Yesterday, I had a great refresher on soft tissue injuries thanks to Vital Signs podcast.  Vital Signs “is a series of online courses designed to satisfy continuing education hours for EMS providers through high quality distance-based training”.  I highly recommend this podcast to any outdoor instructor looking for a refresher in the emergency medical field prior to teaching an expedition course, especially if you took your WFR a while back.    Enjoy! http://www.jblearning.com/vitalSignsPodcast.cfm

These are this Friday’s top analyst upgrades, downgrades, and initiations seen in Wall Street research calls:

Archer Daniels Midland (NYSE: ADM) Raised to Buy at Deutsche Bank.
CIENA Corp. (NASDAQ: CIEN) Cut to Equal Weight at Barclays.
Dollar Tree (NASDAQ: DLTR) Cut to Neutral at JPMorgan.
Eastman Kodak (NYSE: EK) Raised to Hold at Brean Murray.
Exelon Corp. (NYSE: EXC) Cut to Market Perform at Bernstein.
Gap Inc. (NYSE: GPS) Raised to Buy at Citigroup.
LDK Solar (NYSE: LDK) Raised to Neutral at HSBC.
Mastercard (NYSE: MA) Raised to Outperform at Wells Fargo.
MEMC Electronics (NYSE: WFR) Raised to Outperform at Credit Suisse.
MetLife (NYSE: MET) Raised to Outperform at FBR.
Molson Coors (NYSE: TAP) Started as Overweight at Barclays.
Motorola Inc. (NYSE: MOT) Raised to Overweight at Barclays.
New Oriental Education (NYSE: EDU) Raised to Buy at Brean Murray; Started as Neutral at Cowen.
Veeco Instruments (NASDAQ: VECO) Started as Buy at Lazard.

You are invited to join our free daily email distribution list to hear about top analyst upgrades and downgrades, IPOs and secondary offerings, ongoing day trader and options trader alerts, stock and market rumors, Buffett and guru investor news, M&A and more.

JON C. OGG

By Kevin Grewal

Over the past year, the alternative energy sector has been hit hard by the global recession and cascading fall in crude oil prices.  However, as economies recover, crude gets a bit more expensive and alternative energy dominates political agendas, the sector is likely to reap some benefits.

Most recently, governments around the world came to an agreement to reduce carbon dioxide emissions by pledging an aggregate amount of $100 billion per year to aid developing nations in adopting cleaner and greener energy technology.  Additionally, nations like China, India and Brazil continue to focus and invest heavily in solar and wind power, with China expected to allocate more than $450 billion to the wind and solar power industries over the next 5 years.

In fact, the Chinese have more than augmented their support for alternative energy and solar projects by offering government subsidies.  To hit its goal of increasing total installed solar capacity to 2GW by 2011, the Chinese government offers 50% of the cost of investment in solar projects and 70% of the solar projects costs in remote parts of the country.

In the United States, the drive to cleaner energy seems to primarily be driven at the state and local levels.  Around the nation, twenty-six states and over a thousand cities have bumped up their environmental standards and energy efficiency requirements, with California leading the way.  The sunshine state has a statue which requires its utilities to include 33% renewable in its portfolio, which has resulted in Southern California Edison (SCE) and Pacific Gas & Electric (PGE) to both develop 250 MW solar projects.

To further add appeal to the sector, it appears that funding is no longer the barrier it once was.  Through the American Reinvestment and Recovery Act (ARRA), the U.S. Treasury Department has implemented a program which hands out cash grants in lieu of investment tax credits for renewable projects.  Additionally, the Department of Energy has implemented a loan guarantee program and developed new grants for use in commercial and residential energy efficiency programs. Thirdly, numerous states have developed bond programs like the Property Assessed Clean Energy (PACE) to make financing easier. Lastly, there are still the tax credits and utility rebates offered by the federal government, which add appeal to going green.

This focus on renewable and alternative energy sources will likely benefit the following ETFs:

• Claymore/MAC Global Solar Energy (TAN), which holds companies like First Solar (FSLR).
• PowerShares WilderHill Clean Energy (PBW), which holds companies like Trina Solar (TSL) and CREE Inc. (CREE).
• iShares S&P Global Clean Energy Index (ICLN), which holds companies like Covanta Holding Corp (CVA).
• Market Vectors Solar Energy ETF (KWT), which holds companies like MEMC Electronic Materials Inc (WFR).

