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Earnings Risk/Reward

• Expectations, sentiment, implied earnings move, short interest. 
• Price action, technicals
• Valuation, comparative, historical
• Future catalysts - product launch/cycles, corporate action, capital return etc.
• Potential surprises, headwinds, tailwinds (currency, em exposure etc).
• Arriving at a view to buy sell or hold.  

IBM - Reported Today

• Options were implying about a 4.5% (~$7) earnings move
• Up 30% from its 52 week (& nearly 6 year) lows made in late January
• Wall Street - 7 Buy ratings, 15 Holds and 5 Sells with an average 12 month price
target of $138

• Short interest was only 2.5% of the stock's float.
• 10x trailing earnings and about 11x expected 2016 eps
• Consensus estimates has declining 9% year over year
• 10.7x expected 2017 earnings that consensus has growing 5% yoy.
• Share buybacks that actually continued to grow eps from their sales peak in 2011

IBM - Reported Today

IBM - Reported Today

My take (from 4/12): IBM sets up as a good near term short after a sharp reversal to
the downtrend. Positive fundamental news will likely be met with a grain of salt, another
downgrade to guidance will cause the stock to retrace a portion of the recent rally.
Hedge against 100 shares of IBM ($152.50):
Buy the April22nd 150/140/130 put butterfly for 1.60
• Costs about 1% of the underlying for protection

• Protection below $148.40
• Max protection of $8.40 at $140

Defined risk alternative to owning shares (152.50):
Buy the April22nd 152.5/165 call spread for 3.00

• Breaks even at $155.50 (up $3 vs the $7 implied move)
• Max gain possible at $165 in the stock (up ~10%).
• Max loss of only $3 on a move lower

IBM - How’d it Play Out?

• Beat by $0.26 at $2.35 per share.
• Revenue beat expectations of $18.28b at $18.7b
• But 16th consecutive quarter of lower revs
• Maintained previously weakened earnings guidance for 2016
• Stock is down after hours

Hedge will work with stock here, saving a few dollars in losses
Defined risk alternative better than share losses
What’s the trade now?

Goldman Sachs (GS) - Tomorrow Morn

• Implying a one day move of a little less than 3%.  The 4 qtr average has been only about
1.5%.  The ten year average has been about 3%.  

• Banks stocks traded very poorly relative to the broad market heading into earnings last
week, the worst performing sector in the S&P 500. BAC rallied about 2.5% in the day
following its results last week, C closed last Friday unchanged, JPM the first bank to report
closed up 4%, while WFC closed down 50 bps.

• Sentiment: Wall Street analysts remain fairly mixed on GS, with 16 Buys ratings, 12 Holds
and 1 Sell, with an average 12 month price target of $186, or about 16% higher than current
levels.

• Price Action / Technicals: The stock is one of the worst performing in the Dow Jones
down 12% on the year, down 27% from its 52 week highs and sadly only up about 14%
from its 52 week and 2016 lows made in February, basically in line with the gains of the
S&P 500.

• The two year chart looks like a massive head and shoulders top with $170 the neckline
that was huge support until its breakdown in early January. $170 could serve as very
important technical resistance in the near term.

Goldman Sachs (GS) - Tomorrow Morn

General Motors (GM) - 4/21

• Implying about a 3.75% one day move which is in line with its 4 qtr average and slightly
shy of its long term average of about 4%.

• GM is down 8% ytd, up 16% from its 2016 low made in July, but still down about 16% from
its 52 week highs made last April. On a 5 year basis, the stock is down about 25% from its
all time, post financial crisis IPO highs made in early 2014, and up about 65% from its 2012
post IPO lows.

• The most obvious trend from the 2014 highs is a downtrend with a series of lower highs
and a series of lower lows.  

• Sentiment remains very poor, with 12 Buy ratings, 10 Holds and 1 Sell with an average 12
month price target about $36.  Short interest is about 3% of the float.

General Motors (GM) - 4/21

From Barons This Weekend:

• GM fetches just 5.6 times its likely 2016 net and 3.4 times estimated cash flow. In contrast, the
Standard & Poor’s 500 index has a forward price/earnings ratio of 17; its price/cash-flow ratio is
12.2.

• GM’s profits last year totaled a record $9.7 billion, or $5.02 a share after special items, on
record-high sales of 9.8 million vehicles worldwide. Its earnings guidance for 2016 is $5.25 to
$5.75 a share. The Wall Street consensus forecast is $5.47.

• The car maker should benefit from a burst of new and redesigned vehicles. “From 2010 to 2015,
roughly 25% of our volume, on an annual basis, was on recently launched product,” Stevens
observes. “From 2016 through 2019, the number will be closer to 40%.”

• China is the biggest market for GM’s Buick brand. Last year, Buick sold 989,167 vehicles there,
including the Envision, a midsize crossover that it will soon introduce in the U.S. China has also
become an important market for Cadillac, which sold 79,779 vehicles there in 2015, 17% above
2014’s total.

• Cash Return: In January the company added $4 billion to their share buyback, totaling $9 billion
to be completed by the end of 2017. That on top of an annual dividend that currently yields
4.85%, nearly double that of the S&P 500 dividend yield.

General Motors (GM) - 4/21

General Motors (GM) - 4/21

General Motors (GM) - 4/21

USDJPY 5 year

Alphabet (GOOGL) - 4/21

• Implied move about 5% in either direction.
• Stock has rallied on avg about 6.5% over the last 4 quarterly reports with the largest move a
16% gain after their Q2 results last July.

• Wall Street analysts overwhelmingly positive with 45 Buy ratings, 5 Holds and NO Sells with an
avg 12 month price target of $927, or 17.5% higher than current levels.  Short interest only 1.2%
of the float.

• GOOGL trades nearly 23x expected 2016 adjusted eps $34.50 growing at 17%, but on a GAAP
basis it trades at 28.5x.  Sales are expected to grow in 2016 to $72 billion, yoy growth of 19%.

• Capital Return: last year the company hired a new CFO from Morgan Stanley who promptly
tapped the debt markets to the tune of $5 billion and started to buy back stock for the first time in
the company's history. GOOGL has $78 billion in cash on their balance sheet, or about 15% of
their $533 billion market cap.  Investors would like to know more about how they plan to deploy
this cash for acquisitions or cash return.

Alphabet (GOOGL) - 4/21

GOOGL is up 1% on the year, up 15% from its 2016 lows made in February and up a whopping 50% from its 52
week lows made last April.  The stock looks poised to make a run at the prior all time highs that came the day
after they reported their Q4 results on February 1st.

Alphabet (GOOGL) - 4/21

Alphabet (GOOGL) - 4/21

BULL
I’m focused on:

• YouTube traction
• Margins will not be as exciting on higher TAC and capex
• New opportunities 
• Management discussion of shareholder friendly agenda
• Bottom line big cap growth with reasonable valuation

Your Questions
To Tim.  You have been a contrarian of the bears, which by the way
I'm one of. So far you have been right.  Where do you see the S&P
going in the next couple months, and if you are forced to make a
call, where do you see S&P at the end of the year (closer to 2000,
2300, or other)? - Jorge
I believe this rally is short covering. If that is the case, what do
investors and traders do? Just wait? - Bill
With the VIX trading at these low levels, what is the best way to play
it? VXX? Calls?  - Ron
When some big investor jumps into a stock with a crazy looking
option buy it seems to suggests something will happen fast.  It
sounds like a no-brainer but obviously doesn't work 100% of the
time.  There’s been crazy option trading the past several days in
ACAS?  Seems to me someone has bought around 20,000 - 25,000
short duration calls recently (Mays and Junes). - Stan