WEEKLY ISSUE: Glass Demand Gets an Apple-Related Boost
- We are issuing a Buy on Corning (GLW) November 17, 2017 $31 calls (GLW171117C00031000) that closed last night at 0.62 to the Select List. We would be buyers of the calls up to 0.85, and we’re setting an initial stop loss at 0.25.
- We’re maintaining our Buy on Applied Materials (AMAT) October 20, 2017, 50 calls (AMAT171020C00050000) that closed last night at 0.43.
- We continue to have a Buy rating on the Wal-Mart (WMT) January 19, 2018, 82.50 calls (WMT180119C00082500) that closed last night at 2.25.
- Earlier this week we were stopped out of the Amazon (AMZN) December 2017 $1000 calls (AMZN171215C01000000) calls when the 40.00 stop was triggered. Despite that occurrence, the position returned 16.8% over the last month.
Adding Corning calls as glass demand to get an Apple-Related boost
Last week when Apple (AAPL) unveiled its new iPhone models, both the 8s and X, that have glass backing. While we suspect this new glass backing will lead to more iPhone repairs, others attending the Apple event had this to say:
“The iPhone 8 and 8 Plus look pretty much the same as their predecessors, but they have a new back cover that’s coated in glass and gives them a somewhat fresher look. The glass blends into the sides of the phone incredibly well, better than we’ve seen on other phones. There’s a subtle density to the glass, too, and overall it looks a lot better than the back of the 7. That glass back allows for wireless charging, which is one of the big new features here.”
As one might expect, Apple was on record saying the iPhone 8 and iPhone 8 Plus have “the most durable glass ever in a smartphone, front and back.” While we have yet to feel the device ourselves, the specs suggest an added heft that could be due to denser glass – iPhone 8 and iPhone 8 Plus are slightly heavier at 5.22 ounces and 7.13 ounces respectively, compared to 4.87 ounces and 6.63 ounces for the iPhone 7 and iPhone 7 Plus respectively.
The key here is Apple’s shift to glass will likely drive incremental glass demand, much the way its shift to organic light emitting diode displays with the iPhone X is spurring demand for those products. If Apple sticks to its knitting it means deploying wireless charging across other iPhone models and perhaps iPads in the coming quarters. If we’re right that would lead to even more glass demand. Outside of Apple, we’re also seeing larger format TVs come to market that are also driving demand for glass while fiber to the home is driving glass demand as well. We also suspect there will be a fair amount of smartphone copycats that offer front and back glass on new smartphone models as well in the coming months. Again, more demand for glass, specialty materials, and coatings.
All of this bodes very well in our view for specialty glass and ceramics company, Corning (GLW), which derives 80% of its revenues and profits from the display, optical communication and specialty materials markets. With the iPhone 8 models starting to ship later this week followed by the early November release of the iPhone X, we’re adding the Corning (GLW) November 17, 2017, $31 calls (GLW171117C00031000) that closed last night at 0.62 to the Select List. The time frame allows us to capture the launches of both products as well as 3Q 2017 earnings season, which should shed light on carrier spending plans for the rest of 2017 and provide initial indications for 2018.
- We are issuing a Buy on Corning (GLW) November 17, 2017, $31 calls (GLW171117C00031000) that closed last night at 0.62 to the Select List.
- We would be buyers of the calls up to 0.85, and we’re setting an initial stop loss at 0.25.
Applied Materials: Apple last week, company 2017 Analyst Day next week
As we shared yesterday, earlier this week Applied Materials (AMAT) shares received a new Buy rating and a $55 price target from RBC Capital Markets. This popped our Applied Materials (AMAT) October 20, 2017, 50 calls (AMAT171215C01000000), but then yesterday we saw a sharp reversal in the calls that brought them back to our entry point. We attribute the pullback to the sale of the memory chip semiconductor business by Toshiba Corp. to Bain Capital.
For context, that memory chip business was the number two producer of NAND flash memory used in USB drives, memory cards, and solid-state drives. We suspect the market is anticipating the usual cost-cutting moves when a business is taken over by a private equity group. The line item here would be spending on semiconductor capital equipment, but with the deal just being announced all we are seeing thus far is speculation. Odds are we’ll get a far clearer picture of what the fallout from this transaction means for Applied at its 2017 Analyst Day next week. As we communicated yesterday, given the strength of the semiconductor capital equipment business and still capacity constrained organic light emitting diode display industry, we expect Applied will once again offer an upbeat outlook for the coming quarters.
- We’re maintaining our Buy on Applied Materials (AMAT) October 20, 2017, 50 calls (AMAT171020C00050000) that closed last night at 0.43.
- Given our 0.46 entry price, we would be buyers of these calls up to 0.55.
- We are bumping up our stop loss to 0.25 from 0.15.
Housekeeping! Stopped out of Amazon Calls
Earlier this week we were stopped out of the Amazon (AMZN) December 2017 $1000 calls (AMZN171215C01000000) calls on the Tematica Options+ Select List when the calls triggered our 40.00 stop. Despite the move lower, the stop loss ensured a 16.8% return on the position – not one of the biggest, but then again it’s far better than the S&P 500 did over the last month.
As a reminder, we continue to have a Buy rating on the Wal-Mart (WMT) January 19, 2018, 82.50 calls (WMT180119C00082500) that closed last night at 2.25.
