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Trade Recommendation: Ride Reversing GPC and IBM

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The S&P 500 Index (SPX) has been succumbing to selling pressure in the last four trading days. While the gap created on December 18 was filled, a bearish divergence was spotted on the daily chart. On top of that, SPX is still in overbought territory. We might see the index take a significant dip in the short term before it can resume its ascent.

As technical indicators show some signs of bearishness, let’s look at stocks with considerable profit potentials while offering limited risks.

GPC – Genuine Parts Company

Genuine Parts Company (GPC) is a distributor of automotive and industrial replacement parts, office supplies, and electronic materials. The company operates in the US, Mexico, and Canada with close to 40,000 employees.

GPC has been in a downtrend since December 2014, after hitting a five-year high of 109. Bears sent the stock tumbling down to 76.5 in January 2016 where it established critical support. While the stock has rallied from the support level, it failed to generate a clear sign of reversal until recently.

Technical analysis reveal that the stock is creating a bullish reversal pattern on the weekly chart. If breakout turns out to be a success, we can see the stock pierce its five-year high to our target of 110. First, it must breach resistance at 96 with a volume of 2.665 million on the daily chart. The stock is far from overbought territory, and RSI seemed to have established support at 54. It appears that breakout and reversal are on the horizon.

The strategy is to buy breakout at 96 with the required volume. We have support at 92 and 88.

The stock will encounter resistance at 100 before it can reach our target of 110.

Weekly GPC Chart

Monthly GPC Chart

As of December 22, 2017, the Genuine Parts Company stock closed at 95.11.

Summary of Strategy

Buy: breakout at 96 with volume of 2.665 million on the daily chart

Support: 92 and 88

Target: 110

Stop: A close below 88 negates this trade call.

 

IBM – International Business Machines Corporation

International Business Machines Corporation (IBM) is an American multinational tech corporation operating in more than 170 countries. The company started as the primary supplier of mainframe computers, but over the years, IBM diversified and included software and services in its portfolio.

Bears have controlled IBM since it failed to take out resistance at 182 in February. The stock lost almost a quarter of its value before establishing support at 139 in August. IBM rallied, and generated an important higher low on November at 146.21. In the process, the stock created a bullish pattern that relies on breaching resistance of 162 to reverse its bearish trend.

The strategy is to buy as close to the immediate support of150 as possible to limit risks and maximize returns. Otherwise, buy the breakout at 162 with at least 11 million of volume on the daily chart. After 150, next reliable support is 145. Target is resistance at 182.

Daily IBM Chart

Weekly IBM Chart

As of December 22, 2017, the International Business Machines Corporation stock closed at 152.50.

Summary of Strategy

Buy: as close to 150 as possible OR breakout at 162 with 11 million of volume on the daily chart

Support: 150 and 145

Target: 182

Stop: A close below 139.5 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 234 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

NIO Means Tesla Monopoly Ends

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

On Sep 12, NIO made its IPO on the NYSE, which is a very important event for all automotive investors. Founded in 2014 by William Lee, NIO is one of the first companies to compete with Tesla in the premium electric car segment. NIO is based in Shanghai, China, and it already got investment support from such renowned companies as Baidu, Lenovo, Temasek, Tencent, Sequoia, and others.

There are currently over 4,000 employees at NIO.

In June 2018, the company started selling NIO ES8; currently, 481 electric cars have been sold and 17,000 more have been pre-ordered. This is Tesla Model X’s direct competition, while its price is twice as low thanks to some good support from the Chinese government, which is interested in promoting electric cars.

NIO ES8 starts from $67,000 (basic configuration). It has two engines of 635 horsepowers and can ride 355 km before charging. A good difference from Tesla is an option to use replaceable batteries; the monthly subscription is $193, and it takes just around 3 minutes to replace a battery. Tesla planned to offer this option, too, but did not implement it.

The underwriters of NIO at NYSE were BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, and UBS. The initial price per share was $6.26. During the first day, 160M of shares were sold, which allowed NIO to get around $1B and get a place in top US IPO’s rating in 2018.

