Cabot Profit Booster 120

The market has surged back to life in the last three weeks, though came under pressure yesterday and is again lower this morning on growing concern about the price of oil. For now this pullback seems “ordinary” and nearly all of our positions are in good shape as we have built a diversified portfolio and sold calls at good prices.

This mornings pick is a growth stock that is volatile, but has great potential ….

The Stock – CrowdStrike (CRWD)

Despite the self-induced recession, the stay-at-home economy is booming thanks to companies that are letting employees work from home—and even after things go back to normal, it’s likely some of this new workplace flexibility will be here to stay. Helping keep the cloud secure is CrowdStrike, which facilitates endpoint detection and protection on or off networks, as well as on major platforms such as Google Cloud and Microsoft Azure.

Using crowdsourced data from users, it deploys artificial intelligence to predict whether a threat is malicious or not and its services span beyond security into “systems hygiene,” which allows clients to see who’s on their network and what applications they’re using, as well as how user accounts are being accessed.

CrowdStrike has been growing rapidly for a while, but the stock has perked up due to expectations of continued excellent results thanks to the world’s new reality. CrowdStrike’s revenues are mostly subscription-based, and this metric was up by an eye-popping 99% last year. For the latest quarter, subscription revenue (+90%), annualized recurring revenue (+92%, up to $600 million at year-end) and subscription gross margin (+77%) also grew impressively. Despite negative earnings, the company was cash flow positive in Q4.

Best of all, once companies go with CrowdStrike, they don’t leave (98% retention rate) and tend to add a lot more services over time (same-customer revenue growth of 24% in Q4). Looking beyond the pandemic, CrowdStrike is definitely one of the leaders in the “new-age” cybersecurity sector, as firms need new solutions to deal with the move of their systems and apps to the cloud.

Technical Analysis

After a post-IPO rally to 100 last summer, CRWD was cut in half by October and really couldn’t get off its knees, even as the market went nuts through February. The COVID panic resulted in a huge break of support, but what’s been impressive has been the rebound—CRWD exploded off the bottom on two weeks on huge volume, and after some tightness in the 60 area, it’s extended to multi-month highs. We suggest aiming for a bit of a pullback and using a loose stop. Stop - 56

The Covered Call Trade

Buy CrowdStrike (CRWD) Stock at 69, Sell to Open June 70 Calls (exp. 6/19/2020) for $6, or a Net Price of 63 or less

Static Return: $600 per covered call (9.52%)

Breakeven: 63

Covered Call Return (if assigned): $700 per covered call (11.11%)

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 63 or less. (In this case 69 minus 6 = 63. Or another example is you could pay 68 for the stock and sell the call for 5, which also equals 63)

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 …

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