April 19, 2022

While the majority of Mike Cintolo’s Top Ten Trader is focused on commodity stocks this week, we already have exposure to this group via CLF and MRO. Because of that exposure, I am going to add Box Inc. (BOX) which develops and markets cloud-based content management, collaboration, and file sharing tools for businesses.

Market Overview

Before we dive into this week’s idea, we have some housecleaning to discuss from April expiration.

First, we are going to sell our ON Semiconductor (ON) stock this morning. This will leave us without an ON stock or option position, and with a profit of approximately $505 per covered call, or a yield of 10.11%.

Next, we are going to sell our Pure Storage (PSTG) stock this morning. This will leave us without a PSTG stock or option position, and with a loss of $247 per covered call (7.48%).

In terms of our positions that expired on Friday, we locked in profits of $75 per covered call (yield of 3.53%) in GOLD, a profit of $100 per covered call (yield of 4.76%) in CCJ, and a gain of $175 per covered call (yield of 4.29%) in HP.

This was a very nice month for the Profit Booster portfolio, even as the S&P 500 was down a couple percent during the course of many of these trades and then expiration.

Moving on …

The major indices extended losses for the second straight week as the Dow fell 0.8%, the S&P 500 declined 2.1% and the tech-heavy Nasdaq lost 2.6%. Bond yields were once again to blame as longer-term yields pushed higher, with ongoing inflation fears and geopolitical tensions continuing to hover over an uncertain market.

While the majority of Mike Cintolo’s Top Ten Trader is focused on commodity stocks this week, we already have exposure to this group via CLF and MRO. Because of that exposure, I am going to add Box Inc. (BOX) which develops and markets cloud-based content management, collaboration, and file sharing tools for businesses.

New Recommendation

The Stock – Box Inc. (BOX)
Why the Strength
Box is a long-established cloud services provider for medium to large enterprises that is pivoting into higher-margin collaboration services. Box’s approach revolves around the idea that cloud-based services have developed to handle raw data, but are weak on all the content companies generate – content publishing, instant messaging conversations, collaborative documents and general workflow.

The company just rolled out Box App Center, which showcases more than 1,500 applications that integrate with the latest generation of Box. The system is a secure framework within which users can integrate multiple applications – the average enterprise uses 187! – and offers features such as a virtual whiteboard, allowing teams to visually collaborate remotely.

Box needs customers to upgrade to the latest version of the software, since a sizable group of its 100,000-plus subscribers are using older versions of Box on legacy systems, which makes them more expensive to accommodate in the competitive cloud segment.

But the big idea here is that the new content focus opens up a market that is potentially six times larger than where Box has been competing in the past. Converting existing users should be a relatively easy sale, since the alternative is paying other vendors piecemeal.

Box’ product ‘suites’ – bundles incorporating their broader offering of products – start at $45 a seat, 29% more expensive than their top tier enterprise cloud services. It’s not changing the world, but Box has always done a good business, and the new business focus means sales, earnings and cash flow should grow nicely for at least the next couple of years.

Technical Analysis
BOX has been mostly a nothingburger for the past couple of years, with some downs and some ups, but mostly a lot of sideways trading, such as we saw from last July through mid-March of this year. However, that sideways period was a good thing in part (outperforming the market after the November top), and BOX has seen a couple rounds of big-volume buying during the past month, including last week’s stretch to new highs. Stop—27

The Covered Call Trade
Buy Box Inc. (BOX) Stock at 32, Sell to Open May 31 Strike Calls (exp. 5/20) for $1.70 or a Net Price of 30.30 or less

Static Return: $70 per covered call (2.31%)

Breakeven: 30.30

Covered Call Return (if assigned): $70 per covered call (2.31%)

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 30.30 or less. (In this case 32 minus 1.70 = 30.30. Or another example is you could pay 31.75 for the stock and sell the 31 call for 1.45, which also equals 30.30.

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
If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.

The next Cabot Profit Booster issue will be published on April 26, 2022.