During the first day, the share price increased to $7, while the next day it jumped above $13, allowing investors to make over 100% profit. This shows investors are very much interested in the company, perhaps because of the good pre-IPO promotion. Before buying NIO shares now, though, one should wait first for the volatility to calm down.

Comparing Tesla and NIO is not the best job now, as Tesla already has over 14-year experience; however, this comparison may well become valid in a year or two, when more data arrive. While NIO is just starting out, its management may make accidental mistakes.

The lockup period (the period during which investors are not allowed to sell their shares) is 180d, which may additionally support the price, while after that the Q2 results will come out. Among NIO’s advantages, one may name government support as one of the biggest. While the trade war between the US and China is here to stay, the demand is high, and company may cater to Chinese customers first. When it starts conquering the US market, though, the conflict may have already come to an end. The company also admits that the customs duties may indirectly influence the car prices.

The issues NIO might face are already known, and the most obvious one is that of meeting the demand. Over the first 6 months of 2018, NIO had a loss of $502M, while the profit earned afterwards is currently just $7M.

Another risk is in the news that Tesla has come to an agreement with Shanghai authorities to build a car factory in the city, which means high competition for NIO. Still, NIO is likely to win thanks to the price, as the parts for Tesla are produced in the US only, and they are subject to customs duties.

NIO management also announced they had had no mass electric car production experience before, and this may have negative influence on the company growth – an issue already overcome by Tesla. Finally, for ES8, there are around 1,700 used coming from 160 vendors; with so many suppliers, delays in shipments may become quite a common thing.

Many things depend on how NIO is going to rise its production volume and how true the declarations of the management are. Previously, we’ve seen how Elon Musk’s words were sometimes very different from what happened in fact.

One of the key topics here is financing, as the development will require a lot of money. Even Tesla has failed to book net profits so far, its losses and debts still growing.

NIO shares are likely to rise in the short term, as investors will be playing on the fact the company is quite promising at first sight. Other conclusions may be only made after there are at least some financial data at hand.

Technically, there are two support levels for NIO: one at $7 and another at $9.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Analysis

TEVA: The Time Has Come

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

The bull market has made it harder to earn good profits on the share prices of industry leaders. Prices are already high, and the correction may begin at any moment. Day by day, the rumors about crisis spread , and such a crisis is usually expected in the Fall, which is confirmed with the latest 20-year history. Case in point: the dotcom crisis started in early September 2000, with the market reaching its bottom only two years later.

Another fall started in mid Sep 2007, and turned into the global crisis in Aug 2008. Still, the market reached its lowest low and started recovering sooner, in 2009. At the same time, some players are still living the past and waiting for the market to collapse everyday, without noticing the considerable gains that have been made over the years.

There were 7 years between the dotcom and the financial crises. The next major decline occurred in August 2015 but it was short lived and did not result in a major crisis. In 3 years more, Trump became the US president and started resolving the negative trade balance issue by imposing customs duties on China. This, together with tax reforms, supported the markets a lot, and they went on growing. However, the situation is rather tense now, and the fall coming alone may lead to the investors being rather worried. The companies hit their earnings historical highs every quarter, and this may make the management feel dizzy.

Still, there are companies that, unlike most of their counterparts, did not grow following the Trump election. One of them is Teva Pharmaceutical Industries Limited (NYSE: TEVA). When the market started growing after the US elections, TEVA started going down heavily, eventually losing over 80% during 2 years. The company started having problems in 2016 when they bought Allergan (NYSE: AGN) at $40.5B. Before that, TEVA capital had been growing steadily since 2006, while the debts had been at the minimum.

Once TEVA acquired Allergan, the debt went sharply higher, which provoked a selloff immediately. At the same time, the earnings also started falling.

Even the quarterly earnings in 2016 were not enough for investors, as the stock price first did not move much, and then hit the support at $50.00 in the middle of the year and went further down.

The outlook is disappointing, and one would never even think about trading this stock, but still there are some things one should consider well.

Many years ago, many people lived in the countryside or at least used to spend some time there, and few heard of such a thing as an allergy. Then, however, people start migrating to cities, which are very polluted. This, perhaps, led to allergies being quite widespread nowadays. Allergies can be quite dangerous, as in many cases it may provoke an allergic shock, with the patient literally hanging between life and death. In this case, the only thing they need is a medicine that will help them survive before the ambulance arrives.

