Intel Corporation (NASDAQ: INTC) shares fell today with most other tech stocks after Nvidia Corporation (NASDAQ: NVDA) lowered its second-quarter revenue outlook to a range between $875 million and $950 million, well below analysts' expectations of $1.1 billion. NVDA cited end-market weakness for the lower forecast, which could be a bad sign for INTC. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on INTC.
After hitting a one-year high of $27.99 in December, the stock hit a one-year low of $18.05 in January. This morning, INTC opened at $20.62. So far today the stock has hit a low of $20.26 and a high of $20.80. As of 12:10, INTC is trading at $20.65, down 0.28 (-1.3%). The chart for INTC looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $23 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 13.0% return in six weeks as long as INTC is below $23 at August expiration. Intel would have to rise by more than 11% before we would start to lose money.
Nvidia (NASDAQ: NVDA), the big graphics chip maker, warned on profits. It was an inauspicious beginning to the earnings season for tech stocks. Many of the world's PCs use Nvidia chips. One of the reasons the company gave for its trouble is slowing demand combined with lower prices. The news was considered so bad that NVDA shares fell over 20% after hours.
According toMarketWatch,the company "expects its second-quarter revenue and gross margin to be lower than its previously announced forecast. The company now expects revenue from $875 million to $950 million." The consensus among analysts was that the company would have revenue of $1.1 billion.
Because the firm's products are so closely associated with PC sales, shares in other chip companies like Intel (NASDAQ: INTC) and computer makers like Dell (NASDAQ: DELL) are almost certain to be viewed as candidates for earnings downgrades of their own.
Nvidia's forecast could be the start of a very hard quarter for tech companies. And they may have been Wall Street's last significant hope.
Douglas A. McIntyre is an editor at 247wallst.com.
NVIDIA (NASDAQ: NVDA) shares are trading higher today after the company reported a first-quarter profit of $176.8 million, or 30 cents per share. Although the adjusted profit of 36 cents per share missed analyst estimates of 38 cents per share, a few analysts upgraded NVDA saying margin growth and new products should improve NVDA's prospects through the year. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NVDA.
After hitting a one-year high of $39.67 in October, the stock hit a one-year low of $17.31 in March. NVDA opened this morning at $22.01. So far today the stock has hit a low of $21.97 and a high of $23.39. As of 12:00, NVDA is trading at $23.38, up 1.43 (6.5%). The chart for NVDA looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just five and a half months as long as NVDA is above $17.50 at September expiration. NVIDIA would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.
NVDA hasn't been below $17.50 by more than a few cents at all in the past year and has shown support around $22 recently. This trade could be risky if the company's next earnings (due out in mid-August) disappoint, but even if that happens, this position could be protected by the support the stock might find from its 50-day moving average, which is currently around $20.
DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NVDA.
Deutsche Bank says: "Reiterate Hold due to lack of new product cycles."
NVDA May 22.5 straddle is priced at $2.25, June 22.5 is at $3.45. NVDA June option implied volatility of 56 is near its 26-week average according to Track Data, suggesting non-directional price risk after EPS.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Day one of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Management Advisory Committees meeting: Purdue Pharma's NDA for Oxycontin.
Anadarko Petroleum (NYSE:APC) to report Q1 earnings; conference call Tuesday at 10:00am.
Tuesday, May 6
Day two of the two-day FDA Anesthetic/Life Support Drugs & Drug Safety/Risk Mgmt Advisory Committees meeting: Cephalon's (NASDAQ:CEPH) sNDA for Fentora.
Molson Coors (NYSE:TAP) to report Q1 earnings; conference call at 12:00pm.
The Wall Street Journal reported that New York state's attorney general, Andrew Cuomo, has launched an investigation into auction-rate securities and is seeking information from some of Wall Street's biggest institutions including UBS AG (NYSE: UBS), Citigroup Incorporated (NYSE: C) and Merrill Lynch & Co Inc (NYSE: MER), a person familiar with the matter said.
