Nuclear Outlook for Amazon (AMZN) & Defense Sector

Summary

In a recent discussion on stock trading, analysts Kevin Ma and Tom White focused on Amazon's upcoming earnings report and the broader market implications. Ma highlighted Amazon's investments in artificial intelligence and nuclear energy, noting its solid growth despite recent market hesitance. The conversation also explored the defense sector, with Ma recommending smaller suppliers like Howmet Aerospace as potential beneficiaries of increased defense spending. Additionally, strategies for trading around Lockheed Martin's earnings were presented, emphasizing a balanced approach to volatility and risk management in the current market landscape.

Takeaways

• 📈 Amazon is expected to report earnings of $1.14 per share, indicating a 34% year-over-year increase despite a lower EPS than the previous quarter.
• 🤖 Amazon is positioning itself as a leader in both e-commerce and artificial intelligence, having recently explored partnerships for small nuclear reactors to power its data centers.
• 🛍️ The National Retail Federation forecasts modest holiday shopping growth of 2.5% to 3.5%, influencing Amazon's outlook.
• 📉 Amazon's stock has remained relatively flat, with a 24% year-to-date increase, reflecting market uncertainty.
• 💼 Options trading strategies for Amazon include a broken-wing call butterfly, allowing for profit without needing a massive price movement.
• 🔍 Defense spending is a bipartisan focus post-election, with companies like Lockheed Martin and smaller suppliers expected to benefit.
• ✈️ Howmet Aerospace, a supplier to Lockheed Martin, shows potential with a 92% year-to-date increase and a forward PE of 35.
• 📊 Investors are advised to diversify within the defense sector, rather than concentrating on one or two stocks.
• 📉 Lockheed Martin is also on investors' radar, with expected earnings affecting stock volatility and trading strategies like short iron condors.
• 🔗 The discussion emphasizes the importance of risk management and adjusting strategies according to market dynamics and upcoming earnings reports.

Q & A

What earnings per share (EPS) is Amazon expected to report, and how does it compare to the previous quarter?

Amazon is anticipated to report an EPS of around $1.14, which is lower than the prior quarter's EPS of $1.23, but represents a 34% year-over-year increase.

How has Amazon's stock performed year-to-date?

Despite recent challenges, Amazon's stock is up 24% year-to-date, showing resilience in its overall performance.

What strategy does Tom White suggest for trading Amazon ahead of its earnings report?

Tom suggests an unbalanced call butterfly strategy, involving buying one 185 strike call, selling two 200 strike calls, and buying one 205 strike call to capitalize on potential upside.

What concerns did Kevin Ma mention regarding Amazon's outlook for the holiday shopping season?

Kevin highlighted concerns about potential slowdowns in spending post-hurricane season and uncertainty related to the upcoming election, which may affect holiday shopping sales.

What smaller cap company does Kevin Ma suggest as a potential investment in the defense sector?

Kevin suggests Howmet Aerospace as a potential investment, noting that it supplies critical parts for Lockheed Martin's F-35 fighter jet and has seen significant stock growth.

What is the rationale behind investing in the defense sector according to Kevin?

Kevin believes that both political parties agree on the need to increase defense spending, which could lead to growth in companies supplying defense contractors.

What trading strategy does Tom recommend for Lockheed Martin's upcoming earnings?

Tom recommends a short iron condor strategy, which profits from limited movement in the stock and is structured to manage risk effectively around the earnings report.

How does the implied volatility affect options pricing for Lockheed Martin?

With the implied volatility percentile over 75%, the option premiums for Lockheed Martin are higher, which presents opportunities for strategies that capitalize on this expanded premium.

What are the break-even points for the short iron condor strategy on Lockheed Martin?

The break-even points for the short iron condor are just below 591 on the downside and just above 636 on the upside.

Why does Kevin recommend diversifying across multiple defense stocks?

Kevin advises diversifying across multiple defense stocks to mitigate risk, suggesting that investors should not concentrate on one or two names but rather build a broader portfolio.