In this article, 3 stocks with unusual call activities and positive factors will be presented, including eBay Inc.(EBAY), Pandora Media, Inc. (P), and Newcastle Investment Corporation (NCT). Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. An unusual and greater than normal increase in the options volume could be an indication that large, informed smart money players are placing bets on upcoming events or announcements. These announcements can often have a significant impact on the price of the underlying stock. Unusual option activity is also an indicator showing the money flow in the options market. By understanding the money flow, along with fundamental and technical analysis, more favourable risk/reward ratio positions could be setup at a better timing. In addition to the unusual call activities, upcoming earnings will also be previewed for Pandora Media and Newcastle Investment.
eBay Inc. is a global commerce platform and payment provider, enabling commerce through three reportable segments: Marketplaces, Payments and GSI Commerce. EBAY was down 1.64% and closed at $54.62 on February 21, 2013. EBAY had been trading in the range of $34.40-$57.26 in the past 52 weeks. It has a beta of 1.43. On Thursday, there was a call option volume of 13,523 (vs. the average call volume of 6,678) with a daily call volume ratio of 2.03.
On February 19, 2013, EBAY launched a redesign of its home page for registered U.S. users - the most significant change to the home page in its history, according to the report from Investor's Business Daily. According to eBay President David Wenig, "The more interests you add, the more your home page reflects you. This personalized experience blends the technology of search with the inspiration of browsing - so you can discover new items each time you visit. And, each item is instantly shop-able, helping you easily connect to the things you need and love." During the pilot testing for unregistered eBay users, the new design showed increased traffic, boosted engagement and increased purchase.
There are a few positive factors for EBAY:
- EBAY has a growing portfolio of large retail partners with adjacent Marketplace offerings
- EBAY's PayPal provides diverse payment capabilities, expanded by PayPal's partnership with Discover and mobile functionalities
- EBAY has a wide economic moat with a capital-efficient model
- Higher revenue growth (3 year average) of 17.3 (vs. the industry average of 7.5)
- Higher operating margin of 20.5% and net margin of 18.5% (vs. the averages of 4.4% and 4.2%)
- Lower debt/equity of 0.2 (vs. the average of 0.3)
- Lower P/E of 27.9 (vs. the industry average of 43.5)
- Lower P/B of 3.5 (vs. the industry average of 4.9)
- EBAY generates an operating cash flow of $3.84B with a levered free cash flow of $1.30B
Technically, the MACD (12, 26, 9) is showing a bearish trend with diverging MACD difference. The momentum indicator, RSI (14), is indicating a bearish lean at 44.96. The next support level is 50-day MA of $53.78, followed by 200-day MA of $47.41, as seen from the chart below. It is important to see if EBAY can sustain above its 50-day MA to determine its short-term trend.
Pandora Media, Inc.
Pandora Media, Inc. provides Internet radio services in the United States with over 125 million registered users. Pandora Media plays music content suited to the tastes of each individual, enabled by the prediction generated by algorithms. P declined 2.97% and closed at $11.76 on February 21, 2013. P had been trading in the range of $7.08-$15.25 in the past 52 weeks. On Thursday, P had a call volume of 10,964 (vs. the average call volume of 3,208) with a daily call volume ratio of 3.42.
Pandora is expected to release its Q4 and fiscal year 2013 financial results on March 7, 2013 after the market close. Analysts, on average, are expecting an EPS of -0.05 with revenue of $122.37M for the quarter ended January, 2013. In the past 4 quarters, P had 3 positive surprises and 1 negative surprise. Analysts current have an overall rating of Neutral with an average price target of $13.00 for P. In the past 90 days, the EPS estimate was lowered from 0.02 to -0.05.
There are a few positive factors for P:
- Stronger revenue growth of 142.1 (vs. the industry average of 10.9)
- Zero total debt with a total cash of $80.50M
Technically, the MACD (12, 26, 9) indicator turned to show a bearish sign in the last trading day. The momentum indicator, RSI (14), is decreasing but still indicates a slightly bullish lean. P is currently trading above its 50-day MA of $10.55 and 200-day MA of $10.01, as seen from the chart below.
Newcastle Investment Corp.
Newcastle Investment Corp. is a real estate investment and finance company, which is investing in and actively managing a portfolio of real estate securities, loans, excess mortgage servicing rights and other real estate related assets. NCT declined 3.18% and closed at $10.65 on February 21, 2013. NCT had been trading in the range of $5.17-$11.38 in the past 52 weeks. NCT has a very high beta of 3.35. On Thursday, NCT had a call option volume of 9,127 (vs. the average call volume of 986) with a daily call volume ratio of 9.26.
NCT will release its Q4 and full year financial results for the period ended December 31, 2012 on February 28, 2013. Analysts, on average, are expecting an EPS of $0.28 with revenue of $94.04M for the quarter ended December, 2012. In the past 4 quarters, NCT had 2 positive and 2 negative surprises. In the past 90 days, the EPS estimate was lowered from $0.29 to $0.28.
There are a few positive factors for NCT:
- Higher revenue growth (3 year average) of 81.2 (vs. the industry average of 17.8)
- Higher operating margin of 83.0% and net margin of 82.0% (vs. the averages of 46.6% and 26.7%)
- Stronger ROE of 72.7 (vs. the industry average of 5.6)
- Lower P/E of 3.6 (vs. the industry average of 21.6)
- Lower Forward P/E of 4.5 (vs. S&P 500's average of 14.0)
- NCT current offers an annual dividend yield of 8.26%
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend with diverging MACD difference. RSI (14) is decreasing but still indicating a slightly bullish lean at 54.74. NCT is currently trading above its 50-day MA of $9.71 and 200-day MA of $7.75, as seen from the chart below.
In short, with the upcoming earnings, a lot of momentum trading activities with increased volatilities are expected for P and NCT, where NCT has a high beta of 3.35. P offers strong growth while NCT offers an attractive dividend yield. However, P and NCT may not be suitable for conservative or long-term investors who seek stability. Lastly, with solid fundamentals, EBAY will be a strong buy with any major pull-back. It is important to see if EBAY can sustain above its 50-day MA.
Note: All prices are quoted from the closing of February 21, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.