As we head into the home stretch for the U.S. presidential election, and the often unpredictable months of September and October, it’s important to closely monitor our portfolios.   The global economy continues to show signs of sluggishness and the financial markets are becoming increasingly unpredictable due to potential central bank actions such as the Federal Reserve possibly raising interest rates, while other global banks consider further easing their own rates perhaps in the not-too-distant future.  

Still, it remains a market of stocks, and attention to individual positions remains our number one goal.  Thus, I have four important updates this week:

1) I am extending the buy range on Rollins Inc. (NYSE: ROL) to $30;

2) I am maintaining my HOLD rating on Ambarella (Nasdaq: AMBA) after its recent earnings related pull back;

3) I am lowering the buy limit on the Anthem December 16, 120 Strike Price Put (ATNM121616P120) to $6; and

4) I am reiterating the recommendation to Buy the ProShares Ultrashort Biotech ETF (NYSE Arca: BIS) until $36 with an 8% trailing sell stop.

Rollins Follows Tradition:  Rallies on Heavy Florida Rains

Shares of Rollins Inc. (NYSE: ROL), a global leader in pest control, have delivered another seasonal gain during the Memorial Day – Labor Day traditional summer period (TSM), bolstering the stock’s reliability as a summer stock.  In my May 31, 2016 issue of BTW, I wrote:  “Rollins (NYSE: ROL), a pest-control company, has a nifty ten-year record of summer gains.  The stock has rallied 80% of the time during the summer months since 2006.  A move above $29 could take the stock to the mid-$30 range over the summer months if the pattern repeats.”  

The stock’s 3.4% percent gain over this year’s TSM marks its 9^th such gain during the summer months over the past eleven years giving the stock an 81.9% batting average during what is considered to be a traditionally flat period for stocks in general. The key for investors is what happens next, and much of that will depend on the conditions after hurricane Hermine and what develops regarding the Zika virus before the weather gets cold.

Rollins continues to expand its global presence, having recently expanded operations through company purchases in the U.K., South America and Australia as well as continuing to steadily increase the presence of its Orkin franchise brand which sports five consecutive years of growth in gross income and revenues.  In its most recent quarter (June 2016), the company reported 4.8% and 6% year over year improvements on revenues ($411.13 million) and sales and net income ($4.78 million) respectively, its 42^nd straight quarter of growth.

Buy Rollins up to $30.

Ambarella is still attractive but Needs a Little Time

I am keeping a very close eye on shares of Ambarella (Nasdaq: AMBA) a leading designer and producer of low power consumption high definition video procession microprocessors.  The stock declined on September 2nd after a very predictable sell-off in response to its most recent earnings report.  As I noted in my August 22 post on the company, its stock got way ahead of itself on unrealistic expectations. And unless things change dramatically the reality is its operations are going along the path suggested by the company’s guidance in the previous earnings conference call.

The truth is that the most recent numbers reported weren’t bad by any means.  The company reported revenues of $65.1M, an $820,000 beat, while earnings per share of 54 cents beat by 16 cents.  But other comparisons spooked some traders, as revenues declined 22.6% year on year while net income declined to $18.5M from $29.7M year on year.  However, gross margin grew to 67.1% vs. 65.3% on the prior year, a sign that the company continues to manage its pricing and has not had to resort to heavy discounting which will be helpful in the future.  More important, the company made no changes to its guidance of delivering on a flat year, which means that if things improve, the odds favor positive surprises over the next two quarters.

Ambarella seems to be marching forward as expected so there is no reason to panic at this point, and it is most likely that those investors who sold shares overreacted.  I want to give the shares a little time to form a base, but I expect that I will recommending the addition of shares to positions in the next few days to weeks once things settle down. 

Hold Ambarella for now.  Sell stop remains at $61.

Adjustment to Anthem Put Option Position

I am lowering the Buy limit on Anthem December 16, 120 Strike Price Put (ATNM121616P120) to $6 from $7 based on the behavior of the contract’s price action which has lower volatility than expected.  I am not changing my outlook on the company or its management, whose problems I detailed in last week’s BTP Weekly and which I summarize below.  By narrowing the entry point I am reducing the risk of the position if the underlying stock reverses course and starts to rise. 

Anthem still has to deal with the unknowns of its Obamacare business, its questionable and litigious merger with Cigna and management’s unwillingness to consider if it should change course in either area.  While other companies are exiting the Obamacare business, Anthem is doubling down and reporting greater than expected challenges, especially in its Iowa venture which has more Medicaid patients than the company anticipated and where costs are increasing at a faster rate than expected. 

Short Biotech ETF Trade Update

I recommended the purchase of the ProShares Ultrashort Biotech ETF in my 8/25/16 BTP Alert with a Buy limit of $36.  The ETF closed at $34.02 on 9/2/16 and is moving steadily higher.  I am still concerned about the overall prognosis for the health care sector, especially as the election season rolls on. Hillary Clinton has on two occasions hinted at price control measures for medications and has been offering more details on her plans.  Even if nothing comes of it after the election, over-the-top rhetoric from politicians is a clear and present danger at this point.   BIS is a double-short leveraged ETF that is designed to rise or fall at twice the rate of opposite movement in the Nasdaq Biotech Index (NBI).

Buy ProShares Ultrashort ETF (NYSE Arca: BIS) up to $36 with a trailing 8% Sell Stop.