
In pursuing his effort to run Herbalife out of business, Ackman has called on community leaders, especially those that represent Hispanics and African-Americans, to join his cause. Many agreed to write lawmakers to urge the Securities and Exchange Commission (SEC) and the Federal Trade Commission (FTC) to investigate Herbalife. Ackman has also called on a slew of lobbying groups.

He’s been accused of assembling his supporters based on false information. Fortune magazine highlighted the tactic of astroturfing, in which “a client’s agenda is made to look like a grassroots movement. In the context of a short-selling campaign, however, such conduct began to resemble securities fraud. The SEC has held that if you make claims about a company you’re trading in and then falsely publish them under someone else’s name, that can be market manipulation, even if you believe the claims to be true.”

There are reports that some of those who signed these letters don’t recall doing so.

So far, other heavy weight hedge fund managers have been unpersuaded by Ackman’s findings. Take notary hedge fund manager Carl Icahn, for example. After Ackman presented his exhausting presentations about the legitimacy of Herbalife’s business model, Icahn took a long position in Herbalife. Another reputable investor, George Soros, also revealed a large stake in Herbalife after Ackman began lambasting the company.

For the sake of investors, small and large, I hope that The Feds do help resolve this issue. In the short-term, the market this week will get another chance to see how Herbalife has weathered the Ackman-generated turmoil that has wreaked havoc on its stock. As I noted above, the company reports earnings for the first quarter of fiscal 2016 on Thursday. Estimates are that it will report earnings of $1.07 per share; and $1.07 billion in revenue.




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Posted by Martin May 01, 2016
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Don’t Count These Apple Suppliers Out Based on Slowed iPhone Sales


The disappointing earnings Apple (NASDAQ: AAPL) posted lastweek caused its stock to tank. We saw investors not only flee their positions in the iPhone maker, but we also saw them fleeing companies that supply the parts that Apple uses to build its smartphones, iPads and other devices.

The knee jerk reaction to this decline for many investors has been to get out of Apple and its suppliers in the short-term, or even the long-term. However, it may be worthwhile to hang in there for the long term when it comes to the suppliers.

Among Apple’s elves (suppliers) are Cirrus Logic (NASDAQ: CRUS) and Jabil Circuit (NASDAQ: JBL).I found that although these suppliers face repercussions from Apple’s sales’ downturn, they have individual strengths that have nothing to do with Apple. Those strengths include diverse product offerings that contribute significantly to their revenue growth. Their strengths contribute to their positive cash flows and attractive valuations.

 

 · The softening Apple

 

Apple reported shipping about 51 million iPhones during its second quarter of fiscal 2016, which represented a 16% decline compared to the same quarter in fiscal 2015. The numbers represented the first ever year-over-year decline in iPhone sales.

The softening partly reflects the slowing of smartphone sales throughout the world. Observers note that that the second quarter was the first time global shipments of the iPhone declined on an annualized basis since it was introduced. China’s smartphone market is maturing, which is a major market for smartphone makers.

 

 · Strong, but still Apple dependent

 

Cirrus Logic, which is a fabless semiconductor company that develops analog and mixed-signal integrated circuits, derives about a third of its revenue from Apple. It provides the audio chip to iPhones. Since warning flags began being raised at the end of 2015 about Apple’s shrinking iPhone sales, Cirrus Logic has been singled out as likely experience the worst ramifications of Apple’s declines.

Last week the company shared its quarterly Shareholder Letter that highlighted its financial results for the fourth quarter and full fiscal year 2016, which ended Mar. 26. Its revenue for fiscal 2016 was up 28% to $1.2 billion. That was higher than analysts’ estimates of $1.16 billion.

While its sales climbed 31%, its earnings per share fell 10% to $2.40. Cirrus also showed the company’s outlook, in which the company guided to fiscal Q1 revenues of $220 million to $250 million, which short of consensus estimates of roughly $256 million.

To stay viable as an investment opportunity, Cirrus must continue this kind of revenue growth. It must also continue to improve the median net profit margins so that it has operating leverage.

This is especially important if the company’s contribution to the upcoming iPhone 7 does not pan out. Apple is thought to be in the process of replacing its analog headphone jack for the iPhone 7 to add another speaker for stereo audio output. Rumors have abounded that Apple is working with Cirrus to change the audio chipset so that it works with the iPhone’s Lightning port.

The problem with this switch is that since the new iPhone may not have that standard audio port, the company’s current Ear Pod headphones will be incompatible. That could discourage buyers from purchasing the new iPhone.

