3 Top Bullish Stocks On The Run
Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On January 16, 2013, the market sentiment is driven by extreme greed now with Fear & Greed Index at 85, which had decreased from the previous closing of 89. As reported by CBOE, the total put/call ratio for today was 0.87, and the index put/call ratio was 0.87. The equity put/call ratio was 0.75, and the CBOE volatility index (VIX) put/call ratio was 0.35. In the following, top stocks had been identified through our daily options scanning process, with the scanning criteria where the daily call volume ratio was above 2.00 (2x of the average call volume) with a call volume above 10,000.
Source: Schaeffer's Research
Provenge, Dendreon's autologous cellular immunotherapy for the treatment of prostate cancer, cheered investors. Geoffrey Porges, a Sanford C. Bernstein & Co. analyst, upgraded Dendreon's shares to outperform with a price target of $10 and indicated, "We were impressed by the loyalty of active users of Provenge." Porges increased his peak revenue forecast for Dendreon to $799 million by 2017 from $580 million. As reported,
"The company newly announced that preliminary fourth quarter net product revenues are anticipated to come in at $85.5 million, a marked sequential improvement. The company's community accounts also rose in quarter-over-quarter comparisons, with oncology growing 4% and urology jumping 25% overall."
Dendreon had broken through its 200-day MA of $6.18 earlier this week and the bullish trend continued with the MACD (12, 26, 9) indicator showing a bullish sign with increasing divergence and RSI (14) at 71.17 with a strong buying momentum.
Genworth Financial Inc.
Genworth said it is reorganizing to separate most of the company from mortgage-insurance operations that saddled the company with losses and threatened its investment-grade credit rating. "As we head into 2013, the business is going to continue to recover," as said by CFO, Martin Klein. Genworth announced a comprehensive U.S. Mortgage Insurance capital plan that, when implemented, will reduce Genworth Mortgage Insurance Co.'s, GMICO, the company's main U.S. mortgage insurance subsidiary, risk-to-capital by 12 to 15 points, decrease the likelihood that the U.S. mortgage insurance subsidiaries will require additional capital for the foreseeable future, ensure the continued ability to write new business and reduce the risk of a default under the indenture governing the company's senior notes.
Genworth has been hit in recent years due to losses in its mortgage insurance business caused by the rise in foreclosures in the United States. However, shares of Genworth had been advancing in the past few months as investors continued to be optimistic about housing recovery. As reported, the cost of protecting Genworth's debt from losses plunged after the insurer said it's reorganizing to distance the mortgage guaranty unit from the rest of the company. Five-year credit-default swaps on the Richmond, Virginia- based company's debt dropped 87.5 basis points to 261 basis points as of 4:30 p.m. in New York, according to data provider CMA. Bloomberg also reported that Moody's maintained Genworth's credit rating at Baa3, one level above junk, ending a downgrade review that began in June over concerns that mortgage-guaranty losses could weigh on the rest of the firm. The analyst at BTIG LLC, Mark Palmer indicated the transaction could unlock GNW's value and avert a ratings downgrade. The analyst also noted, "We believe it should provide a significant boost to the company's shares."
The top bullish pick for the day is Yahoo! Inc.
Yahoo's share jumped with the Bloomberg report that Alibaba Group Holdings Ltd., China's biggest e-commerce company, hired Credit Suisse Group AG and Goldman Sachs Group Inc. to arrange an IPO. The Hong Kong IPO may raise $3 billion to $4 billion this year. Although the information was denied by Alibaba's HK-based spokesman and no comment was given by Credit Suisse and Goldman Sachs, investors are optimistic, and the analyst at Bank of China International Holdings Ltd, Thomas Chong, indicated,
"Alibaba is the IPO that everyone is anticipating because it is the dominant e-commerce giant. They would be not only attracting investors from the technology sector, but also more general investors."
Alibaba and Yahoo!
Alibaba last year bought back about half of Yahoo!'s 40 percent stake for about $7.1 billion. Terms of that deal included a provision that would allow Yahoo! to sell half of its remaining stake, around 23% of the outstanding shares, back to Alibaba in the event the company completed an IPO. Yahoo! acquired the original Alibaba stake in 2005 in exchange for $1 billion and ownership of Yahoo!'s Chinese operations. Alibaba also delisted its Hong Kong last year after paying HK$18.3 billion ($2.4 billion) to buy back the 27 percent stake held by minority investors. This month, the group said it was restructuring into 25 units to improve management.
