Twiiter forming a nice head an shoulder pattern

Posted 13 Dec 2018 05:08 PM Edited 13 Dec 2018 05:10 PM

Twitter's CEO deals with controversy 

Twitter shares were higher by 5% as the social media company's CEO chose to address criticism concerning personal decisions that the executive had made. Jack Dorsey had tweeted about going on a meditation retreat in Myanmar, but many activists were unhappy that the Twitter CEO had commented positively on the Asian nation without also mentioning the plight of hundreds of thousands of Rohingya citizens. Unlike what many other high-profile tech executives would have done, Dorsey acknowledged the validity of the criticism, saying that he hadn't intended to minimize the issue. That seemed to satisfy investors, allowing Twitter stock to participate in today's tech rally

JPMorgan is getting more bullish on Cisco Systems

Posted 07 Dec 2018 08:49 AM Edited 07 Dec 2018 08:50 AM

JPMorgan is getting more bullish on Cisco Systems stock and predicts solid returns for the networking giant next year.

The firm's analyst Samik Chatterjee added Cisco (CSCO) to JPMorgan's Analyst Focus List as a 'value idea.' He reiterated his Overweight rating and reaffirmed his December 2019 $59 price forecast for the company's shares.

'Cisco is now our top pick within our Networking Equipment/IT Hardware coverage given accelerating product momentum, secular transformation to software and recurring revenue, and greater upside from re-rating of the shares,' Chatterjee wrote on Thursday.

Cisco stock is down 1.5% to $46.67 on Thursday, although the shares are up more than 20% this year.

Last month, Cisco reported better-than-expected fiscal-first-quarter results, and gave a financial forecast about in line with consensus. It posted adjusted earnings per share of 75 cents for the October quarter, compared with the Wall Street average estimate of 72 cents, according to FactSet. Sales came in at $13.07 billion, versus the $12.86 billion consensus estimate. For the quarter, Cisco's Americas revenue rose 5% year-over-year, while revenue in Europe surged 11% and Asia grew 12%.

Chatterjee also noted Cisco's attractive valuation of 15 times next 12-months price-to-earnings ratio, and predicts continues strong financial results going forward.

'We expect sustained strong top-line momentum combined with modest margin expansion and strong capital allocation framework to provide earnings-related catalysts to investors,' he wrote.

Proshares trust ii vix short-term futures(UVXY)

Posted 06 Dec 2018 09:37 PM Edited 06 Dec 2018 09:37 PM

Proshares trust ii vix short-term futures(UVXY): It invests in volatile stocks of large-cap companies. The fund seeks to track 1.5x the daily performance of the S&P 500 VIX Short-Term Futures Index. ProShares Trust II - ProShares Short VIX Short-Term Futures ETF was formed on October 3, 2011 and is domiciled in the United States.

Pampa Energia : $35.08

Posted 30 Nov 2018 09:20 PM Edited 30 Nov 2018 09:25 PM

Shares of Pampa Energia S.A. (NYSE:PAM) were up 5.6% during mid-day trading on Thursday . The company traded as high as $36.03 and last traded at $35.08. Approximately 620,500 shares changed hands during trading, an increase of 42% from the average daily volume of 436,295 shares. The stock had previously closed at $33.23.

A number of analysts have issued reports on PAM shares. Bank of America set a $55.00 price target on Pampa Energia and gave the stock a 'buy' rating in a report on Friday, September 14th. HSBC started coverage on Pampa Energia in a report on Thursday, August 30th. They set a 'buy' rating and a $40.00 price target for the company. JPMorgan Chase & Co. set a $52.00 price target on Pampa Energia and gave the stock a 'buy' rating in a report on Wednesday, November 14th. ValuEngine raised Pampa Energia from a 'sell' rating to a 'hold' rating in a report on Wednesday, September 19th. Finally, Credit Suisse Group raised Pampa Energia from a 'neutral' rating to an 'outperform' rating in a report on Wednesday, November 21st. One research analyst has rated the stock with a sell rating, one has issued a hold rating and six have assigned a buy rating to the company. The company has a consensus rating of 'Buy' and a consensus price target of $57.00.

