In The Money with Fidelity Investments: SPX, FDX, ORCL, F

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Shortly after the open today, I filmed my weekly In The Money segment with Fidelity Investments. Click below to watch and see my notes below the video:

Here are my notes from today’s show:

Macro: The outperformance of late of the S&P 500 (SPX) to the Nasdaq 100 (NDX) off of the recent lows is notable when you consider the largest six stocks in the stock market, (Apple, Amazon, Alphabet, Microsoft, Facebook, and Tesla) make up $10 trillion in market cap and nearly 25% of the weight of SPX and 52% of the NDX. The broader index, which is also less concentrated is seeing a broadening out of the rally at new all-time highs. This is Bullish longer term, meaning more stocks are participating in the SPX’s 22% YTD gains.

Trade Idea #1: Yesterday UPS put up a better than expected quarter and guidance, closed up 7% on the day to a new 52-week and all-time high, capping a 23% run month to date run. Shares of Competitor FDX are sorely lagging, still below its earnings gap from last month where the company reported a miss and guide lower. FDX is down 8% on the year and down about 25% from its 52-week and all-time high made in late May.

The stock is cheap, trading 12x earnings vs UPS at 19x, and clearly out of favor from investors, despite Wall Street analysts remaining optimistic with 25 Buy ratings, 8 Holds, and only 1 Sell.

For those who want to be a bit contrarian and play for a bit of catchup trade into the Holiday season and their fiscal Q2 earnings in mid-December, consider call spreads.

Bullish Trade Idea: FDX ($238) Buy Dec 240 – 270 call spread for $7.50

-Buy to open 1 Dec 240 call for 9.50

-Sell to open 1 Dec 270 call at 2

Break-even on Dec expiration:

Profits of up to 22.50 between 247.50 and 270 with a max gain of 22.50 above 270

Losses of up to 7.50 between 240 and 247.50 with a max loss of 7.50 at or below 240

Rationale: this trade idea risks 3% of the stock price, has a break-even up 3.5%, and allows for gains of up to nearly 10% if the stock is yup 13% in a little less than two months, also catching an earnings event.

Trade Idea #2: WIth earnings seasons in full swing there is much that can be extrapolated from trends in certain industries and the relative strength or weakness of competitors. The results last night in Microsoft and Alphabet’s Cloud Business can only mean that they are taking share, probably not from Amazon, but we will know that soon enough when we hear their results, but from the likes of Oracle, which is in an off quarter and does not report until December.

The stock has been a monster up 50% on the year and up nearly 15% in a little more than a month after bounding off of the uptrend that has been in place all year.

I just don’t get it, consensus estimates are calling for only 2% eps growth and 5% sales growth in the current fiscal year, and the stock trades near a market multiple.

Bearish Trade Idea: ORCL ($97) Buy Dec 95 – 85 put spread for $2

-Buy to open 1 Dec 95 put for 2.75

-Sell to open 1 Dec 85 put at 75 cents

Break-even on Dec expiration:

Profits of up to 8 between 93 and 85 with a max gain of 8 below 85

Losses of up to 2 between 93 and 95 with a max loss of 2 above 95

Rationale: this trade idea risks ~2% of the stock price has a break-even down ~4% and has a max potential gain of ~8% if the stock is down 12% in a month in a half, a period that will also catch their next earnings report.

Lookback – On August 25th I detailed a bullish trade idea in Ford (F):

The stock is now nearly $16 and the calls that expire in a few weeks are deep in the money and trades like stock. Where we were originally only risking $1.05 we are now risking $3. It makes sense to take the profit and look for a better re-entry or roll some of the profits and buy a higher strike call or call spread in a longer-dated expiration.

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