Jack Ma, Alibaba's CEO, also said that he would appoint a successor and act only as an executive chairman after May 10. Jack Ma stated, "I see that Alibaba's young people have better, more brilliant, dreams than mine, and they are more capable of building a future that belongs to them." Some analysts believe that Mr. Ma will continue to have a big say in the company.
With Alibaba's restructure and Mr. Ma's departure, it is very likely that Alibaba's IPO will proceed at a faster pace. With continued improvement for Yahoo under Marissa Mayer's leadership, Yahoo!'s bottom-line will continue to improve.
Analysts' Calls and Earnings Estimates
On Jan. 14, 2013, Zacks upgraded Yahoo! from a neutral rating to an outperform rating with a $23.00 target price. Zack's analyst wrote,
"Yahoo! Inc. is one of the leading providers of web-based services and advertisements. Third quarter earnings beat the Zacks Consensus Estimate. Yahoo's search business faces extremely tough competition from Google and Microsoft's ad platform is not generating enough yet. Also we remain concerned about the uncertainty surrounding the search business and deterioration of display ad revenue share but are encouraged by the refocusing of the company, as well as the many product upgrades and growth initiatives implemented, which are improving engagement on Yahoo properties. Also, the company's progress in the fast-growing mobile search segment is encouraging. Hence, we are upgrading our recommendation on Yahoo shares from Neutral to Outperform."
Analysts at Pivotal Research raised their price target for Yahoo! to $21.00 with a neutral rating on January 8, 2013. Analysts at Sanford C. Bernstein downgraded Yahoo! to a market perform from outperform with a $23.00 price target on January 7, 2013.
Analysts, on average, are expecting an EPS of $0.28 with revenue of $1.21B for the current quarter ending in December, 2012. Analysts are estimating an EPS of $1.13 with revenue of $4.46B for fiscal 2012. For 2013, analysts are projecting an EPS of $1.15 with revenue of $4.60B, which is 3.20% higher than 2012, as seen from the tables below.
Source: Yahoo! Finance
Key Stats and Valuation
Yahoo! has an enterprise value of $14.71B and a market cap of $23.74B. Yahoo! has a total cash of $8.41B and a total debt of $38.22M. Yahoo! has a book value of $13.12 per share. Yahoo! generates an operating cash flow of $2.05B with a levered free cash flow of $3.19B. By using Morningstar's data, Yahoo!'s key stats will be compared to its peers in the industry of Internet content and information, including Microsoft Corporation (NASDAQ: MSFT), Google, Inc. (NASDAQ: GOOG) and IAC/InterActiveCorp (NASDAQ: IACI). Yahoo! has revenue growth (3 year average) of -11.6 and EPS growth (3 year average) of 41.4. YHOO has a lower operating margin of 12.5%, ttm, comparing to the industry average of 17.0. Yahoo! has a higher net margin of 79.9%, ttm, as compared to the average of 18.7%, ttm. Yahoo! generates higher ROE of 28.3, comparing to the average of 13.6. YHOO has a zero debt-to-equity.
Yahoo!'s P/E of 6.0 and P/B of 1.5 are both lower than the industry averages of 25.3 and 3.6, as well as Yahoo!'s 5 year averages of 25.3 and 1.6. Yahoo! has a forward P/E of 15.9, which is higher than S&P 500's average of 13.3. Yahoo! has a PEG ratio of 1.3.
Yahoo! closed at $20.07 with 2.82% gain on Wednesday. The volume of 33.30M was 64.77% higher than the 30 day average volume of 20.21M. YHOO had been trading in the range of $14.35-$20.32 in the past 52 weeks. YHOO has a beta of 0.83. The MACD (12, 26, 9) indicator was showing a bearish trend but the MACD difference continued to converge. The momentum indicator, RSI (14), was showing a bullish lean at 61.87. YHOO was trading above its 50-day MA of $18.94 and 200-day MA of $16.39. The next resistance is $20.47, the R1 pivot point, followed by $21.03, the R2 pivot point, as seen from the chart below.
Unusual Call Activities
Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. The most active call was January 18, 2013 call at the strike price of $20.00 with a volume of 19,455 and an open interest of 117,946. The implied volatility is 16.1, and the chance of breakeven is 38.34. The historical volatility for Yahoo! is 19.01 for 1 month, 19.27 for 3 months, and 19.85 for 1 year.
For bullish Yahoo! investors, a credit put spread of April 20, 2013, $18/$19 put can be reviewed, which will allow investors to acquire stock for a price below $19 while gaining some upside potential.
For more daily options activities and options strategies, please visit Optionity.com.
Note: All numbers/prices are quoted from the closing of January 16, 2013 with the data provided from Barron's, Morningstar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo! Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
NickChiu has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Dendreon, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!