Led by an awful week for the Semiconductors (down 11%), the S&P 500 fell 3.62% last week, while the Dow lost 2.42%, and the Nasdaq dropped another 5.5%.
The Stock – Samsara (IOT)
Samsara might have the best growth story that most investors have never heard of, with a cloud software offering that is addressing a gigantic opportunity, provides real, meaningful savings to huge companies and is still very early in its growth phase.
The firm’s platform is targeted at any entity that has tons of physical assets—think trucking, construction, airlines (including ground crew vehicles), waste management, delivery and even departments of transportation among the states—helping them to dramatically boost efficiencies thanks to telematics for equipment (its recently introduced industrial-grade Bluetooth tags are off to a strong start), safety training, predictive maintenance, connected forms and workflows (that automatically assign forms and approvals, etc.) and more; all of it is driven by what is now more than 10 trillion (!) data points of its clients’ assets and operations.
Interestingly, whereas most software firms sell to the technology budget (which can be volatile), Samsara’s proven savings mean it’s usually part of the (much more resilient) operations budget; at day’s end, the firm is really selling a system of record for physical operations, which is one reason why business continues to crank ahead: In the July quarter, sales rose 37%, annualized recurring revenue was up 36% and earnings and free cash flow were in the black. All of its segments (video-based safety, telematics, equipment monitoring) are growing at 30%-plus clips thanks to its current and new clients getting bigger (2,133 customers pay at least $100k a year, up 28% from a year ago) and as business broadens out (87% of new recurring revenue booked was from non-transportation verticals, while 16% was overseas).
To be fair, the valuation here is huge (market cap is about 10x recurring revenue), but we have little doubt buoyant growth will be seen for years to come.
Technical Analysis
From August 2023 until early August of this year, IOT made no net progress (was at 32 in each month) but saw numerous sharp corrections (34%, 19%, 27% and 36%) and rallies back as well, gyrating in a big range with lots of false breakouts and breakdowns. Now the stock is making another run at it: Shares hit a much higher low during August’s wipeout than was seen in June, paving the way for a low-volume rally to resistance near 42. And now, after a dip with the market, IOT has popped to new price and (importantly) relative performance highs after earnings. Stop — 38
The Covered Call Trade
Buy Samsara (IOT) Stock at 46.50, Sell to Open October 45 Strike Calls (exp. 10/18) for $3.30, or a Net Price of 43.2 or less
Static Return: $180 per covered call (4.16%)
Breakeven: 43.2
Covered Call Return (if assigned): $180 per covered call (4.16%)
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 43.2 or less. (In this case 46.5 minus 3.30 = 43.2. Or another example is you could pay 47.1 for the stock and sell the call for 3.90, which also equals 43.2)
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 |
| Sprouts Farmers Market (SFM) | 96 | 99 | 80 | September 95 -- $5.20 | $4.80 |
| Coupang (CPNG) | 22.6 | 22.5 | 20 | September 23 -- $0.80 | $0.45 |
| Sweetgreen (SG) | 34.9 | 30.5 | 29 | September 34 -- $2.90 | $0.15 |
| Rocket (RKT) | 20.55 | 19.1 | 16.4 | October 20 -- $1.80 | $0.90 |
The next Cabot Profit Booster issue will be published on September 17, 2024.
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