STMicroelectronics is one of the world’s largest semiconductor companies, delivering solutions that are key to the smartphone and automotive markets. Major customers include Apple and Tesla, though the firm (which is based in Switzerland) sports more than 100,000 customers around the globe.
Cabot Profit Booster 108
The Stock – STMicroelectronics (STM)
STMicroelectronics is one of the world’s largest semiconductor companies, delivering solutions that are key to the smartphone and automotive markets. Major customers include Apple and Tesla, though the firm (which is based in Switzerland) sports more than 100,000 customers around the globe.
Last week, shares surged when the company reported fourth quarter revenue and gross margin near the high end of guidance in all product groups, in addition to manufacturing efficiencies; earnings per share of 43 cents trounced consensus estimates by six cents. Demand for their chips and sensors in next-generation products, including smartphones and watches, is offsetting slowing demand in older generation products, such as for certain cars. But the focus is on the strength in personal electronics, and management is optimistic about potential rising demand for auto and industrial products later in the year.
Technical Analysis
STM got going as soon as the market bottomed in early October and it’s definitely been a leader since, rising 15 of 17 weeks, including last week’s earnings-induced pop to new highs! Like all chip stocks, it did get knocked around today, and similar to the overall market, it probably needs more time to digest the prior upmove. That said, dips of another point or so would be tempting. Stop - 25
The Covered Call Trade
Buy STMicroelectronics (STM) Stock at 29.25, Sell to Open March 30 Calls (exp. 3/20/2020) for $0.90, or a Net Price of 28.35 or less
Static Return: $90 per covered call (3.17%)
Breakeven: 28.35
Covered Call Return (if assigned): $165 per covered call (5.82%)
Potential Dividend Captured: $0.06 (3/16/2020)
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 28.35 or less. (In this case 29.25 minus 0.90 = 28.35. Or another example is you could pay 29.35 for the stock and sell the call for 1, which also equals 28.35)
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
Please note we very likely will capture the $0.35 Morgan Stanley (MS) dividend on 1/30.