This is exactly what Teva Pharmaceutical Industries Limited created EpiPen, a medicine that removes allergic shock caused by insect bites, food, other medicines, or physical activity. An injection of EpiPen is enough to stimulate the cardiovascular system and the respiration organs, which prevents the consequences of an allergic shock.

According to some sources, in the US, there are around 43M people who may suffer from allergic shock any minute and should have such a medicine at hand. Ideally, such a person has got to have 2 doses of EpiPen, as sometimes one may be not enough. These two doses cost around $375, while the competition are trying to create the same medicine using adrenaline that should make it much cheaper. Still, they are having problems with medical tests, which means EpiPen has no competition right now. Another point is that it should be used within 12 months; otherwise, you will have to buy another dose. This brings stable profits, the ethical aspect is taken away.

Teva Pharmaceutical Industries Limited is a multinational company with 66 plants in 60 countries. This is one of the biggest pharma companies out there, and it’s no wonder that Warren Buffett has paid attention to it. In Q2, Berkshire Hathaway increased its stake of TEVA shares to 4.3%, or 2,7M shares, and is now one of the top three shareholders.

Meanwhile, in November 2017, a new CEO came to TEVA. Kare Schultz reduced costs drastically, and, as a result, the debt stopped growing first, and then was reduced by over $10B.

Technically, the downtrend is finishing, and an uptrend may start in the midterm, with the support being located at $20.00.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 7 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Stock Picks

Stock Pick: Facebook

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Facebook Incorporated (FB) is a social media giant that lets users connect with other users, post comments, share pictures, and share links to interesting web content. The firm began as a school-based social networking platform at Harvard in 2004. The company headquarters are located in Menlo Park, California with 30,275 employees and touts 1.47 billion daily active users.

Technical Analysis of Facebook Incorporated (FB)

FB started to show signs of weakness on July 26, 2018 when it gapped down and opened at 174.89. The open was 19.59% lower than the previous trading day’s close of 217.50. This plunge marked the worst one-day drop in history, wiping out $119 billion in FB’s value. Mark Zuckerberg’s nightmares did not stop there as FB continues to plummet as of this writing.

Nevertheless, it’s always a good idea to take a contrarian stance when stocks make extreme moves.

Technical analysis show that FB is still within the ascending channel even though it dropped by so much in recent weeks. In other words, FB is still in an uptrend. There’s no need to push the panic button as long as the stock continues to respect its uptrend line.

On the contrary, it’s actually a good idea to consider buying at the uptrend support. The stock has bounced off this trendline since 2013 so there’s a very good chance that FB will do the same this time around. The stock has suffered so much losses in such a short period of time so a drop at this level should inspire a bounce.

Fundamental Analysis of Facebook Incorporated (FB)

On top of the technical analysis, fundamentals offer some support to our bullish sentiment. FB’s trailing twelve months (TTM) price to earnings ratio (PE ratio) is 25.92. The stock appears fairly valued. However, it has a five-year maximum of 232.91. This tells us that investors are willing to pay a premium for FB shares.

In addition, Zacks reports that Facebook’s first quarter results beat expert estimates. Analysts forecasted that the company would generate revenues of $11.45 billion and a profit of $1.36 per share. However, Facebook posted revenues of $11.97 billion and an earnings per share of $1.69. Though, second quarter earnings did poorly, which is the main reason the stock dropped on July 26, 2018.

Most investors are probably aware of the privacy scandal that was brewing earlier this year. It seems that most of those negative news and worse than expected short-term earnings are already priced into Facebook’s stocks. This tells us that the worst is most likely behind us.

The strategy is to buy the dip as close to $164 support as possible. If bulls can successfully defend the uptrend support, then FB might be able to muster a rally to our target of $210.

The timeline for the target is less than six months.

Weekly FB Chart

Monthly FB Chart

As of this writing, the Facebook Incorporated stock (FB) is trading at 167.18.

Summary of Strategy

Buy: As close to 164 support as possible.

Target: 210

Stop: Close below 160.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 234 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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