No matter, if Apple does not make this audio port change, Apple’s need for Cirrus may be quashed. This means Cirrus must have a fallback.

Investors can take some comfort in the company’s supply chain teams being heavily engaged in new product ramps, take outs and design activity. Company officials stressed this during its earnings conference call last week in which it also noted that it has ramped a new flagship, multi-core smart codec with a key customer.

These products combine audio analog-to- digital converters (ADCs) and digital-to- analog converters (DACs) into single integrated circuits designed to provide maximum flexibility, features and performance.

Cirrus has also begun shipping a new boosted amplifier at another tier 1 smartphone customer, but it did not identify the customer during the conference call.

 

 · Then there’s Jabil Circuit

 

When Jabil Circuit reported its earnings, it noted that 24% of its total revenue came from Apple during its second quarter of fiscal 2016. Jabil Circuit slightly missed expectations for its Q2 fiscal 2016 reporting earnings per share of $.57 cents on sales of $4.4 billion, versus analyst expectations of $.60 in EPS and $4.5 billion of sales.

That is disconcerting, but I point to the company’s balance sheet as an example of its potential to grow steadily over the long term.

Another fallback that could take up the slack from less than stellar earnings related to Apple is the company’s Nypro healthcare business. The company has begun “leaning hard” into that business, according to its CEO Mark Mondello.

Nypro provides manufactured precision plastic products for customers in the healthcare, packaging and consumer electronics industries. It was acquired by Jabil Circuit in 2013. The company is expecting Nypro to be a healthy cash generator due to the hardware platforms it offers customers.

Jabil Circuit is also a leading provider of outsourced electronics manufacturing services (NYSE:EMS). This arm produces parts for consumer electronics, such as computers and smartphones. Jabil Circuit is banking on the scale and broad diversification of this business to provide “a stable, predictable, foundational backbone to our core business,” according to Mondello. He noted that the core operating income from EMS will grow 15% to 20% year-on-year, and core operating margins are hoped to grow beyond 3%.

When it reported its earnings, Jabil Circuit noted that 24% of its total revenue came from Apple during its second quarter of fiscal 2016. Jabil Circuit slightly missed expectations for its fiscal 2016 Q2, which ended Feb. 29. It reported earnings per share of 57 cents on sales of $4.4 billion, vs. analyst expectations of 60 cents EPS and $4.5 billion in sales.

Many observers are banking on Apple improving its financials after it rolls out another version of the iPhone later this year. This, in turn, could boost the earnings of its suppliers. On the other hand, the saturation of the smartphone market cannot be ignored; investors must take into account that the record profits Apple derived from iPhone sales in the past are over. The Apple suppliers that recognize this and who are able to shift gears to maintain, and improve their financials over the long term should be able to weather the Apple downturn.




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Posted by Martin April 26, 2016
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How an Elevator Company More Than 160 Years Old is Using Disruptive Technology to Reach the Cloud


When you think about elevators, you may become instantly bored. Up, down… what else is to it?

Well, Otis Elevators, a unit of United Technologies (NYSE: UTX), is recognizing that there is a lot more to it when you tap into the disruptive technology known as the Internet of Things, or IoT. Over the last few days, Otis and United Technologies have inked agreements with AT&T (NYSE: T) and Microsoft (NASDAQ: MSFT) to expand the use of IoT solutions, including cloud-computing. The goal is to make elevators smarter.

Observers note that cloud-based applications are key to IoT, which has been named as a disruptive technology. As a 160 year-old company, Otis stands to benefit greatly from expanding its relationships with AT&T and Microsoft because it is poising them to take advantages of innovations that could improve their top and bottom lines. The IoT solutions provided by these companies can help Otis shed old business practices that made it difficult for it to operate as efficiently as possible.

 

 · Putting disruptive technology to use

 

In addition to building elevators, escalators and moving walkway equipment, Otis also services its products. By collaborating with AT&T and Microsoft, Otis clients will be able to use the gathered information to improve the performance of their Otis-installed elevators, among other products.

An estimated 30,000 employees who service Otis elevators worldwide will benefit from the collaborations.

Microsoft chief executive officer Satya Nadella described the elevator itself as a digital product in this day and age. During the announcement of the tech company’s collaboration with the elevator maker, he said,

“Every elevator is going to be connected. Every elevator is going to have predictive and analytic capability.

By working with Microsoft, Otis can accelerate efforts it already has underway to expand the use of internal productivity apps. Also, the company wants to transform its elevator service by applying tools that help it better connect to its customers and improve service.

