While we’re not normally fans of very low-priced stocks (you usually get what you pay for in the market), today’s recommendation has been around for a while, is liquid and is just beginning what looks like a multi-year growth wave thanks to two big drivers.
Cabot Profit Booster 133
Coming off July expiration in which we closed seven positions for full profits the Cabot Profit Booster portfolio has performed spectacularly … though because of this success we now only have three covered call positions in the portfolio.
That being said, because we are adding another stock today, and every Tuesday, our market exposure will ramp up quickly.
This week’s pick is a low priced stock that is going to be volatile and is speculative ... but with that potential stock volatility is a great opportunity to create a big yield. Here is the trade:
The Stock – Plug Power (PLUG)
While we’re not normally fans of very low-priced stocks (you usually get what you pay for in the market), Plug Power has been around for a while, is liquid and is just beginning what looks like a multi-year growth wave thanks to two big drivers.
The first is its hydrogen fuel cells (hydrogen goes in, electricity is produced, heat and water are the only by-products; it’s greener and cheaper for customers), which are quickly being adopted in a bunch of transportation (30% of the country’s groceries are transported on vehicles that use its fuel cells, and there’s plenty of growth potential from there) and materials handling uses (forklifts are a giant opportunity, with firms like Walmart, Kroger, Fiat Chrysler and Sysco already customers, and there are millions more forklifts that could be retrofitted).
Beyond that is Plug’s hydrogen infrastructure, which has taken a big leap thanks to its recent buyout of United Hydrogen—Plug is actually the country’s leading consumer of hydrogen, and should fuel cells grow in popularity, it thinks supplying hydrogen to others could eventually be a bigger market than selling fuel cells!
During the next four years, management has a target to grow revenue nearly fivefold while cash flow (EBITDA) expands at a very healthy clip. Don’t invest the rent money, but Plug looks like an interesting speculation that may finally be turning the corner.
Technical Analysis
PLUG broke out from a good-looking four-month base in June and had a quick, powerful, giant-volume advance, lifting from 6 to 10.5 before finally pulling in. But so far, we’re impressed with the pullback—volume has been drying up, and the depth of the dip certainly isn’t abnormal given the prior run. If you’re game, we think you can start small around here. Stop - 6.60
The Covered Call Trade
Buy Plug Power (PLUG) Stock at 9.25, Sell to Open August 9.5 Strike Calls (exp. 8/21) for $0.80, or a Net Price of 8.45 or less
Static Return: $80 per covered call (9.46%)
Breakeven: 8.45
Covered Call Return (if assigned): $105 per covered call (12.42%)
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 8.45 or less. (In this case 9.25 minus 0.80 = 8.45. Or another example is you could pay 9.10 for the stock and sell the call for 0.65, which also equals 8.45)
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