7 nice charts to pick for 2019

Posted 27 Nov 2018 03:52 PM Edited 27 Nov 2018 03:52 PM

Since Oct. 1, bulls have been out of luck when it comes to the stock markets. Bears have run wild, as threats for rising rates and Chinese tariffs continue to hurt stock prices. It?s left most stock charts in shambles, as bulls dump stocks and wait on the sidelines for the dust to settle.

So far, we?ve been lacking some of the big, panicky selling days. As brutal as it is to sit through those, investors know it?s what?s needed for there to be some capitulation.

Another observation? There are still some stocks that are working in this environment, believe it or not. While some have been atypical leaders, many of the stocks that have been doing well are high-yield, consumer packaged-goods stocks. In other words, recession stocks.

Does that mean we?re heading for the dreaded recession? I don?t know. But I do know when stock charts look bullish and when they look bearish. So let?s have a look at the stock charts that are still winning.

Procter & Gamble (PG)

best stock charts for PG

best stock charts for PG

Procter & Gamble (NYSE:PG) has been on fire, but it?s not just since the market correction got under way. This name has been chugging higher since the beginning of May, when it dropped down to $70.

Even though it?s off its highs, shares are still up about $22 apiece since then, good for a 31% gain. Some investors may think of ringing the register on such a move. I can?t blame them, particularly during a time like this. But what I will say is, I would be hesitant to sell a winner like this if investors are going to hang onto other losers too.

For those that do decide to sell, there will be a bevy of buyers, particularly as PG still pays out a 3.1% dividend yield. It helps that its payout continues to rise as well. I would love a pullback to uptrend support, particularly if it comes at or near $90, another support level. Below that on the stock chart  and the 50-day should keep PG afloat.

Another big winner has been Starbucks(NASDAQ:SBUX). However, unlike PG, Starbucks hasn?t been winning for quite as long.

In mid-June, the company announced a deal with Nestle that would result in Starbucks receiving a ton of cash and simplifying its operations. This would lead to a much larger and accelerated buyback, another 20% boost to the dividend (after receiving one in November 2017) and improving margins down the stretch.

But the market didn?t care, beating the stock down to multiyear lows near $47. That?s because Starbucks also pre-announced some disappointing metrics for the quarter.

Since then, though, the stock has been on fire. SBUX stock is up more than 42% during that stretch and since trouble began in October, has done even better. From its July lows to the beginning of October, shares were up 17%. From Oct. 1 until Nov. 21, SBUX is up almost 22%.

This stock is still up big and there?s no telling if it will pull back into the mid or low $60s. But keep an eye on the stock charts to see if Starbucks can keep pushing higher.

Investors are looking for safety. Sometimes they find that in low valuations, other times in strong balance sheets. In the case of Realty Income (NYSE:O), finding a blue-chip REIT with a 4%-plus yield is suiting many investors just fine.

While Realty suffered earlier this year, shares have been storming higher on the stock chart since its February lows.

With an RSI near 70 and shares approaching their highest level in two years, I do worry about the stock topping out at this point. That?s why I?d love a dip back into the low $60s. Anything into that $58 to $60 zone would be attractive too.

If that pullback comes to fruition, investors will get a chance to buy a hot stock that?s cooled off a bit, and its yield will be better.

Even though there are fears of an economic slowdown right now, investors know that Realty?s business is well-diversified and should continue to hold up amid the slowdown. Its recent earnings beat is encouraging too. Plus, yield hunters want something that?s dependable, and it hardly gets better than the ?Monthly Dividend Company.?

Giving Realty a run for its money is Ventas(NYSE:VTR). This healthcare REIT has been incredibly consistent, is very well run and trades at a reasonable valuation. It?s no wonder VTR has been getting some love lately.