That’s where Microsoft’s technology comes into play. Otis will expand its use of Microsoft’s cloud service, which is called Microsoft Azure IoT Suite. Otis will also expand the use of Microsoft’s Cortana Intelligence Suite to use big data to monitor and maintain the conditions of its elevators. Lastly, Otis will expand its use of Microsoft’s customer relationship management system, called Microsoft Dynamics CRM. In a statement, Otis noted that its deployment of Microsoft Dynamics CRM is significant because it will allow it to “offer a comprehensive cloud-based solution to enhance the customer experience and accelerate business productivity.”

Working with Microsoft, Otis will accelerate efforts underway across the organization to expand the use of internal productivity apps being developed by field teams around the world. Furthermore, the use of Microsoft’s CRM system will allow it to link operations in the more than 200 countries and territories where Otis offers its products and services, according to the statement.

In working with AT&T, Otis will tap the telecom’s IoT portfolio, also, to gather data and perform big data analysis through the cloud.

According to a statement from AT&T, Otis companies around the world will be able to use AT&T IoT technology to aggregate data from cell networks and connect to a new enhanced cloud environment.  AT&T’s Global SIM card and IoT Services, such as Control Center and M2X will allow Otis to access real-time equipment performance data. In addition, AT&T will serve as the primary mobility provider for Otis field operations, noted the statement.

Philippe Delpech, the president of Otis, said that its new generation of elevators will be defined by new digital tools that better connect its people with its customers – and its customers with their equipment.

 

 · Moving forward

 

Delpech added that by leveraging AT&T’s IoT technology, it will be able to harness data generated by the nearly two million elevators currently under Otis service contract transporting more than two billion people per day. Otis has about 30,000 mechanics who spend roughly 60 million hours a year servicing elevator and escalator equipment.

With those kinds of high numbers for its products, workers and time, it is quite brilliant of Otis and United Technologies to seek the IoT solutions of both AT&T and Microsoft. IoT has been called the next Industrial Revolution, as observers believe the technology will change the way businesses maximize their abilities to connect digitally.

According to a report produced by Bi Intelligence, 34 billion devices will be connected to the Internet by 2020. That is up from 10 billion in 2015. 

Nearly $6 trillion will be spent on IoT solutions over the next five years. Microsoft‘s vice president of global accounts said United Technologies is at the forefront of an “essential shift, using technology to make buildings and transportation function more efficiently and move the world forward.”

Considering the growth of IoT solutions and their reputations of accelerating the development of digital solutions for smart building equipment, it is a very good move on the part of Otis and United Technologies to tap AT&T and Microsoft to improve energy efficiency and help its employees become more productive.

United Technologies reports earnings for Q1 2016 on Wednesday. Analysts estimate that it will report earnings per share of $1.39 on $13.18 billion in revenue.

This week United Technologies announced an increase in its quarterly dividend, which will rise to $.66 from $.64.

The dividend hike, and the collaborations are attractive, especially if you are in search of a solid long-term investment. United Technologies is poising itself to take advantage of the growing IoT market. This shows that this company that has been along for about 160 years is not allowing innovation to pass it by.
 




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Posted by Martin April 25, 2016
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Whatever Their Q1 2016 Earnigns, Biotech/Biopharma Companies Are Strong Long-Term Plays


We’re into our third week of Q1 2016 earnings reports, and we have seen sectors we thought would horribly disappoint, beat estimates, while those that many thought would beat with flying colors, disappointed.

Up this week to report their most recent earnings are several biotech and biopharma companies. Despite the volatility in the spaces, I like them because regardless of their size or specific designations, many of the firms that operate in the spaces are making considerable strides that should pay off over the long-term. This includes Amgen (NASDAQ: AMGN), Gilead Sciences (NASDAQ: GILD), and INSYS Therapeutics (NASDAQ: INSY).

I won’t make the mistake of trying to predict how the earnings of these companies will come in for the first quarter of this year. As I noted above, we have already seen the trappings of such guesses. The big banks beat estimates, and many did so on both their top and bottom lines. That had not been expected given the many challenges the banking space has faced, including strict regulations and the low interest rate environment.

When many of the tech giants prepared to report last week, it was anticipated by many observers that these companies would strongly beat estimates. However, many of them failed to live up to investors’ expectations on earnings and guidance. That sent many of their stocks tanking.