When investing in these clean energy focused equities, it is important to consider the volatility of the energy sector and the inherent risks involved in investing.  To help mitigate these risks, the use of an of an exit strategy which triggers price points which represent abnormal price weaknesses and an increased likelihood that further price weaknesses are likely to follow is of importance.  Such a strategy can be found at www.SmartStops.net.

If anyone in the solar space could use an order for Christmas, it is MEMC Electronic Materials Inc. (NYSE: WFR).  The company’s SunEdison solar services unit, just received an order from Xcel Energy (NYSE: XEL) in its Southwestern Public Service Company.  The order is for New Mexico and is expected to be fully operational by the end of 2011.  The five photovoltaic installations represent a 50 megawatt order that will generate enough electricity to power 10,000 homes.

This order is part of Xcel’s renewable standards in the state to meet 15% of the public utility’s electricity needs by 2015 and 20% by 2020.  The facilities will be built, financed and maintained by SunEdison in a 20-year solar power services agreement with Xcel Energy.

It is hard to tell if this will be enough of an order for analysts to juice up estimates at all.  As of today, the Fiscal DEC-2010 consensus estimates from Thomson Reuters are $0.84 EPS and $1.60 billion in revenues.  This has so far hardly been able to move the bar for MEMC.  Its stock is up 1.5% at $13.32, and the 52-week trading range is $11.32 to $21.36.

JON C. OGG

I sold a new round of calls this morning on WFR.  As I mentioned in an earlier post I was looking to sell either the JAN $12.5s or the FEB $14s depending on which direction WFR decided to take.  Well, over the past couple of days the direction has been up.  Thus, this morning I sold the FEB $14 calls for $0.80.  Some of you might be curious as to why I chose the FEB $14s instead of the JAN $14s.  My regular readers know I usually sell the near month calls and puts.  With WFR right now, that strategy just didn’t make sense.  The JAN $14s were only selling for $0.30-0.35.  Meanwhile the FEB $14s were at $0.75-0.85. 

Usually calls and puts with a strike price two months out trade at a multiple of less than double the price of the near month options.  That clearly isn’t the case with WFR right now.  I suspect traders believe WFR is going to continue trending higher but that they don’t have much faith that it will get above $14 by January expiration.  However, they are much more confident this will occur by February expiration, thus they are willing to pay a premium price for those options.

Below is a log of my WFR transactions.  As you can see my cost (net of commissions) is now down to $11.80.   If assigned at $14 in February my ROIC will be better than 17% in just 9 weeks.  Not bad.  If unassigned my ROIC will be around 8%. 

Merry Christmas,

Troy

Today I did buy/writes on both GME and NITE.  You’ll recall in the post from yesterday I said “Its a toss-up right now between GME and NITE.”  Well, instead of choosing between the two I decided to spread my risk and invest a little in both.  Below are the details of my transactions:

Gamestop (GME) – Bought 200 shares at $22.65.  Sold two JAN $22.50 calls at $0.96.  This makes my break-even point $21.69.  If assigned at expiration my return will be 3.58%.  If unassigned it will be 4.27%.

Knight Capital (NITE) – Bought 300 shares at $15.17.  Sold three JAN $15.00 calls at $0.65.  This makes my break-even point $14.52.  If assigned at expiration my return will be 3.16%.  If unassigned it will be 4.33%.

Also wanted to give everyone a quick update on MEMC Electronic Materials (WFR).  You’ll recall I executed a buy/write on it last week.  I bought 500 shares at $12.77 and sold the DEC $13.00 for $0.22.  These calls expired OTM.  My original plan for this month was to sell the JAN $12.50 calls.  However, a fellow trader and friend (thanks Ed!) persuaded me to wait as he believes it is going to continue moving higher.  Thus, my plan now is to sell either the JAN or FEB $14 calls if WFR moves higher.  If it stalls out I will sell the JAN $12.50 and capture some ITM premium.

Merry Christmas to all,

Troy

Yes, it is true.  For the first time in months I feel like I have multiple stocks from which to pick my next trade.  As all of my regular readers know I haven’t been trading much of late.  Quite simply, I couldn’t find stocks that both met my VISIONS criteria AND had what I considered to be an acceptable risk/return ratio.