Like Realty, investors are seeking out the best stocks with consistent payouts. Ventas may not have raised its dividend in 2009, but it maintained its payout from 2008 and continued to raise its annual dividend each year after that. If VTR?s business and payout held up through the Great Recession, it will make it through any speed bumps 2019 and 2020 may have to throw at investors.

Even after its big rally, shares of VTR still yield roughly 5.1%. That?s pretty impressive for a stock that has rallied almost 20% from early October, particularly at a time where major U.S. stock indices are down double-digit percentages during the same period. Its yield is a big reason why Ventas is a buy-on-dips stock and not a sell-on-rips stock.

Like Realty, I would love a dip down into this $59 to $60 area. It will show just how strong the buy-on-dips crowd is while simultaneously working off some of that short-term overbought condition. Below uptrend support, VTR will likely find buyers between the 50-day and 100-day moving averages.

Of all the names on this list, most investors probably didn?t expect to see Tesla(NASDAQ:TSLA). But lo and behold, this name has been an absolute stud from its October lows.

We?re $100 a share off the bottom, good for a 40% rally over the last month, as TSLA now consolidates in a tight range. Earlier this week, Tesla tried to break out over the $360 level. So far though, resistance has held strong.

The question now is, what gives way first, support or resistance? Should Tesla lose channel support and the $330 level, look to see if it retests the $310 area on its stock chart. There should be plenty of support nearby if it does. Over $360 and the highs near $390 are on the table.

If Tesla maintains momentum, look to see how it trades going into earnings in 2019.

Johnson & Johnson (NYSE:JNJ): The company has great management, a bank vault of a balance sheet, a tough dividend yield of 2.5% and an excellent portfolio of products.

You can add raging stock price to that list as well.

Shares are up more than 20% from the summer lows, as JNJ has continued to grind higher and higher. The one thing I?d say about JNJ though, is that the stock has been susceptible to pullbacks.

We obviously saw this in the beginning of the year, but even more recently, shares dipped from $142 to $132 in a hurry. That said, a decline into this $140 to $144 range would be attractive. I know that?s a wide range, but depending on how conservative or how aggressive investors want to be, this wide range offers a little something for everyone.

Those who don?t want to think that much about it can simply buy on a test of the 50-day moving average.

Some call it the Tesla of China, as Nio(NYSE:NIO) went public just a few months ago. As one might expect, the stock has been highly volatile since, doubling from its $6.50 IPO price before falling 50% back to its opening-day levels.

Despite being very unlike Procter & Gamble or Realty Income, Nio has found buyers over the last two months. As shares neared $6 (on two occasions), the bulls stepped in and bought the name.

Nio shares are up about 30% so far this month and the company?s Nov. 6 third-quarter earnings report has been a catalyst for much of those gains. Production of its all-electric ES8 is coming along nicely and revenue growth is accelerating at a significant pace. If Nio is smart, it learned plenty of lessons from Tesla?s mistakes over the years. Let?s hope it doesn?t repeat some of them.

I?m not saying this one is a safe play lay-up, but only pointing out that it?s trending higher while the Nasdaq bobbles near its lows.

It is time to Buy Facebook

Posted 26 Nov 2018 04:01 PM Edited 26 Nov 2018 04:11 PM

Facebook Trades Like a Value Stock Amid the Tech Turmoil

More than two billion consumers use Facebook 's free, advertiser-supported services each day. There are better values that reach more people'sunshine, oxygen'but not many. And yet Facebook has few friends. In the U.S., it is under siege for permitting election meddling by Russia. In Europe, regulators are tallying fines under new privacy laws.

On Wall Street, Facebook stock is down 25% during a year when revenue is expected to jump 36%. Based on its stock price relative to this year's earnings forecast, Facebook is now cheaper than McDonald's . And Walmart . Guess which one of these companies is expected to double its revenue over the next four years'

We predicted a rise to $200 in a year, and sure enough, the stock topped $215 by July. Now it has tumbled again, this time to about $132, amid a broad downdraft for Big Tech.

