Does UBS Have a Bright Future?

With shares of UBS (NYSE:UBS) trading around $20, 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.

Hong Kong regulators found there was fire beneath the smoke that prompted an investigation of UBS and other banks that have an influence on international interest rates. According to a Bloomberg report, the Hong Kong Monetary Authority identified nearly 100 messages sent via internal chat by UBS employees that violate rules set for traders, though the impact on rates was insignificant. The central bank has ordered UBS to discipline its employees, most of whom no longer work at the Switzerland-based institution. It took over a year for investigators to identify the messages that sought to fix the Hong Kong Interbank Offer Rate (HIBOR) used for mortgages and other loans. Much of that time was spent deciding whether UBS employees colluded with traders from other banks. Bloomberg reports the Hong Kong Monetary Authority found no evidence of collusion between UBS and other banks. For this reason, the central bank declared the impact of the fixing scheme inconsequential.

T = Technicals on the Stock Chart Are Mixed

UBS stock has been moving higher over the past couple of years. However, the stock is currently trading sideways and may need time to stabilize. 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 between its rising key averages which signal neutral price action in the near-term.

UBS

(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

28.58%

83%

80%

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

April Options

Average

Average

May Options

Average

Average

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

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

147.97%

-127.10%

31.29%

-8.15%

Revenue Growth (Y-O-Y)

-20.54%

1.98%

17.92%

14.54%

Earnings Reaction

5.93%

-8.04%

2.57%

N/A

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

P = Excellent Relative Performance Versus Peers and Sector

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

UBS

JPMorgan Chase

Goldman Sachs

Wells Fargo

Sector

Year-to-Date Return

5.77%

-2.10%

-5.72%

5.48%

1.85%

UBS has been a relative performance leader, year-to-date.

Conclusion

UBS, a financial services firm, provides wealth management, asset management, and investment banking products and services worldwide. Hong Kong Monetary Authority identified nearly 100 messages sent via internal chat by UBS employees that violate rules set for traders. The stock has been moving higher over the past couple of years, but is currently trading sideways. Over the last four quarters, earnings have been mixed while revenues have been increasing, which has produced mixed feelings among investors. Relative to its peers and sector, USB has been a relative performance leader year-to-date. WAIT AND SEE what UBS does next.

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