Cabot Profit Booster Issue: December 24, 2024

First and foremost, this is our last issue of 2024—next Tuesday is one of our two weeks off all year—so we want to wish you and yours a very Merry Christmas, Happy Holidays and a healthy and prosperous New Year.

Also, before we dive into this week’s idea I wanted to address our December expiration cycle trades. Both NCLH and KD stocks finished above their strike prices, which means we walked away from those trades with our full profits.

However, as expected, TOST closed below the 38 strike (marginally below) which means the call we sold expired worthless, leaving us with our stock position, which we are going to sell today.

To execute this trade you need to:
Sell your TOST stock

Moving on …

The breadth worries that had so many traders on edge finally reared their ugly head and took a bite out of the market as the indexes took a big hit on Wednesday. By week’s end things had improved a touch, but still the S&P 500 fell 2.45%, the Dow lost 2.54%, and the Nasdaq declined by 2.71% last week.

The Stock – Birkenstock (BIRK)

In its first full year as a publicly traded company, this German maker of comfortable, durable sandals has proven its strategy of a “luxury scarcity model” to build a sense of demand and maintain pricing power is working great. Revenue for the year ended Sept. 30, reported last week, showed sales up a better-than-expected 22% to €1.57 billion ($1.64 billion), with a consensus-beating €1.15 net income per share ($1.28). In a good sign for business, a variety of its shoe offerings showed exceptional strength in the quarter, including closed-toed silhouettes and orthopedics. For fiscal 2025, management sees the year producing sales growth around 16%, which it believes it can sustain for many years, with the current Q1 coming in slightly better, around €354 million ($369) up 18%, while analysts see the bottom line growing closer to 30%. The company sells some 700 versions of sandals and other footwear, collaborating with other luxury brands and designers for even more scarce limited editions that build excitement among regular customers. Birkenstock racks up good margins for a shoemaker by basing most offerings on a single type of sandal silhouette – reducing costs – to produce lines starting at $60 a pair with a half a dozen or more increasingly scarce varieties priced all the way up to $700. The 251-year-old business shifted from producing enough to meet demand to focusing on deliberate scarcity last decade, cutting reliance on specific retailers during that time and beefing up direct-to-consumer sales. The move worked, and it has a strong record of customer loyalty in part because it remains intent on maintaining quality: Birkenstock’s vertical manufacturing process sees all of its goods crafted in company-owned factories in Europe with suppliers held to strict quality and ethical standards. The U.S. market promises to be fertile territory, given sales are almost all digital. Birkenstock just opened first American store, in Boston, with plans for more in other major cities.

Technical Analysis

BIRK held its IPO in October 2023, and after a few wobbles, the overall trend had been up until Q3 results missed consensus, gapping shares much lower and leading to a couple of months in the wilderness, with shares sitting no higher than they were 10 months before. However, BIRK began to change character in mid-November, with accelerating buying showing up before and after earnings. Stop – 52.5

The Covered Call Trade

Buy Birkenstock (BIRK) Stock at 60, Sell to Open January 60 Strike Calls (exp.1/17/20025) for $1.50, or a Net Price of 58.5 or less

Static Return: $150 per covered call (2.56%)

Breakeven: 58.5

Covered Call Return (if assigned): $150 per covered call (2.56%)

Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.

However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 58.5 or less. (In this case 60 minus 1.50 = 58.5. Or another example is you could pay 59.5 for the stock and sell the call for 1, which also equals 58.5.)

For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …

Open Positions

The next Cabot Profit Booster issue will be published on January 7, 2025.

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.