We once again see value in the stock, with two caveats. First there are some important concerns over how the user base is changing, and what that means for selling advertisements. Second, after years of generous valuations for dot-com growers, it's possible that recent markdowns there could prove to be a lasting reset, not a dip. Even so, it isn't difficult to find likely upside for Facebook stock based on the numbers.

Facebook's third-quarter earnings report on Oct. 30 was well received, judging by the stock's 4% gain the next day. That compares with a 19% plunge that greeted Facebook numbers the quarter before. This time, the company missed revenue estimates by a little and beat earnings estimates by a lot, but the most important result was stability. Daily average users were flat in the U.S. and Canada versus the prior quarter and down only a fraction of a percent in Europe. Across the world, the measure grew 1.6%. That's good for the company because the growth case for Facebook doesn't depend on it bringing in new users. It just requires global advertising dollars to continue gradually migrating toward where consumer attention has already gone'to the internet, and away from just about everything else.

Facebook turned its trickle of user growth into a year-over-year revenue gain of 34%, adjusted for currency swings, in the third quarter. Growth is slowing, but that's expected, and what math enthusiasts call the second derivative'the rate of change of the rate of change'offers comfort. The year-over-year growth rate fell three percentage points from the second quarter to the third, which is better than its five-point drop from the first quarter to the second. Long term, the broad expectation is that Facebook's revenue growth will slow to percentages in the low 20s over the next two years and in the teens after that. That should allow Facebook to increase earnings per share handsomely, especially since it sits on $40 billion in cash and investments and has been gobbling up its own stock.

Not next year, however. Wall Street expects a minimal rise in EPS because Facebook plans to ramp up operating expenses by 40% to 50%, before bringing expense growth back in line with revenue growth in 2020. The splurge will go toward things critics want, like better data security and more policing of trolls. It will fund growth ventures like videos and new community products, including for job-hunting and dating. And some spending will go toward getting ahead of a risky shift in advertising. That's the part investors should watch carefully.

Young people prefer sharing visual content like photos and videos with specific contacts rather than exchanging blocks of text with strangers. That's why Snapchat got off to a strong start, and why a Snapchat killer called Instagram, bought by Facebook in 2012, is growing so well. Assuming that the tastes of the young are a better predictor of the future than those of the old, Facebook needs to become more Instagram-ish, so it has done just that with the addition of something called Facebook Stories. It's small today, but it's growing quickly.

Facebook also has stories-style features on its messaging services, WhatsApp and Messenger. The problem is that while Facebook long ago figured out how to Times-Squarify its traditional News Feed with lucrative ads without chasing off users, its hasn't cracked that code for fast-growing properties like Stories and messaging. 'Video monetizes significantly less well per minute than people interacting in feeds,' said founder, chairman, and CEO Mark Zuckerberg on the third-quarter earnings call.

That's a big challenge, but the starting point for Facebook is 'virtual ownership of the social graph,' as JPMorgan analyst Doug Anmuth puts it. He recently added the stock to his firm's Focus List'as a value pick, no less, with a price target of $195, which works out to 22.5 times his 2020 earnings estimate. Facebook traded recently at 18.3 times the 2018 earnings consensus. That's a 12% premium to the S&P 500 index, according to FactSet'the lowest since Facebook's 2010 initial public offering.

As for the other concerns'privacy, security, and people doing bad things on the internet'Facebook says it is working on these, although a change at the top might be more convincing. 'Zuckerberg will need to view managerial or governance change not as defeat, failure, or an admission of fault, but as the best thing for the business going forward,' wrote Stifel analyst Scott Devitt in a recent note to investors.