 

 · Biotech versus biopharma

 

To be clear, there is a difference between biotech firms and biopharma firms, which affects the strategy you may use in investing in them. For the most part, biotech firms are riskier investments than biopharma companies because they have more products in the research and development (R&D) stages than do biopharma companies. Because a biotech firm may have few, or no, products on the market, they are not receiving revenue from their efforts. Biopharma companies, on the other hand, likely have products for sale in the market. They are likely to be not using as much operating cash on R&D. The existence of revenue from products being sold can position biopharma stocks as more attractive and less volatile than biotech stocks.

 

 · Growing up

 

One of the most popular companies in the biotech space that I anticipate faring well over the long term is Amgen. It reports on Thursday after the bell. While the consensus is that it will report an earnings per share of $2.56, the “whisper” EPS is $2.70. Its market cap has grown from $50 billion five years ago, to $122 billion today.

Also, there has been impressive growth in its EPS, which has climbed to $9.06 at the end of fiscal 2015 from $4.04 in 2011.

Amgen’s growth largely stems from the company being able to grow many of their products from their infant stages of R&D to products that are now on the market. One of those products is Enbrel, which is used to treat rheumatoid arthritis, plaque psoriasis and psoriatic arthritis.

Over the long-term, I expect to see Amgen continue to grow its net income and revenues, while expanding its profit margins and maintaining reasonable valuation levels.

 

 · Diverse offerings

 

In the bio space, it is important that companies have diverse offerings. Take Gilead, for example. As a biopharma company, Gilead develops and markets drugs to treat patients with infectious diseases, including bacterial, fungal and viral infections. It makes the popular Tamiflu, which is use to prevent the flu. Gilead’s HIV drug offerings are also popular.

Tech Investing Daily points out that Gilead’s earnings for 2015 hit $9.28 a share, which is more than four times its earnings in 2013. On a year-over-year basis, quarterly earnings are up a “healthy” 22.9%, according to Tech Investing.

Like Amgen, Gilead has enjoyed expanding profit margins. Also, its total revenue continues to grow impressively. The S&P Capital IQ found the company’s total revenue grew roughly 30% from 2014 to 2015.
With a market cap of $138 billion, Gilead is the largest company operating in its space. It trades at discounted valuations compared to its competitors. This could be due to the slowing growth of its hepatitis C drug. Called Sovaldi, the expectation that the sales of the drug in the coming months will not be as strong as they have been previously could be contributing to the company’s low valuations.

In spite of Gilead’s overall growth, the company still trades at a P/E of 8.55. That compares to its peers’ much higher P/E ratios. Amgen’s is 18.01 and Insys Therapeutics’ is 20.94.

 

 · A smaller player making strides

 

Lastly, I took a look at Insys Therapeutics and its efforts in developing products to treat epileptic children who have treatment resistant seizures, as well as people in their final stages of cancer who have developed a tolerance to most opioids.

Insys Therapeutics touts itself as a specialty pharmaceutical company that develops and commercializes innovative drugs and novel drug delivery systems of therapeutic molecules that could help improve the quality of life of patients.
However, recent developments are raising concerns over the use of its main drug, which could negatively affect the drug’s sales, and the company’s earnings. The concerns are over its Subsys drug, which is reportedly 100 times more potent than morphine.

Sales of the drug began to flatten during fiscal 2015. The company’s guidance indicates that sales of the drug during Q1 2016 would come in almost $25 million lower than analysts’ estimates of $86 million.
Despite the lowered expectation for the first quarter, analysts are confident about the stock’s performance over the next 12 months. The average 12-month price target is $23, suggesting upside of 61% from recent levels near $14.25.

A decision about Syndros from the Food and Drug Administration is expected by July 1. Also, Insys Therapeutics’ pipeline includes a synthetic cannabidiol for certain childhood epilepsy syndromes.

The Street summed up Insys Therapeutics this way. The company exhibits strength and weakness, “with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.”

So for this stock, the temptation may be to sell it if you own it, but don’t. Instead, if you own it, hold it. I’d wait until at least the FDA has made its decision before jumping in. A key factor in making your decision relates to the company’s ability to remain profitable despite lower sales for Subsys, and the delay in making any sales from Syndros as it awaits the FDA’s decision.

 

 · Moving forward

 

Whether they define themselves as biotech or biopharma, companies in this space have considerable potential to grow significantly over the long term due to the much-needed medicines they develop. In the short-term, the market for these stocks will continue to be volatile. For those with long-term investment ideals, biotech and biopharma companies may be the way to go.




