US Trades Monthly Update: DIS, T– Hold, GME – Take Profit AAOI – Stop Loss March 1, 2018

Investment Summary

We issued 1 Buy Trade in January 2018, Starbucks Corp. Fears of increasing inflation and interest rates have caused increased volatility in US markets and caused a few of our positions to dip into negative. However, we believe that there is still value to be had in some of our positions and recommend holding on to them.

Walt Disney Co. (DIS): Despite a fairly good earnings release on 6th Feb, DIS price has fallen to below our entry price. The stock was recovering strongly after the selloff post 4Q17 earnings. However, recent news of Comcast making a rival offer to Twenty-First Century Fox’s bid to take over international broadcasting group Sky has cast some doubts on the Disney takeover of Fox’s media assets. We believe that DIS value remains strong regardless of the outcome of that deal, as can be seen by the strong performance of DIS’s latest offering, Marvel’s Black Panther, at box offices. In the first month since its release, Black Panther has garnered about USD704mn in worldwide sales. This result has pushed the film into the top 20 films of the US domestic box office, edging out Toy Story 3 and Wonder Woman. With a strong line up of films coming up including Avengers: Infinity War part 1, which is coming out in May 2018, we believe that DIS remains a HOLD for us.

AT&T Inc (T): Lingering doubts surrounding T’s bid to merge with Time Warner continued to drag on the share price. Court deliberations about the merger will begin on the 19th of March. We see little reason to believe that the DOJ will be successful in its case to hal the transaction.

Meanwhile, AT&T and other wireless carriers have begun the race to roll out 5G services. T has pledged to roll out mobile 5G services later this year in at least a dozen cities in the USA.

Overall, we believe that T remains a strong value play and with a dividend yield of 5.51%, it also remains a HOLD for us.

Starbucks Corp (SBUX): Since we released the Buy trade on SBUX, the price for SBUX has fallen to a low of USD53.69 before recovering to its last close of USD57.10. While the price has yet to cross our entry price of USD58.27, we continue to believe that the investment thesis remains sound and that the recovery of the share price might be the start of an upward trend.

GameStop Corp. (GME):  GME passed our take profit price of USD20.00 on the 11th of January 2018, and as such we have decided to take profit in the share.

Applied Optoelectronics Inc. (AAOI): Since our TRADING BUY on AAOI, the stock has fallen considerably, trading at USD 27.93 compared to our entry at USD43.64. While the company beat consensus analyst expectations on EPS, the revenue was down even below management’s own guidance. Additionally, while its Amazon numbers were up QoQ, on a YoY basis, they were still down substantially.

While their ability to garner non-Amazon revenue seems to continue to be strong, with AAOI recently entering into a supply agreement with Facebook worth at least USD125mn, the outlook for AAOI in the near term is negative. As such, though we continue to believe that AAOI has been unfairly punished by the market (PER as of last close is 7.62), we have decided to cut our loss on AAOI until it has shown it is able turnaround.

Figure 1: Summary of Open Trade Positions


Source: PSR, Bloomberg

Note: We do not release individual reports when position close, (either take profit or stop loss). Unless otherwise stated, positions will be closed at the price levels stated in initial report. Further updates will be prepared during the month end.

Figure 2: Monthly Index Performance



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Ho Kang Wei
Investment Analyst
Phillip Securities Research Pte Ltd

Ho Kang Wei graduated with a Bachelor of Commerce, majoring in Accounting and Finance, from Monash University.

He started analysing and investing in US equity markets since 2008. Joining Phillip Securities Research in 2015, he is the analyst in charge of US markets.

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