Zuckerberg controls 60% of the votes, so it's up to him. But he should look at the recent decline in his net worth, and then to the experience of Alphabet and Microsoft , which have found success both with and without their founders serving as CEO, or privately held Uber, which has recovered from a frat-house reputation with a CEO change, and now hopes to cash in with a massive IPO next year.

All told, it's time to bottom-fish Facebook stock while the company is so prosperous and loathed.

corporate actions

Posted 23 Nov 2018 02:25 PM Edited 23 Nov 2018 02:25 PM

Company Name


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OFFER OF 1 FOR 1 @ SGD 0.008



































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Retail Stocks That Could Beat Amazon on Black Friday 2018

Posted 23 Nov 2018 08:23 AM Edited 23 Nov 2018 08:33 AM

Retail Stocks That Could Beat Amazon on Black Friday 2018



By gosh, by golly, the holiday retail outlook is jolly. Consumer sentiment recently reached its highest level since the turn of the century. The last time unemployment was this low was just after the first moon landing in 1969. Wages are rising at their fastest clip in nearly a decade. House prices will surely end the year higher. Even stocks, more naughty than nice since October, are hanging onto a modest gain for the year.

Backed by that swirl of good news, holiday sales are expected to increase 5% from a year ago, says brokerage firm Edward Jones. That's faster than the five-year average, and it comes atop 5.6% growth last year'the fastest since before the 2007-09 recession. Inventories look lean. There's even an added day versus last year between Thanksgiving and Christmas'prime shopping season.

Shopping for Store Stocks

The outlook for holiday sales is strong, but not all retailers will ring up gains.


Recent Price

Market Value (bil)

EPS Growth*

Forward P/E*



Kohl's / KSS





Winning with digital investments and rewards; has turned Amazon into an ally

Target /TGT





Trades at a deeper-than-usual discount to Walmart






New management, new designs and room to open stores

Home Depot / HD





Riding the housing recovery; a new exclusive deal to sell Stanley tools


Walmart /WMT





Showing digital strength, especially in groceries, but shares look fully priced

Best Buy /BBY





Faces difficult comparisons with last year as TV prices fall

TJX Cos. / TJX





With retail inventories lean, closeout merchandise could become scarcer


Meanwhile, store chains have been learning lessons from 's(ticker: AMZN) success, and investing in e-commerce fulfillment. 'After years of retailers being on defense, now they're on offense,' says Randal Konik, an analyst at Jefferies who covers apparel stores. 'They've sped up their supply chains and in some cases improved delivery times from five to six days to two to three days.'

All of that makes 2018, for retailers, a year of no excuses. For stores that struggle now, the problem is them, not the economy or Amazon. To find likely winners, stock investors should be cautious of malls, and of stores with a shortage of unique merchandise, while being bullish on those with digital savvy. Kohl's (KSS) and Target (TGT) appear poised to outperform. Home Depot (HD) and Tiffany (TIF) are worth their premium valuations. Best Buy(BBY) has had a heroic run, but now faces especially difficult sales comparisons versus last year. TJX (TJX) could cool, too. The outlook isn't promising for J.C. Penney (JCP) and L Brands (LB).

Kohl's offers an example of a retailer that is turning perceived weaknesses into strengths. By now, any big store chain that is taking e-commerce seriously has deployed infrastructure and software that allows orders to be fulfilled intelligently from either distribution centers or stores, and lets customers reserve items for pickup in stores.

At Kohl's, when customers place orders to ship single items'a margin-killer for retailers'its software can quickly determine the odds of the customer being lured by discount offers on add-on items. Customers who are unlikely to fill up their online carts might receive offers for, say, $5 in Kohl's Cash, part of the company's rewards program, to pick their items up at nearby stores. That cuts costs, drives traffic, and presents opportunities for more selling.

