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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 116

China was the first country to be devastated by coronavirus, and although the pandemic there is not completely over (and there are doubts about the accuracy of that country’s daily virus count), it’s almost surely on a downhill swing. That’s helped the Shanghai composite to fare better than the S&P this year, and not surprisingly, many (not all) Chinese stocks have shown some interesting resilience during this crisis

Cabot Profit Booster 116

The Stock – JD.com (JD)

China was the first country to be devastated by coronavirus, and although the pandemic there is not completely over (and there are doubts about the accuracy of that country’s daily virus count), it’s almost surely on a downhill swing. That’s helped the Shanghai composite to fare better than the S&P this year, and not surprisingly, many (not all) Chinese stocks have shown some interesting resilience during this crisis, especially those in the e-commerce arena, where demand is actually picking up as the population learns, buys and entertains itself from home.

That’s playing right into the hands of JD.com (kind of like the Amazon of China, though without the cloud computing and some other businesses), which is one of the leaders in the field; JD currently owns 16.7% of the e-commerce market share in China, surpassed only by Alibaba, with 55.9%, and most see that share rising as it’s been executing brilliantly for a while—investments have dented earnings a couple of years ago, the firm has been growing steadily (sales up 22% in Q4) and earnings have regularly topped estimates (52 cents per share in Q4, 10 cents above expectations).

There will obviously be some uncertainty going forward, but if anything, JD could benefit from the lingering virus threat in China—the stocks’ resilience certainly points that way.

Technical Analysis

jd

JD had a nice uptrend with the market from October through February, finally hitting a peak near 45 just before earnings. It’s been caught up with the market decline, of course, but the damage hasn’t been that bad—JD remains well above its 200-day line and is far closer to its old high than any of the major U.S. indexes. The longer it can hold up, the better the chance it can push higher once the pressure comes off the market. Stop - 32

The Covered Call Trade

Buy JD.com (JD) Stock at 40.75, Sell to Open May 41 Calls (exp. 5/15/2020) for $2.75, or a Net Price of 38 or less

Static Return: $275 per covered call (7.23%)

Breakeven: 38

Covered Call Return (if assigned): $300 per covered call (7.89%)

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 38 or less. (In this case 40.75 minus 2.75 = 38. Or another example is you could pay 40.5 for the stock and sell the call for 2.50, which also equals 38)

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

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