Sunday, March 30, 2014

03/31/14 Weekly Watchist: Investing in 1Q14 Telecomm Growth

Market Overview: Considering the Ukraine/Russia geopolitics and the Feds commitment to completely tapering-off its economic stimulus, the markets (index: SPY) are on edge as investors fear for the worst. This has led to recent run-up in TLT (short-term interest rate index) and persistent spikes in VIX (market volalitity index) as investors buy insurance because they fear for the worst. Despite these bearish market forces, SPY has managed to hold technical support (50day EMA, $183.5) while keeping VIX range-bound, as TLT hits new highs since almost a year. For as long as SPY maintains support above 183.5 and VIX range-bound below 16, we will remain cautiously bullish and possibly hedged with TLT call options.

Telecomms expecting 24% 1Q earnings growth: Telecomms (index: IYZ) have been trading at its highest since the recession and are expecting a market-leading 24% growth in the first quarter 2014 (according to FactSet). VZ (Verizon) is responsible for a large majority of the growth this quarter. However, given that VZ is the IYZ leader (in terms of market cap), this growth will be felt throughout the industry as Telecomm stocks spike off VZ's sympathy. Therefore this weeks watchlist consists of VZ and telecomm sympathy plays.

Note: Although we are bullish Telecomms this week, we are long-term bullish VZ and others listed below that are trading a foward-P/E below 15, which is the forward-P/E of SPY. We expect an additional 10-15% growth throught 2015 for IYZ, once it clears resistance at $30/share.


SYMBOL (stock or options?) - foward-P/E

VZ ($47Apr2014 call options)- Verizon is currently trading at foward-P/E of 12.5.
CALL (common stock)- MagicJack VocalTec is currently trading at foward-P/E of 10.1
NTLS (common stock)- NTELOS Holdings Corp. is currently trading at foward-P/E of 14.0
TMUS ($33Apr2014 call options)- T-Mobile is currently trading at foward-P/E of 31.0
TDS (common stock)- Telephone & Data Systems' forwards-P/E is N/A.

Hedge: We are considering hedging our position(s) with $110Apr2014 TLT call options.

No comments:

Post a Comment