National brands like Nike (NKE) and UGG help drive traffic and provide Kohl's opportunities to sell private-label brands. The stores are mostly located in suburban strip malls, not enclosed malls, which helps insulate the company from the struggles of anchor tenants like Sears Holdings (SHLDQ), Macy's(M), and J.C. Penney. Kohl's has a robust mobile app and generous return policy, and in some markets is testing a partnership with Amazon to offer dropoff package returns and show-off smart-home devices like the Amazon Echo in its stores.

This fiscal year through January, Kohl's is expected to increase earnings per share by 31% to $5.49, on a 1.8% rise in same-store sales. Shares, which have returned 45% cumulatively over two years, still sell for less than 14 times this year's earnings estimate.


'         Time to Shop for ETFs Focused on Retailers

Cowen & Company analyst Oliver Chen calls Kohl's a top pick for the holidays, with a price target of $92 that implies more than 20% upside from recent levels. Beyond what he calls the company's 'tactical creativity' he sees an opportunity for it to gain market share from the liquidation this year of regional department-store chain Bon-Ton, noting that 190 of its closed stores are within 10 miles of a Kohl's.

On Nov. 7, Chen also upgraded Target stock to Outperform from Market Perform and raised his price target by $10 to $100, versus a recent $81. Curbside pickup of orders, which has proved popular with customers, has been expanded to 1,000 stores from about 50 last year. Clerks can use hand-held devices to check shoppers out anywhere in stores.

Target has remodeled or expanded toy departments in hundreds of stores to capitalize on the bankruptcy of Toys 'R' Us. It's offering free two-day shipping of orders during the holiday season, mirroring Amazon in what some analysts describe as a minimum requirement for mass merchants this year. Digital sales grew 35% during the first half of this fiscal year. For the full year, Wall Street predicts 15% earnings-per-share growth on a 4.9% rise in same-store sales.

Walmart (WMT) is also enjoying digital success, especially with click-and-collect orders for groceries, but Target has an edge with in-house design of proprietary goods to lure shoppers. It also might offer a better deal for investors. Walmart has generated a two-year, cumulative return of more than 50%, versus just 14% for Target. That has left Target selling at more than a 30% discount to Walmart based on forward price to earnings ratios, despite faster growth projections for Target. Over the past decade, on average, the two retailers have traded at similar valuations.

Jeweler Tiffany has a world-renowned brand but only a few hundred stores. That, combined with strong cash flow, is a recipe for future expansion. Under new management since last year, Tiffany has modernized designs across its home, accessories and fine jewelry categories, including the recently debuted Tiffany True, the company's first new engagement-ring design in nearly a decade. Same-store sales are expected to rise 6.2% this fiscal year, sending earnings per share 17% higher.

Yet Tiffany shares have tumbled from $140 in July to a recent $104 on concerns over a slowdown in China. That country brings in more than 15% of sales. Its tourists also buy Tiffany goods abroad for less than they would pay at home, a practice China's government appears to be cracking down on. Oppenheimer analyst Brian Nagel calls the China concerns legitimate, but the selloff a buying opportunity. It has left shares trading at about 21 times earnings, down from a peak of 27 times this past summer.

At Home Depot, the lumber and such isn't under threat from Amazon, but smaller items like hand tools are a target. That makes it important to lock up winning brands as exclusives. Rival Lowe's did just that last year when it struck a deal with Stanley Black & Decker (SWK) to sell Craftsman products, which Stanley had bought from Sears. In October, Stanley announced an exclusive deal with Home Depot to sell Stanley-brand hand tools and storage products in stores and online.

Simeon Gutman, who covers Home Depot for Morgan Stanley, calls Stanley one of the highest-rated tool brands online, including among reviewers on Amazon. More broadly, Home Depot continues to ride a years-long housing recovery, with same-store sales expected to grow 5.6% this year, and earnings per share, 31%. Shares go for 18 times earnings, and Gutman predicts 14% upside over the next year, plus the 2.3% dividend.

