Is UBS Well-Positioned for the Future?

With shares of UBS (NYSE:UBS) trading around $18, is UBS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

UBS, a financial services firm, provides wealth management, asset management, and investment banking products and services worldwide. Its Wealth Management division provides financial services to high net worth individuals worldwide. Its Investment Bank division offers products and services in equities, fixed income, foreign exchange, and commodities to corporate and institutional clients, sovereign and government bodies, financial intermediaries, alternative asset managers, and its wealth management clients. UBS Asset Management division offers investment solutions to various asset classes.

Brad Mazur, the head of structuring in the U.S. for UBS, and an analyst, Howard Weinberg, have left the firm. Chris MacKenzie, who previously reported to Mazur as head of credit and insurance structuring for the Americas, has taken over his responsibilities, said Megan Stinson, a New York-based spokeswoman for Switzerland’s biggest bank. Shiv Prakash will assume Weinberg’s duties as a high-yield debt analyst, Stinson said. UBS Chief Executive Sergio Ermotti, who decided in 2012 to exit most debt trading, is speeding that plan to reach the bank’s main profitability target.

T = Technicals on the Stock Chart Are Mixed

UBS stock has been pulling back over the last couple of months. However, the stock is currently moving higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, UBS is trading below its rising key averages, which signals neutral to bearish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of UBS options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

UBS options

26.23%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Steep

Average

September Options

Steep

Average

As of Monday, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on UBS’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for UBS look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

8.19%

147.97%

-127.1%

31.29%

Revenue Growth (Y-O-Y)

-3.5%

-20.54%

1.98%

17.92%

Earnings Reaction

0.33%

5.93%

-8.04%

2.57%

UBS has seen increasing earnings and mixed revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about UBS’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has UBS stock done relative to its peers – JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS), and Wells Fargo (NYSE:WFC) — and sector?

UBS

JPMorgan Chase

Goldman Sachs

Wells Fargo

Sector

Year-to-Date Return

-5.4%

-4.58%

-7.03%

13.41%

-1.9%

UBS has been an average performer, year-to-date.

Conclusion

UBS, a financial services firm, provides wealth management, asset management, and investment banking products and services worldwide. Brad Mazur, the head of structuring in the U.S. for UBS, has left the firm. The stock has been pulling back over the last couple of months but is currently moving higher. Over the last four quarters, earnings have been rising while revenues have been mixed, which has produced conflicting feelings among investors. Relative to its peers and sector, USB has been an average performer year-to-date. WAIT AND SEE what UBS does next.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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