Cabot Profit Booster 171

April was another strong month for the Cabot Profit Booster portfolio as we locked in gains ranging from 3.7% to 7.9% on our six positions. Speaking of earnings, this week’s pick is a recent earnings season winner that busted out to a new high following reporting quarterly results.

Cabot Profit Booster 171

April was another strong month for the Cabot Profit Booster portfolio as we locked in gains ranging from 3.7% to 7.9% on our six positions. Here is the breakdown of each position:

TRIP – We made $150 on our stock holding, plus collected $185 via our covered call, or a net profit of $335 (6.8%).

SUM - We made $65 on our stock holding, plus collected $120 via our covered call, or a net profit of $185 (6.7%).

AMKR - We lost $60 on our stock holding, but collected $175 via our covered call, or a net profit of $115 (5.2%).

ANF - We made $230 on our covered call trade (7.5%).

AZEK - We made $150 on our stock holding, plus collected $200 via our covered call, or a net profit of $350 (7.9%).

ZI - We lost $60 on our stock holding, but collected $235 via our covered call, or a net profit of $175 (3.7%).

With the expiration/sale of these six positions we now only own two covered calls (CLF, GT), which actually works out nicely headed into earnings season.

Speaking of earnings, this week’s pick is a recent earnings season winner that busted out to a new high following reporting quarterly results.

The Stock – Levi Strauss (LEVI)

Why the Strength

Levi Strauss is an iconic name in the apparel industry, but it’s a relatively new name in the stock market (public in early 2019) and is positioned to be a key winner in the economic recovery boom.

A lot of that, of course, has to do with macro factors—traffic to its 40 stores and 200-ish outlets has been crippled by the pandemic, so more people heading out should help revenues perk up. But as we’re seeing with other select retail success stories, Levi is also playing offense, looking to expand as opportunities arise and boosting the digital side of its business.

The Q4 report, released two weeks ago, showed slippage from a year ago but easily beat expectations (earnings of 34 cents per share topped by 10 cents), and some sub-metrics really impressed, with gross margins actually improving and digital revenues up 41% (and making up 26% of revenue), with pure e-commerce making up 10% of revenues (up from 7% a year ago).

Moreover, the top brass has made it known that they’re looking to take advantage of a dreadful commercial real estate market to expand its store base, with digital-heavy stores and small outlets (2,500 square feet). Analysts keep hiking their outlook, now looking for $1.12 per share of earnings this year (up from an estimate of 98 cents before the recent report) and $1.37 in 2022, both of which should prove conservative.

Technical Analysis

LEVI fell from 23 after coming public to below 10 after last year’s crash and was still sitting at 12 in late September when the buyers came in. The advance since then has been excellent, with one rest period (eight weeks in December-January) and a brief dip to the 10-week line three weeks ago. The post-earnings buying power has been very impressive, taking LEVI to new all-time highs. Stop — 23.5

The Covered Call Trade

Buy Levi Strauss (LEVI) Stock at 29, Sell to Open May 29 Strike Calls (exp. 5/21/2021) for $0.90, or a Net Price of 28.10 or less

Static Return: $90 per covered call (3.2%)

Breakeven: 28.1

Covered Call Return (if assigned): $90 per covered call (3.2%)

Please note: LEVI will pay a $0.06 dividend, which we will likely capture.

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 28.10 or less. (In this case 29 minus 0.90 = 28.10. Or another example is you could pay 28.7 for the stock and sell the call for 0.60, which also equals 28.10)

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 …

The next Cabot Profit Booster issue will be published on April 27, 2021.