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Posted by Martin April 24, 2016
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Why I am not a passive investor.


When I was browsing the internet looking for investors trading actively options and blogging about it I didn’t find many.

But I found a lot who claimed to be passive investors investing into dividend stocks, buy stocks and hold them. The only time when they sell is when they find that the stock they hold may be in danger or its dividend may be in danger. Some are lucky and sell on time, some are not lucky and end up holding the bag of worthless stocks. And some sell the stock and the stock never falls and continues thriving.

I experienced all three situations as a dividend investor.

It is completely okay to be a passive investor if it works great for you, or you do not have time or capacity to learn how you can squeeze more out of your stocks.

I am not satisfied as a passive investor.

I want more. And I am willing to spend time, effort, and money to learn more.

 

 · Why I am not a passive investor?

 

Because I believe that my money can do more if they are active, if I make them actively work for me as my employees.

However, I do invest passively and build my dividend portfolio because there will be days when I might not be able to trade anymore. I will be so old that my brain will not be capable trading.

Or I will not want to actively manage my portfolio anymore and watch my positions almost on a daily basis.

Or I will want to travel and go to places where I will not have access to my account and manage my positions.

There are many reasons why I want to build a portfolio of dividend stocks.

But that’s future.

Today, I am still relatively young and I want to maximize my potential and boost my trading and make more money than just investing into stocks and wait next 20 years to see results.

I want to spend those 20 years enjoying income from trading and yet have enough to stop trading 20 years from now.

Options can do it for you.

 

 · Why I am an active investor?

 

As a passive investor you are a dependent of the market. It is the market which forces you to ride its waves. You are a spectator here.

I have heard passive investors saying how glad they were to be passive during the recent market’s selloffs. Now we are back and they made 2%.

But it can still change. May can be a disastrous month and we may see heavy selling. My passive portfolio is still in an overall loss. With more selling, it will be even bigger loss.

In my passive dividend portfolio I have approx. $19,000 invested and that makes me around $75 dollars monthly income.

My active options trading portfolio has approx. $7,000 dollars invested (or used for trading) and it makes me approx. $400 monthly income.

Which is better?

This is why I am not a passive investor but use options strategies to actively use my money to make more money in any market. I am not a spectator anymore.

You can join our options trading group and learn how you can use your dividend stocks to boost your income beyond dividends.




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Posted by Martin April 20, 2016
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Medical Device Companies are Thriving, But Steer Clear of This One


Many medical device companies are considered solid investments because they are in a space that has a broad reach. This is especially the case for those companies that offer advanced products.

Such is the case for Osiris Therapeutics (NASDAQ: OSIR). However, the regenerative medicine products that it develops, manufactures, markets and distributes may be stalled due to a slew of issues that are having a significant, negative effect on the company and its stock. This includes its Grafix products, cryopreserved placental membranes that are used to treat hard-to-treat acute and chronic wounds.

In this piece, I’ll go over Osiris’ issues as a warning that you should steer clear of this medical device company’s stock in the short-term.

In mid-July of last year, investors in were likely celebrating the company’s stock reaching an all-time high of $23.67 per share. However, today investors in the company, or at least those who continued to hold the stock, are likely not in such a good mood. This is due to the series of events that have occurred over the last year that have led to the stock now trading at all-time lows.

On the verge of losing its listing on the NASDAQ, company officials are reportedly in the midst of taking steps to not only get back in the good favor of NASDAQ officials, but also get back in the good graces of investors.
Osiris researches, develops, manufactures, markets and distributes regenerative medicine products in the U.S.

 

 · Loss of national sale’s head

 

The events that have bogged down the company, and wreaked havoc on its stock, relate to many issues that are uncommon to most publicly-traded company. They include employing as head of its national sales department who is now being prosecuted for federal crimes while working for his previous employer.
Federal prosecutors brought charges against Todd Clawson in March due to his role in a sales scheme. While at Advance Bio Healing, (ABH), Clawson allegedly provided kickbacks to doctors in order to induce them to use ABH’s products. The kickbacks allegedly included all sorts of luxuries, including “speaking fees,” and, in one case, Def Leppard tickets.

Federal prosecutors charged Clawson earlier this month with bribery, conspiracy to commit criminal conflicts of interest and health care fraud. He no longer works for Osiris.