This month that has changed.  I have four, yes FOUR, stocks that I feel are worthy of consideration.  They are Gamestop (GME), Illumina (ILMN), Knight Capital (NITE), and MEMC Electronics (WFR).  Let me give you a brief description of each:

GameStop operates as a retailer of video game products and personal computer (PC) entertainment software. It sells new and used video game hardware; video game software; video game accessories, including controllers, memory cards, and other add-ons; PC entertainment software; and strategy guides and trading cards. The company sells its products through its 6200+ stores, as well as through an electronic commerce Website gamestop.com.

This is the second time I have considered a trade in GME.  Earlier this year (July/August) I executed a very successful CC and NP trade on GME. 

Illumina, Inc. engages in the development, manufacture, and marketing of integrated systems for the analysis of genetic variation and biological function.  It also is a stock I’ve traded previously.  However, in this case it was a trade I entered before I began using Ron’s VISIONS methodology and software.

Knight Capital Group, Inc., a financial services company, provides electronic and voice access to the capital markets across multiple asset classes for buy-side, sell-side, and corporate clients; and asset management for institutions and private clients in the United States. It operates in two segments, Global Markets and Asset Management.

And last, but not least there is MEMC Electronics.   MEMC Electronic Materials, Inc. designs, manufactures, and sells silicon wafers for the semiconductor industry worldwide. Its products include prime polished wafers, such as OPTIA and annealed products; epitaxial wafers consisting of thin silicon layer grown on the polished surface of the wafer; test/monitor wafers for testing semiconductor fabrication lines and processes; and silicon-on-insulator wafers used for the chip making process. The company’s products are used in the manufacture of various semiconductor devices, including microprocessor, memory, logic, and power devices, as well as the starting material for solar cells.

As you know I entered a trade in MEMC just a week or so ago.  My December calls expired worthless so I hopefully will be selling a second round of calls on it this coming week.  I am including it again in this analysis because I feel it is still at a good entry point for folks who didn’t join me in the trade last week.

Below is a spreadsheet showing the key metrics for each of the stocks under consideration.  Cells shaded in green are the best value among the four stocks for that particular metric.

As you can see NITE is the clear choice based simply on having the best metrics in 5 categories.  At 92, it has the best Gold$ score.  It also trades at closest to it’s book value, has an exceptional amount of net cash on its books, and has the best TAI score.  However, let’s not make a hasty decision.  Let’s have a look at the stock charts.

In my opinion, of the four stocks under consideration, ILMN has the best looking chart.  After selling off sharply late in October it has since stabilized and is now trending back up right in the middle of the V.

OK, now let’s see what our ATM call options look like.  Below is a list of the near month ATM options for each of the four stocks being considered.  None jump out at me as being far superior to the others.  The disadvantage with the ILMN stock price is that it is right in the middle between the next available strike prices.  The other three stocks all trade at or within mere pennies of the ATM strike price.  Thus, with ILMN you have to make a decision as to whether to write the ITM or OTM call.  WFR offers the best uncalled and second best called return, followed by GME.  NITE offers the least return but is by far the safest pick with the huge pile of net cash sitting on its balance sheet.

What to do, what to do? For me, it comes down to choosing either GME or NITE.  Why?  Well, I already have a position in WFR that I need to sell a second round of calls on so I don’t want to pick it and end up with too large a position in one company.  With GME I get a company I’m very familiar with and which I have successfully traded before.  With NITE I get a company selling for less than its net cash.  In this market, that ’safety net’ is very appealing.  While I like ILMN’s chart I don’t like its fundamentals.  It sells for over 28 times earnings and almost 3.5 times book value.  I also don’t like having to choose between the ITM or OTM call.

So what am I going to do?  Well, I’m going to wait and see what Monday brings.  Its a toss-up right now between GME and NITE.  Perhaps the market will make the decision for me on Monday with one or the other moving sharply one way or the other.

What do you think?  Reply to this post and let me know which one you like and why.

Merry Christmas,

Troy

I executed a new CC trade today in MEMC Electronic Materials, Inc.  (ticker symbol: WFR). 

MEMC designs, manufactures, and sells silicon wafers for the semiconductor industry worldwide.  Its customers comprise semiconductor device manufacturers, including the memory, microprocessor, and applications specific integrated circuit manufacturers, foundries, and solar cell and module manufacturers.  It was founded in 1984 and has annual revenues of around $1.23B.

Before I explains my reasons for executing the trade, let me give you the key metrics from my trade:

Bought to Open (BTO) 500 shares of WFR at $12.77

Sold to Open (STO) 5 DEC $13 calls at $0.22

Thus, my net cost and break-even point is $12.55.