According to the Financial Times, Deutsche Bank AG (NYSE: DB) and other investment banks are working on plans to develop a clearing house for the credit derivatives markets. In an attempt to reduce counterparty risk, the banks are trying to develop a system that would only allow institutions with strong capital bases and credible trading histories to clear trades in the credit default swap markets with a central counterparty.
OTHER PAPERS:
The news that The Royal Bank of Scotland Group Plc (NYSE: RBS) is planning a rights issue of between GBP5B and GBP12B received mixed reviews from British analysts and investors, the Telegraph reported. The analysts expect the bank to cut its dividend.
MOST NOTEWORTHY: Nvidia, Entropic Comm and Cleveland Cliffs were today's noteworthy initiations:
Piper initiated Nvidia (NASDAQ: NVDA) with a Neutral rating and $23 target and believes the rate at which the company gained market share over the past two years is unsustainable. The firm expects EPS deceleration over the next few years.
Piper believes Entropic Comm (NASDAQ: ENTR) is a key benefactor from the general adoption of high definition video consumer goods, as well as from growth in multi-room DVRs. The firm assumed shares with a Buy rating and $10 target.
Cleveland Cliffs (NYSE: CLF) was started with a Buy rating and $135 target at Deutsche Bank. The firm believes CLF is a leveraged play on bulk commodities' momentum.
NVDA is expected to report Q1 EPS 35 cents today according to Thomson Call.
NVDA February 25 straddle is priced at $2.50. NVDA March option implied volatility of 71 is above its 26-week average of 54 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
It may be too late, but AMD (NYSE: AMD) is coming out with a product that just might do well. The company will put two of its most powerful chips on one graphics card.
According toThe Wall Street Journal, "The company, which has fallen behind Nvidia (NASDAQ: NVDA) lately in high-end personal-computer graphics, says a series of benchmark tests suggest the new ATI Radeon HD 3870 X2 card is the clear speed leader." Of course Nvidia is very likely to come to market with a similar product very soon.
AMD has not had much product success. Its new flagship, the Barcelona chip, was late to market and underpowered. It was set to go up against offerings from larger rival Intel (NASDAQ: INTC). There is no evidence so far that it has picked up any market share from the new product.
Nvidia is also no pushover as a competitor. Its successes have moved its market cap to $14 billion, and it trades at 3.7x sales. AMD's market cap is $4.1 billion and it trades at .7x sales. Nvidia's graphics chips are currently considered state-of-the-art.
A nice press release from AMD. A new product. Hope of better sales and revenue.
Maybe.
Douglas A. McIntyre is an editor at 247wallst.com.
With shares of eBay Inc (NASDAQ: EBAY) down 17% from their highs in 2007, CEO Meg Whitman is more than likely on her way out, TheDeal Blogs speculated.
According to sources in London and New York, Merrill Lynch and Co Inc's (NYSE: MER) CEO, John Thain, is in talks with Chinese and Middle Eastern sovereign wealth funds this weekend, which could lead to the sale of another big stake in the U.S. bank, the Observer reported.
iLounge learned that Apple Inc (NASDAQ: APPL) is planning a push for iTunes tagging-ready, HD Radio-equipped boomboxes with iPod docks and is expected to make an announcement at Macworld in mid-January.
The holiday season may have just begun, but the earnings season continues. Here are some highlights of this past week's earnings coverage from BloggingStocks:
Wall Street analysts expected Nvidia Corporation (NASDAQ: NVDA) to have EPS of $0.37 for the last quarter and revenue growth of 23% to $1 billion.
As things turned out for the company in the third quarter of fiscal 2008, revenue increased to a record $1.12 billion, compared to $820.6 million for the third quarter of fiscal 2007, which was an increase of 36%. Net income computed in accordance with GAAP for the third quarter of fiscal 2008 was a record $235.7 million, or $0.38 per diluted share, an increase of 121% compared to the third quarter of fiscal 2007.
The company did not provide any guidance in its press release, so traders were left felling a bit naked. PC sales are obviously doing well enough to drive up NVDA sales, but investors have to wonder whether that will last. The market was uncomfortable not knowing more and not seeing a tremendous improvement over expectation. The share moved down 3.2% after hours.
Douglas A. McIntyre is an editor at 247wallst.com.
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