Best Buy has beaten back the bears with a 75% return, cumulatively, over five years. A surge in television sales has helped. So has a brisk trade in Applegadgets. This year, same-store sales are expected to rise 4.2%, and earnings per share, 16%. And the stock looks attractively priced at 13 times earnings. The problem is that some key tailwinds could turn into headwinds next year. Television prices have been falling, which is good for unit sales in the near term, but not for revenue in the long term. Amazon recently announced a deal to sell Apple products directly. Best Buy's efforts to morph into a services company, providing smart-home installations and on-demand tech service, might be too new to offset a lull in traditional store sales.

Also unclear is whether 'treasure hunt' retailers like TJX and Ross Stores(ROST) will continue to outperform. Both trade at over 20 times earnings, and have capitalized on the struggles of other retailers by buying overstock merchandise on the cheap, and reselling it to opportunistic shoppers at a profit. But better inventory management by retailers could cut into future opportunities for deals, and closeout stores can't match larger retailers in digital capabilities.

If Kohl's is a template for attributes to favor in retailers from here, L Brands might serve as a cheat sheet for what to avoid. There's mall exposure, little digital innovation, rising competition, and a fading brand. Sales are badly slumping at the company's Victoria's Secret chain, while those for rivals that take a more inclusive approach to sizing and marketing, like the Aerie unit ofAmerican Eagle Outfitters (AEO), are taking off.

This past week, the CEO at Victoria's Secret stepped down after just two years, but the larger problem is that management at the parent company doesn't seem to acknowledge the bull market in body-positive fashion, and the recession in the appeal of supermodels.

One indicator will be the television ratings on Dec. 2, when ABC airs the Victoria's Secret Fashion Show, a yearly runway strut. Last year on CBS, the program's ratings plunged more than 30%, coming in below a rerun of Rudolph the Red-Nosed Reindeer.

A spokeswoman for L Brands says the show's global audience has been growing.

Lumentum Holdings (LITE)

Posted 22 Nov 2018 09:26 AM Edited 22 Nov 2018 09:29 AM

This Apple Supplier Now Looks Like a Better Buy Than Apple's Own Stock

Investors aren't shy about connecting dots when it comes to financial results. So when a key component supplier for Apple (AAPL) iPhones disclosed a 17% haircut to its quarterly sales forecast earlier this month, Apple shares quickly fell 5%.

Of course, that's nothing compared to the drop in Lumentum Holdings (LITE), whose own shares plunged 33% on the sales warning. The move was harsh given that Apple only accounts for 30% of Lumentum sales. Not to mention Lumentum has other promising products, beyond its 3-D sensing chip that powers Apple's Face ID sensor.

At a recent $39.93, Lumentum shares remain 29% below where they traded before the Nov. 12 guidance cut, and they're more than 40% off their Aug. 29 high. The Milpitas, Calif.-based company has a market value of $2.5 billion.

While potentially peaking iPhone sales are an issue for Apple and its suppliers, they're surmountable for Lumentum, which has multiple business lines and a diverse base of products, customers, and applications. The one thing tying it all together: Lasers. Lumentum is the primary supplier of the components used in premium iPhone models' Face ID sensor, known as a vertical-cavity surface-emitting laser ' or VCSEL ' array.

The iPhone Face ID product is undoubtedly Lumentum's highest-profile effort. Its chip projects tens of thousands of laser dots to create a 3-D map of a user's face, allowing them to unlock their phones, create Animojis, or log into applications securely. After the iPhone X launch in November 2017, gadget reviewers spent weeks trying to trick the system, with little success.

Lumentum has cornered the market for smartphone 3-D sensing, according to Goldman Sachs analyst Rod Hall. 'This process is simply hard to do dependably and without failures,' Hall says. 'With any small deviation, the lasers may not work with the rest of the system and have to be scrapped.'

The complexity has kept competition at bay, thus far. 3-D sensing accounted for $432 million in sales in the company's most recent fiscal year ended in June, up from nothing two years earlier. 3-D sensing now accounts for about 35% of Lumentum's $1.25 billion in total sales. Most of that comes from Apple, but Lumentum is in the early stages of adding Android customers, as well.