Uncalled ROIC:  1.72% with only 8 days remaining to expiration.  Annualized this equates to an ROI of 78.60%.

Called ROIC: 3.52%, 160.77% annualized.

If you’ve skipped ahead and looked at the chart and the KPIs  you undoubtedly are wondering why I did this trade.  At first glance it doesn’t seem to have much positive going for it.  The stock is trading below the Vision V and it has a very low Gold Score.  Mr. Groenke would probably groan and shake his head if he saw this trade.  So, why did I go ahead and do it?  Well, primarily for two reasons, one fundamental and the other technical.  First, the fundamental reason is the strong balance sheet.  WFR is sitting on almost $1B in cash and very little debt (< $30M).  Thus, if I’m wrong about the trade I don’t have to worry about the company going bankrupt on me.  Second, the technical reason is the proximity of the stock price to its 52-wk low and a strong support level ($12.00).  I have been watching WFR for several weeks now.  It has strong support at $12.  Multiple times it has fallen to around $12 and bounced back.  Thus, again if I’m wrong about the trade I can take comfort in knowing I’m buying in at a good price and need not worry about it falling a great deal further.

As I mentioned earlier I have been following WFR for several weeks.  My original intent was to sell naked puts at $12 as WFR bounced off support at that price.  However, everytime the set-up for the NPs looked good I couldn’t pull the trigger or was busy and missed the opportunity.  However, after logging in today and looking at the returns I could generate for an 8-day holding period, I decided to change my tactics and sell the $13 CCs instead.

Below are the charts and KPIs:

So, what’s my plan?  Well, if uncalled, depending upon the price of the stock, I intend to sell the JAN $12.50 calls which are currently trading around $0.75.  If my DEC calls are ITM next Friday I intend to let myself be called away, take my 3.52%, and be happy.

Best of luck to y’all in your trades as you close out 2009 and may you have a very prosperous 2010!

Regards,

Troy

These are this Friday mornings top ten analyst upgrades, downgrades, and initiations of coverage from Wall Street firms:

Coach Inc. (NYSE: COH) Raised to Buy at Jefferies.
Investment Technology Group (NYSE: ITG) Cut to Neutral at JPMorgan.
Kellogg Company (NYSE: K) Raised to Buy at Citigroup.
Lloyds Banking Group (NYSE: LYG) ADR upgraded at both BNP Paribas and Credit Suisse.
MEMC Electronics (NYSE: WFR) Raised to Buy at Soleil.
SunTrust Banks (NYSE: STI) Raised to Equal-Weight at Morgan Stanley.
Time Warner Inc. (NYSE: TWX) Raised to Outperform at Credit Suisse.
Toll Brothers (NYSE: TOL) Raised to Buy at Citigroup.
VVMware (NYSE: VMW) Cut to Neutral at Goldman Sachs.
Zumiez (NYSE: ZUMZ) Raised to Buy at Jefferies.

You can join our open email distribution list to get updates on top analyst upgrades and downgrades, top day trader alerts, IPO’s, secondary offerings, Warren Buffett and other guru activity, M&A and more.

JON C. OGG

Shares in MEMC Electronic Materials Inc. (NYSE:WFR) have been downgraded from ‘Buy’ to ‘Hold’ by Citigroup (NYSE:C). MEMC makes crystalline polysilicon wafers used in some photovoltaic solar cells, and the market appears to be oversupplied for both this year and next.

Prices for polysilicon could fall by as much as 50%, which would really squeeze MEMC’s revenues and margins.

Another wafer maker, Applied Materials Inc. (NASDAQ:AMAT), got an upgrade from Citigroup, from ‘Hold’ to ‘Buy’. Applied also makes crystalline polysilicon wafers, but its thin-film products could easily pick up the slack if the market for polysilicon takes the expected tumble.

And while alternative energy shares were hot last week, primarily due to the IPO of A123 Systems Inc. (NYSE:AONE), things have cooled a bit today. Even A123 is down nearly 3% in early trading today.

Nearly all the solar players are moving downward this morning. MEMC is off about 3.5% to around $16.69, and First Solar, Inc. (NASDAQ:FSLR) is off nearly 3.75% to $149.15. The big winner so far is Applied Materials, which is up more than 3.25% to $13.53.

Paul Ausick