As for market performance, speculative and growth areas continue to struggle while stocks tied to rising rates and cyclicals managed to garner the most attention from buyers. However, the recent short-term rally could see higher-beta areas come back into play.
Today, I’m adding Corning (GLW), which reported blowout earnings last week.
Market Overview
Please note, as the market fell apart last week Jabil (JBL) fell through our stop. And while the stock is close to rising above that stop, we are going to stick to the rules and sell our JBL Stock position, and Buy to Close the February 70 Call. After this trade, we will no longer own a JBL stock or option position.
Moving on …
After three straight weeks of losses the bulls finally stepped up last Friday and salvaged what was an ugly start to the week. The Dow gained 1.3%, the S&P 500 bounced 0.8% and the tech-heavy Nasdaq closed last week flat. And the bounce that started mid-day Friday in all the major indexes continued Monday and has left the market with its best two-day rally since early 2020.
Last week offered another wild week as the much-anticipated Fed meeting absorbed most of the focus, with Fed Chairman Jerome Powell alluding to raising interest rates and ending the expansion of the Fed’s balance sheet. This would be the first time the market has seen a rate hike since 2018.
As for market performance, speculative and growth areas continue to struggle while stocks tied to rising rates and cyclicals managed to garner the most attention from buyers. However, the recent short-term rally could see higher-beta areas come back into play.
Today, I’m adding Corning (GLW), which reported blowout earnings last week
New Recommendation
The Stock – Corning (GLW)
Why the Strength
Corning’s name is well known in the consumer market for its eponymous glass-ceramic cookware. But these days the company’s glass and ceramics are mainly used in industrial and scientific applications, including TV panels and mobile phone displays, as well as for telecom and automotive components.
After spending much of last year under the radar, Corning captured Wall Street’s attention last week with a stellar fourth-quarter earnings report and upbeat guidance, prompting upgrades by a couple of big firms. Revenue of $3.7 billion was 10% higher from a year ago and beat estimates by 3%, while full-year sales rose by a head-turning 23%.
What’s more, per-share earnings of 54 cents beat the consensus by 4% and the company guided for a 6% sales increase (to $15 billion) in 2022, expecting profits to grow more than sales. And while margins were lower in Q4 (a concern among analysts in 2021), management reassured investors that improving the gross margin will be given “top priority” going forward.
The company further allayed worries about the inflationary environment by stating it has already negotiated to increase prices in its customer contracts (which should obviously help margins). The company believes it’s at the beginning of a “multi-year wave of growth” for optical networks and sees “significant” potential in its optical communications business for 2022 and beyond, including as much as $1 billion a year from U.S. infrastructure spending plans starting in 2023.
Corning also sees an opportunity in life sciences (sales up 21% in 2021) due to ongoing pandemic demand. For Q1, the firm guided for top- and bottom-line increases of 9% and 13%, respectively (in line with estimates). A reasonable valuation (20 times trailing earnings) and solid dividend (2.3%) help the cause, especially given the market environment.
Technical Analysis
After posting a solid post-crash performance, GLW peaked last April around 46 and spent the rest of the year in a steady decline, falling 28% from high to low by the middle of last week. But that’s looking like the final low—shares exploded higher by 20% on the week, including three excellent gains after earnings on big volume. Stop—37
The Covered Call Trade
Buy Corning (GLW) Stock at 42.25, Sell to Open March 42 Strike Calls (exp. 3/18) for $1.25 or a Net Price of 41 or less
Static Return: $100 per covered call (2.44%)
Breakeven: 41
Covered Call Return (if assigned): $100 per covered call (2.44%)
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 41 or less. (In this case 42.25 minus 1.25 = 41. Or another example is you could pay 43 for the stock and sell the call for 2, which also equals 41.)
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.
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Goodyear Tire (GT) | 22.93 | 21.00 | 19.5 | February 22 - $1.20 | $0.80 |
| Marathon Oil (MRO) | 17.80 | 19.50 | 15.4 | February 18 -- $1.02 | $1.80 |
| Teck Resources (TECK) | 35.00 | 32.00 | 28.0 | February 33 - $2.87 | $1.00 |
| AbbVie (ABBV) | 132.00 | 137.00 | 118.0 | February 132 - $4.20 | $6.50 |
The next Cabot Profit Booster issue will be published on February 8, 2022.