Today’s recommendation continues to look like the market’s top networking-related play, as it’s one of the only firms out there that’s firing on all cylinders.
Cabot Profit Booster 124
Aided by a strong stock market, and great stock picks by Cabot Top Ten Trader Chief Analyst Mike Cintolo, the Cabot Profit Booster portfolio had another great month as we closed our DDOG position for a profit of 16.37%, JD for a gain of 7.89%, GOLD a yield of 9.89% and SFM for a return of 8.99%.
On Friday, the Morgan Stanley (MS) May 44 call that we sold for $0.65 expired worthless. Today we are going to sell a new call to again lower our cost basis and create yield.
To execute this trade, you need to:
Sell to Open the June 44 Call (exp. 6/19) for $0.50 or more
As is always the case, if you own 100 shares of MS stock, you can sell 1 call. If you own 200 shares you can sell 2 calls. (if you don’t currently own this MS position, perhaps hold off and focus on the new idea below)
Moving on to this week’s stock pick …
The Stock – Inphi (IPHI)
Inphi continues to look like the market’s top networking-related play, as it’s one of the only firms out there that’s firing on all cylinders. The company’s products are all about speed, helping quicken data transmissions for a variety of end users and environments, be it within a data center (it has the dominant market share with its PAM4 platforms; Amazon and Google are upgrading now, with Alibaba, Facebook and others likely to in the near future), interconnecting data centers (partnership with Microsoft for its ColorZ platform is helping now, and the next-gen system should boost business in the first half of 2021) or for 5G-related mid- and back-haul connections.
Demand is booming thanks to a combination of data center upgrade cycles and the boom in bandwidth demand as the world has gone heavily mobile. First quarter results were outstanding (partially thanks to the closing of its acquisition of eSilicon), and while Huawei (an Inphi customer) is once again a political football, the plan was for that company to become a small (low single digit percentage of revenues) portion of business starting in the second half of this year.
There could be a couple of small hiccups if the trade war re-escalates, but management believes it will crank out quarter-over-quarter growth well into 2021 as business ramps, and Wall Street agrees; analysts see the bottom line booming 65% this year and another 31% next, and that could likely prove conservative if current trends continue. This remains a great mid-cap story.
Technical Analysis
IPHI bottomed with the market in March below its 200-day line, but it’s been a sterling performer since then, first showing excellent volume right off the bottom, then pushing to new closing highs in early April and nailing the century mark by the end of that month. There was a brief pullback to the 25-day line ahead of earnings, but that was snapped up, too. Now IPHI is again resting a bit, and that could continue—but the uptrend remains very much intact. We’re OK snagging some here or on further dips. Stop - 94
The Covered Call Trade
Buy Inphi (IPHI) Stock at 112, Sell to Open July 115 Calls (exp. 7/17) for $6, or a Net Price of 106 or less
Static Return: $600 per covered call (5.66%)
Breakeven: 106
Covered Call Return (if assigned): $900 per covered call (8.49%)
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 106 or less. (In this case 112 minus 6 = 106. Or another example is you could pay 111 for the stock and sell the call for 5, which also equals 106)
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