After Clawson left ABH, he began work at Osiris as the head company’s national sales group. Osiris had seen its sales improve substantively to $60 million in 2014 from $24 million in 2013, when Clawson came aboard. While federal prosecutors work through their case against Clawson while he was with ABH, investors must deal with the loss of Clawson, a senior sales executive, which could be a distraction for the company and result in disruptive changes in Osiris’ salesforce and its practices.

 

 · When it rains it pours

 

To be clear, Clawson has not been charged with any wrongdoing while working at Osiris. Regardless, it appears that Osiris needs no help in hurting itself. Its own mishandling of its financials has led to many concerns that its books are very much out of whack.

The NASDAQ sent a letter to Osiris this month warning that the company faced being delisted over failing to file its 10K on a timely basis with the Securities and Exchange Commission.

The specific problems the company experienced dealt with accounting issues that seem to have led to it submitting unreliable financials for the first and second quarters of 2015. Still unable to sort all this out, in mid-March, the company notified NASDAQ of its failure to timely file its annual report. NASDAQ responded by threatening to delist it. The letter from NASDAQ, dated March 17, 2016, requires Osiris to submit a plan within 60 days to address being in compliance with NASDAQ’s filing requirements for continued listing. The company has stated that it intends to submit the plan of compliance as soon as practicable. Easy calculation places that deadline date in early May.

Osiris is completing an accounting review of contracts with distributors that were previously reported in its audited annual financial statements for the year ended Dec. 31, 2014, and its unaudited interim financial statements for quarterly periods in 2015. It is also completing amendments to certain periodic reports previously filed with SEC. It is also changing to an independent registered public accounting firm.

Next month will be key in determining whether you should consider investing in Osiris because that is when we’ll learn about the company’s fate with the NASDAQ.




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Posted by Martin April 20, 2016
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Avoid Pure Plays in Banking For Now


This week, the bulk of the firms in the financial sector are wrapping up the reporting of their earnings for the first quarter. And whether it be to your dismay, surprise or pleasure, the numbers they are reporting are not as bad as what had been anticipated.

Most of the big banks reported last week, and for the most part, they beat analysts’ estimates. So far this week, other firms in the sector are also beating analysts’ estimates. Cheers over these beats are mitigated, however, because analysts’ estimates have been continuously lowered since the beginning of the year. The reason stems from analysts taking into account the myriad of pressures financial firms are enduring in the current business environment.

As the remaining firms in the sector report Q1 2016 earnings this week, investors are trying to make heads or tails of how to play the market moving forward. Considering what earnings are indicating so far, it may be best to avoid pure plays and instead focus on banks with diversified lines of business.

 

 · What’s nagging the financial sector

 

Firms in the financial sector have been plagued by a slew of factors that affect their top and bottom lines. These factors include lower interest rates and tighter banking regulations. The big banks’ situations have been aggravated by slumping oil prices that negatively affect the value of the loans they made to energy companies. This has especially been the case for banks that made loans to companies in the oil and gas sector. Many of these companies have been unable to make their loan payments because they took huge losses when oil prices declined.

To mitigate these loan losses, some banks have increased loss provisions on these loans. These banks include Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC).

I brought you a story last week about these particular big banks, among others, reporting their earnings, and noted that another challenge they have faced relates to federal regulations. Banks are still dealing with the effects of the new rules that went into governing derivatives. The rules went into effect in 2010 due to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the act requires banks to post billions of dollars of collateral for certain derivatives trades.

Another challenge coming out of Dodd-Frank relates to living wills. As JPMorgan rolled out its better than expected earnings last week, federal regulators announced it being one of five major banks that it still has concerns about when it comes to the plans.

Specifically, Dodd-Frank requires that bank holding companies with total consolidated assets of $50 billion or more periodically submit resolution plans to the Federal Reserve and the Federal Deposit Insurance Corporation. Each of these living will plans must describe the company’s strategy for “rapid and orderly resolution in the event of material financial distress or failure of the company, and include both public and confidential sections.” Certain nonbank financial companies designated for supervision by the Federal Reserve must also have living wills in place.

The other banks that were dinged over their living wills were Bank of America, Wells Fargo, Bank of New York Mellon Corp. and State Street Corp. All of these banks have until Oct. 1 to submit revised living wills. If their revisions don’t pass muster, the banks could be subject to higher capital requirements.

 

 · Diversity is key

 

One of the learning lessons to come from the performance of banks during the first quarter relates to which of them have the best chances to continue to improve their earnings. This brings me to my point about pure plays.

As you know, pure plays relate to companies that typically focus on particular products and services. This allows them to carve out most of the market share. On that same note, pure plays can present higher risks because they don’t offer or focus on offering diversified products and services. Examples of pure plays in the financial sector include Goldman Sachs and Morgan Stanley (NYSE: MS).

