Extreme Trades for the Week of August 20, 2018August 22, 2018
Consistently, one of the best ways to make money is to buy beaten down stocks.
Especially as fear begins to fade.
It’s the same strategy used by Baron Rothschild, Sir John Templeton, and Warren Buffett. Here are three.
Extreme Trade No. 1 — Barrick Gold (NYSE:ABX)
Barrick Gold Corporation engages in the exploration and development of mineral properties. It primarily explores for gold and copper deposits. The company holds a 50% interest in the Veladero mine located in the San Juan Province of Argentina; 50% interest in the KCGM, a gold mine located in Australia; 95% interest in Porgera, a gold mine located in Papua New Guinea; 50% interest in the Zaldívar, a copper mine located in Chile; and 50% interest in the Jabal Sayid, a copper mine located in Saudi Arabia. It also owns gold mines and exploration properties in Africa; and gold projects located in South America and North America.
“Gold Investors Give up Hope as Biggest Short in History Builds,” blared Bloomberg. “Gold is hitting new milestones of misery.” And from the looks of gold charts, they’re right. Gold has sunk from a high of $1,360 to $1,194. It seems no one wants to touch it. But have traders become too bearish? Is it time to buy when others are fearful, as Warren Buffett advises?
It may just be. Exchange-traded funds tracking the metal have bled assets for 13 consecutive weeks… [and] investors have placed the biggest gold short on record,” Bloomberg reported.
Speculators are also net short for the first time since December 2001, when gold was priced at $275 an ounce, according to Peter Boockvar, chief investment officer at Bleakley Financial Group, as quoted by CNBC. “It’s tough to find a more contrarian indicator.”
Even the levels of gold contracts held by shorts has run amok. “It’s literally off the charts. 215,000 contracts is double what it was the third week of June, triple what it was the second week of June. It’s up nine weeks in a row,” said Boockvar. The last time gold short bets were at a high was in 2015, and the prior record was 159,000 contracts at that time, according to CFTC data going back to 1993. “An extreme level of positioning should be the signal we’re close to bottoming out in gold in days or weeks,” he said.
We believe gold and related stocks are exceptionally oversold at this point, and worthy of a buy.
We’re recommending a buy on the ABX stock, and the ABX January 18, 2019 10 calls, which last traded at $1.01.
Extreme Trade No. 2 — Micron Technology (NYSE:MU)
Micron Technology, Inc. provides semiconductor systems worldwide. The company operates through four segments: Compute and Networking Business Unit, Storage Business Unit, Mobile Business Unit, and Embedded Business Unit. It offers DDR3 and DDR4 DRAM products for computers, servers, networking devices, communications equipment, consumer electronics, automotive, and industrial applications; lower power DRAM products for smartphones, tablets, automotive, laptop computers, and other mobile consumer device applications; DDR2 DRAM and DDR DRAM, GDDR5 and GDDR5X DRAM, SDRAM, and RLDRAM products for networking devices, servers, consumer electronics, communications equipment, computer peripherals, and automotive and industrial applications, as well as for computer memory upgrades; and hybrid memory cube semiconductor memory devices.
The company also provides NAND products, which are electrically re-writeable, non-volatile semiconductor memory, and storage devices; client solid-state drives (SSDs) for notebooks, desktops, workstations, and other consumer applications; enterprise SSDs for server and storage applications; cloud SSDs; and multi-chip package and managed NAND products. In addition, it manufactures products that are sold under other brand names; and resells flash memory products that are purchased from other NAND Flash suppliers. Further, the company provides 3D XPoint non-volatile memory products; and NOR Flash, which are electrically re-writeable and semiconductor memory devices for automotive, industrial, connected home, and consumer applications. It markets its products to original equipment manufacturers and retailers through its internal sales force, independent sales representatives, and distributors; and through a Web-based customer direct sales channel, and channel and distribution partners.
Micron Technology had the stuffing beaten out of it on a tech pullback. However, we believe the pullback is overdone, as the stock begins to push through its 50-day moving average to the upside. In addition, it’s just beginning to bounce from double bottom support from its lower Bollinger Band (2,20). RSI, MACD and W%R are all beginning to reverse higher, as well. We’d like to see a near-term recovery to $56. Even better, billionaire Ken Griffin, who manages the $30 billion Citadel Fund just increased his position in MU by nearly 200%. He picked up 5.6 million shares, bringing the fund’s total stake in MU to 8.48 million shares.
We’re recommending a buy on the MU stock, and the MU October 19, 2018 52.50 calls, which last traded at $2.46.
Extreme Trade No. 3 — Weight Watchers (NYSE:WTW)
Weight Watchers International Inc. provides weight management services worldwide. The company operates in four segments: North America, United Kingdom, Continental Europe, and Other. It offers a range of products and services comprising nutritional, activity, behavioral, and lifestyle tools and approaches. The company also engages in the meetings business, which presents weight management programs, as well as allows members to support each other by sharing their experiences with other people experiencing similar weight management challenges. In addition, it offers various digital subscription products, including Weight Watchers OnlinePlus and a weight management companion for Weight Watchers meeting members to digitally manage the day-to-day aspects of their weight management plan, as well as provides interactive and personalized resources that allow users to follow weight management plan. Further, the company provides Personal Coaching, an online subscription product that offers one-on-one telephonic, e-mail, and text support and personalized planning from a Weight Watchers-certified coach, as well as offers access to other online tools. Additionally it offers various products, including bars, snacks, cookbooks, food, and restaurant guides with SmartPoints values, Weight Watchers magazines, SmartPoints calculators, and fitness kits, as well as third-party products, such as activity-tracking monitors. The company also licenses the Weight Watchers brand and other intellectual property in frozen foods, baked goods, and other consumer products, as well as endorses selected branded consumer products; and engages in publishing magazines, as well issues other publications, such as cookbooks, and food and restaurant guides.
That’s the last time relative strength (RSI) and MACD were as oversold as they are right now. Even Williams’ %R is stuck in oversold territory. All after the stock was devastatingly knocked down more than $12 on earnings. But the news truly wasn’t worth such a gap lower. The company posted a 28% year over year jump in subscribers for the second quarter, bringing its subscriber base to 4.5 million. However, despite that news, it lost 100,000 subscribers quarter over quarter. That’s why the stock fell. And in my opinion, it’s an overreaction. Revenue for the quarter was up 20% year over year to $410 million. EPS jumped to $1.01 from 67 cents a year earlier. It even raised its full year guidance to between $3.10 and $3.25 per share from $3 to $3.20. Better still, this is actually the company’s second revision to guidance. Initially, it was only expecting a profit range of between $2.40 and $2.70.
All in all, this is another example of herd mentality gone wrong, we believe. We believe WTW could refill its bearish gap around $92.50. Analysts at B. Riley FBR even reiterated their buy rating while raising the price target from $103 to $113 a share.
We’re recommending a buy on the WTW stock, and the WTW October 19, 2018 80 calls, which last traded at $2.85.