In the field of speech recognition software, this stock is a pioneer with plenty of room to grow. The company is known for its Dragon Naturally Speaking software package, which makes dictation faster and nearly as accurate as typing. It also allows users to control computer programs and send emails by voice command.
Cabot Profit Booster 110
The Stock – Nuance Communications (NUAN)
In the field of speech recognition software, Nuance Communications is a pioneer with plenty of room to grow. The company is known for its Dragon Naturally Speaking software package, which makes dictation faster and nearly as accurate as typing. It also allows users to control computer programs and send emails by voice command.
Nuance boasts excellent customer retention levels (a key metric for software companies), with high renewal rates on its maintenance and support agreements. And some key partnerships (like with Microsoft) are only going to help. Just as important as anything, Nuance’s management sees healthcare-related annualized recurring revenue (driven by Dragon Medical, which it sells on a subscription basis) to grow 30% this year and then 20% to 25% every year through 2023!
Technical Analysis
After rounding out a long-term base, Nuance’s share price broke out last October following the Microsoft partnership announcement. Shares tightened up around 18 in December, reached 20 in January, and after a quick shakeout with the market on virus fears, NUAN catapulted to new highs last week following earnings. We think buying on dips makes sense. Stop – 18.5
The Covered Call Trade
Buy Nuance Communications (NUAN) Stock at 22.75, Sell to Open April 23 Calls (exp. 4/17/2020) for $0.75, or a Net Price of 22 or less
Static Return: $75 per covered call (3.40%)
Breakeven: 22
Covered Call Return (if assigned): $100 per covered call (4.54%)
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 22 or less. (In this case 22.75 minus 0.75 = 22. Or another example is you could pay 22.80 for the stock and sell the call for 0.80, which also equals 22)
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