For now, investors have treated the stock more severely than the Wall Street analysts that cover it. Since the guidance cut, the consensus earnings estimate for this fiscal year has fallen 13% to $4.33 in earnings per share (up from $3.90 last year). That revision suggests the 35% stock drop is an overreaction.

Using the company's average price-to-next year's earnings multiple of 16.2 since its July 2015 initial public offering, Lumentum would be worth over $70 a share, 75% above its current price. Its current 8.7 forward price-to-earnings ratio is roughly a third of the small-cap Russell 2000's 25.2 value.

After adjusting his model for the lower-than-expected guidance, Hall sees shares more than doubling to $85 in a year.

The long-term opportunity for the company doesn't seem to have changed. The day after the guidance cut, CEO Alan Lowe told investors at a UBS conference that 3-D sensing was still working its way into mid-priced phones on various operating systems and that the technology would eventually move from front-facing cameras to the 'world-facing camera' on the back. 'And with the pipeline of new product that we're working on, I think it's not a matter of if, it's a matter of when,' Lowe said.

Stifel senior analyst John Marchetti estimates that the 3-D sensing market for Lumentum could more than double to $1 billion by 2020, before growing into 'a multi-billion dollar market likely as new markets and applications develop.' These include more advanced augmented reality features, stronger and longer range sensors, and even use in autonomous vehicles.

Meanwhile, the majority of Lumentum's business ' lasers involved in routing network traffic ' remains steady and profitable. With $651 million in revenue last year, Lumentum is the No. 3 player in the optical component market with a 7% market share, according to Ovum, a telecom, media, and technology research and consulting firm.

Lumentum's most promising product is known as a reconfigurable optical add-drop multiplexer, or ROADM. Essentially an optical switching system, it manages the beams of light in a fiber optic network and represents a major upgrade to older systems that expensively and inefficiently convert light signals to electrical and back again. Lumentum had record sales of ROADMs in its most recent quarter, and management believes that sales will continue to increase in the coming year.

That growth will come from upgrading equipment in existing fiber optics networks, expansion of networks in emerging markets including China, and the need for increased capacity as 5G wireless networks are rolled out ' an 'exciting opportunity' according to Jamie Cuellar, portfolio manager of the Buffalo Small Cap Fund (BUFSX), which holds Lumentum stock.

Customers are willing to pay up for these ROADMs products, says Goldman's Hall.

'In a fiber optic network these ROADMs don't represent that much of the total spend for a carrier so they're willing to pay a bit more,' Hall says. 'They're also critical components that carry a lot of traffic, so people want to make sure they get equipment that works well.'

Lumentum also produces manufacturing lasers used for precisely cutting raw materials from sheet metal to semiconductor wafers, a high-margin but slow-growth business that roughly tracks worldwide GDP growth, according to Hall. That segment made up 15% of Lumentum's sales last fiscal year.

Fund manager Cuellar is sticking with Lumentum despite his disappointment in the Nov. 12 guidance cut. 'This is a story that will go way beyond Apple,' says Cuellar, who has held Lumentum shares since early 2018. 'I own this because I think [3-D sensing] is a few-hundred million dollar market that could be a few billion in a few years.'

Kohl’s (NYSE:KSS) beats earnings expectations

Posted 21 Nov 2018 02:18 PM Edited 21 Nov 2018 02:20 PM

Kohl's (NYSE:KSS) beat on earnings, revenue and comp-store sales expectations, while boosting its outlook. Its reward? An 8.5% decline on Tuesday. Given its lofty yield and low valuation, this one seems like an over-reaction. Even worse than the decline is how badly the stock was down near the open, showing just how much investors don't want to own stocks right now. However, retailers are telling a good story so far this holiday season and Kohl's is no exception. If investors want to go long, use Tuesday's low as the stop-loss.