Cabot Profit Booster 113

** Please note - The market had an awful week last week as the S&P 500 fell approximately 12%. This caused two of our positions to blow through our stops. Morgan Stanley (MS) is decisively through, while Survey Monkey (SVMK) is much closer. Because we have so few positions I am going to give these positions a bit more time to recover ... for now.

Also, I am going to sell an in-the-money call with todays pick. This is a defensive strategy that will give our trade more “cushion” should the market and this week’s pick fall**

The Stock – Datadog (DDOG)

Today, the widespread, ongoing move to the cloud by businesses of all sizes means there are all sorts of customized apps and differentiated hardware that don’t always work together the way they’re supposed to. Enter Datadog (and, somewhat similarly, Dynatrace (DT), which has also appeared in Top Ten), which has one of the top new-age monitoring and analytics platforms for development, operations and business users, providing real-time, actionable insights and alerts regarding these firms’ infrastructure.

Of course, the details of the products can give you an ice cream headache, but the overall story is easy to understand, and so are Datadog’s numbers, some of which are jaw-dropping—revenue growth has been north of 80% in recent quarters, and the underlying metrics are just as impressive, including a same-customer growth rate of more than 30%, an 89% increase in “big” customers (those that pay the firm at least $100k per year), around 1,000 new customers in Q4 alone (nearly twice the number of new customers from a year ago) and the fact that 60% of clients now use multiple products (up from 25% a year ago).

The valuation here is huge ($13.3 billion market cap, $363 million in revenue!), but some smart funds have started buying in. We think there’s big potential.

Technical Analysis

DDOG etched something of a base-on-base after its IPO, breaking out in January near 44 and running to 50. Then it backed off a bit on earnings, but while it initially took a hit with the market last week, the damage ended up being limited—DDOG found big volume support on Thursday at its 50-day line, and at Friday’s close, it was down just 1% on the week (vs. 11.5% for the S&P 500). We’re mostly interested in keeping it on a watch list, but if you wanted to nibble with a stop under the 50-day line, you could. Stop - 39

The Covered Call Trade

Buy Datadog (DDOG) Stock at 44.5, Sell to Open April 43 Calls (exp. 4/17/2020) for $4.50, or a Net Price of 40 or less

Static Return: $300 per covered call (7.5%)

Breakeven: 40

Covered Call Return (if assigned): $300 per covered call (7.5%)

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 40 or less. (In this case 44.5 minus 4.5 = 40. Or another example is you could pay 44 for the stock and sell the call for 4, which also equals 40)

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