The weaknesses of being a pure play company versus being a diversified company were seen clearly in the Q1 2016 earnings of banks. JPMorgan and Bank of America, which offer more diversified products than do pure plays, saw their net incomes rise compared to the numbers posted a year ago for the same period.

For example, JPMorgan and Bank of America have large consumer divisions and neither of them relies solely on investment banking. Goldman Sachs and Morgan Stanley, on the other hand, saw their net incomes fall more significantly. Consider the revenues the banks derive from fixed income trading. This is the bread and butter for Goldman Sachs and Morgan Stanley. Revenues from this trading fell 47% and 50%, respectively. That compares to declines of 13% for JPMorgan and 17% for Bank of America.

 

 · Moving forward

 

I see banks reporting stronger numbers in each of the remaining quarters of the year. The living wills will present challenges, but banks have been crafting plans to meet federal rules since they took effect in 2010 when Dodd-Frank went into effect.

Steer clear of the pure plays as they continue to work in this interest rate environment. While trading activity picked up in the first quarter for some investment houses, I’d like to see that trend continue for the next few quarters.

Investors should continue to factor in interest rates and global economic activity and their effects on bank stocks. Also, remember that despite being so beat down, many firms in the financial sector are still attractive on a valuation basis.

Also consider that operating margins have been going up in banks, while they are falling in companies in other sectors in the S&P 500. That is a positive that observers note indicates that banks will be able to generate stronger sales and earnings in the long term.

 




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Posted by Martin April 14, 2016
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Handling a losing trade after assignment


It is interesting how things in the stock market can turn on a dime. Yesterday all my stock positions were great, and the sky was at the tip of my fingers, today, everything is the exact opposite.
A few trades which i have opened yesterday and which were doing well are now in the money (ITM).

For example Mosaic (MOS) put selling trade had a nice cushion when I was opening the trade. Seagate (STX) was even better and well above my strike. It almost looked like there is nothing what could stop this trade from being a success.

Today, it is all about a disaster. Seagate sank 18% on the dismal Q3 outlook and it is deep ITM. It will be difficult to handle this trade now.

Although, I will make money on the put I sold against STX, the stock is now almost $600 loss. There is still 38 days to go until expiration and unless I see an early assignment the stock may still recover before then.

I had a similar experience already with stocks like LULU which i sold put against it and the stock went down deep in the money. It is now recovering and it is close to my strike already.

Or TRGP. Another example of a put selling strategy where I sold a put and the stock sank deep ITM. Three days before expiration the stock rallied and I could buy it back almost worthless.

Same was COP trade. I sold the put, it sank deep ITM but six days later the stock rallied again and I could buy the position back at 50% credit.

Or KMI stock. It was too “dancing on the floor” being mostly in the money (not deep in the money) and three days prior to expiration it went up and I could buy it back worthless.

So there is always hope in every trade and no need to panic when things turn around. The important thing is to have a plan and know what to do when certain things happen. This was the lesson I was learning last two years.

 

 · How to handle a losing trade then?

 

If you follow my posts and my blog, you may know that my strategy is to be selling puts as long as you get assigned. Once you get assigned, you keep the stock, collect dividends, and sell covered calls as long as you get assigned.

I sold put against STX with 33 strike and collected 1.47 credit.

My break even price is 31.53 a share.

The stock is selling at 27.67.

If I get assigned at 33 a share. I will realize 1.47 or $147 gain on the put trade, but my stock will see 5.33 or $533 loss (3.86 or $386 net loss).

When selling covered calls, mostly I will not be able to sell a covered call at the same strike as was the assignment (33 strike) as it will probably be worthless already.

I will have to be selling as high strike as possible (for example 28 strike) to collect enough premium but not get assigned and have the stock called away. Hopefully, in this way I will be able to collect enough additional premium to lower the cost basis and end at least break even.

If I get assigned to the call at 28 strike, then I will realize a gain on the call, but close the stock trade at $500 loss (33 put assignment minus 28 call assignment).

Let’s see how this trade develops over time.
 
 




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Posted by Martin April 10, 2016
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Q1 Earnings for Big Banks Expected to be Dismal; Improvements on Horizon


Well, it is earnings season time again. Companies begin to report their earnings for the first quarter on Monday, with the traditional season opener Alcoa (AA) leading the way. However, the stocks I will be watching most closely are big bank stocks, particularly considering the industry regulations they have had to deal with so that the banking debacle of 2008 won’t occur again.

