Despite plenty to worry about in the market including the rising tensions in the Middle East and the short-lived port strike, impressively the S&P 500, Dow and Nasdaq all rose marginally last week.
The Stock – On Holding (ONON)
When hunting for potential big winners, we like to look at the three Rs—firms with long runways of rapid and reliable growth, the combination of which entices big growth managers to accumulate positions (and add to them) over time. Retail is a good place to find this combination, because, while preferences do change over many years (most of the popular retail brands a decade ago are lagging today), the fact is when you find a solid brand, it usually remains in favor for many years.
That’s the 10,000-foot investment attraction of On Holding, a Swiss-based firm that is taking big share in the athletic footwear sector as some other peers (Nike released another dud of a quarterly report last week) struggle. Importantly, the growth here isn’t just brand building or advertising; the firm’s footwear was actually designed to be better for runners (more cushion-y impact, spring-ier push off), and indeed, the winner of the last two women’s Boston Marathons is a client. And the firm has since moved into other areas, including tennis shoes (designed and endorsed by Rodger Federer), hiking and even “lifestyle” (wearing around town) footwear.
Moreover, On is following in the footsteps of others by moving into apparel and accessories, and while they’re surely a small piece of the pie at this point, uptake looks good, with apparel sales up 66% and accessories up 26% in Q2 (compared to footwear up 28%, all on a currency-neutral basis). From here, it’s a matter of the top brass pulling the right levers and doing so in a prudent way—Q2 results, for instance, were solid but hurt a bit by capacity issues as it transitions to an automated production facility in Atlanta. Even so, the top line here should grow 30% in 2024 (excluding currency movements), those hiccups seem behind it and there’s no reason On can’t get much, much bigger in the years ahead.
Technical Analysis
ONON essentially consolidated for a year into May of this year, when the Q1 report brought a breakout—but it wasn’t up and away from there, as the market’s narrow rally and summer correction saw this stock dip into a shallower 10-week launching pad. Big buying volume appeared near the August market low, and follow-on buying was seen after the August quarterly report soon after, and shares have continued to act well since, riding the 25-day line higher.
Stop – 43.5
The Covered Call Trade
Buy ON Holding (ONON) Stock at 51, Sell to Open November 50 Strike Calls (exp. 11/15) for $4, or a Net Price of 47 or less
Static Return: $300 per covered call (6.38%)
Breakeven: 47
Covered Call Return (if assigned): $300 per covered call (6.38%)
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 47 or less. (In this case, 51 minus 4 = 47. Or another example is you could pay 50.75 for the stock and sell the call for 3.75, which also equals 47.)
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
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Rocket (RKT) | 20.55 | 17.7 | 16.4 | October 20 -- $1.80 | $0.10 |
| Samsara (IOT) | 46.9 | 48 | 38 | October 45 -- $3.70 | $3.50 |
| Doximity (DOCS) | 40.4 | 43.5 | 32.5 | October 40 -- $1.80 | $3.70 |
| Maplebear (CART) | 39.5 | 42.5 | 35 | October 40 -- $1.20 | $3.00 |
| United Airlines (UAL) | 55.8 | 60.5 | 48.5 | October 56 -- $2.60 | 5.5 |
The next Cabot Profit Booster issue will be published on October 15, 2024.
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