The street expects for bank earnings for Q1 2016 to be bad. Most analysts forecast that earnings for the biggest banks to be down 20% for the largest banks, according to Thomson Reuters.

The big players

The big banks consist of JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC), Citigroup (C) and Goldman Sachs (GS).

JPMorgan is up first, reporting on April 13. It is also the largest of the group in terms of market cap, followed by Bank of America and Wells Fargo, which report on April 14. Then Citigroup, which reports on April 15. Goldman Sachs reports the following week on April 19.

Playing on a new field

For all of the big banks, trading was sluggish and volatile during the first quarter of the year. Declines in commodities prices aggravated the situation. While some of the banks saw trading activity increase last month, observers say it was not enough to make up for the declines in January and February.

Banks have also been challenged by restrictions on proprietary trading, which have left them less profitable. Larger capital required to participate in fixed-income trading has also been a challenge.

They are also still dealing with the effects of the new rules that went into governing derivatives. The rules went into effect in 2010 due to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the act requires banks to post billions of dollars of collateral for certain derivatives trades.

Analysts who follow the performance of these banks have been lowering their first-quarter estimates all quarter. Reuters reported the following:

JPMorgan is expected to report adjusted earnings of $1.30 per share, Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Goldman is expected to report $3.00 per share. In fact, observers say Goldman Sachs had the worst quarter of all of the banks, with one report saying it has had the lowest first-quarter earnings since before the financial crisis.

Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Morgan Stanley to report 63 cents per share. Goldman is expected to report $3.00 per share, the lowest first-quarter earnings since before the financial crisis.

While there are skeptics, I think that the banks that are able to generate good returns above their costs of capital stand to improve their financials over the course of this year and into next year. If they can maintain or improve their credit qualities and increase their capital levels, they could be good choices for investors whose tolerance has waned for these troubled banks. However, beware of companies that are trading below their tangible book values; this may signal their problems are insurmountable.

 

 

 

 

 

 




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Posted by Martin April 09, 2016
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Viacom’s Soul Train Buy Could Have Investors Tooting Their Horns


If you remember the Good Ole days of the 70s, you may get fuzzy butterflies when you read this story.

The music show, Soul Train, has been purchased by Viacom (VIAB). Even if you don’t remember the show, or you could care less, I thought to bring it to your attention because of the impact the purchase could have on Viacom’s bottom line. There may be some good investment opportunities if you are willing to stand to climate of the media industry right now.

The acquisition could be a boon for Viacom because it will couple the historically black music show with BET Networks, which is a division of Viacom. Viacom, like other media companies, are struggling in this new electronic age.

This combination represents an investment in an iconic franchise that lends itself to providing fans with a wide range of experiences across multiple platforms, beyond the television programs that audiences have watched for decades. The transaction serves to further strengthen BET’s investment in content and underlines the network’s leadership in music-related content.

According to a Viacom press release about the deal, owning Soul Train’s intellectual property will allow BET to further build on the success of the Soul Train Awards, which BET re-launched in 2009. It also strengthens the network’s commitment to original content. The assets acquired include one of the largest libraries of African American, music-oriented content in the world, including more than 1,100 television episodes and 40 television specials.

The addition of Soul Train could allow Viacom to create ancillary revenue opportunities ranging from live events to consumer products.

This is very important considering Viacom’s financial performance has led to declines in its stock price. Its shares are trading far lower than its 52-week high. It closed last week around $44, while its 52-week high was $72.72.

Also, on last week, RBC Capital Markets issued a negative note on Viacom. RBC’s action sent Viacom’s shares lower. RBC initiated coverage of the stock with an “underperform” rating and a $34 price target. The report stated overall that analysts, compared to its peers,  thought Viacom has “significant structural challenges” and “epitomizes ecosystem concerns.”

I won’t be too hard on Viacom, however. That’s because companies operating in the media space that are publicly traded are offering discounts on their stock trades like those that are usually seen when there is a recession. Many media stocks are selling off.

While it is faced with problems, Viacom has some characteristics that are positive. Its gross profit margin dropped slightly from 51.47% in the first quarter of 2015 to 49.49% in the first quarter of 2016. But its return on equity dropped from 69.95% to 50.59% for that same period.

Also, it offers a 3.84% dividend.

So maybe the Soul Train will offer the company just what it needs to get back on the right track. In the meantime, I think the company is a hold.

 




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