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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 127

Today’s Covered Call idea is a recent earnings winner that broke out to new highs last week, and has pulled back in marginally early this week.

Cabot Profit Booster 127

The reopening of the U.S. economy has sparked a strong rally for the market ... though under the surface not all sectors and stocks are participating in the recent gains.

Because our portfolio is relatively diversified, and bought early in the markets recovery, we have 8 positions likely on their way to full profits, and 4 that are mostly chopping around, which is also fine. Big picture the Cabot Profit Booster portfolio is acting exactly as it should.

Today’s Covered Call idea is a recent earnings winner that broke out to new highs last week, and has pulled back in marginally early this week.

The Stock – Marvell Technology Group (MRVL)

Marvell Technology is a chip stock that’s been around for a while, which in recent years has transformed itself into a data infrastructure outfit, with chips that play into a variety of major growth trends like advanced automotive products, data center solutions, enterprise networking, wireless connectivity (including 5G) as well as various storage networking offerings.

Business has been so-so for a while, but it looks like the firm’s gradual transition to infrastructure (sped up by acquisitions, including that of Cavium in 2018) is about to pay off in a big way; the shut-in has boosted demand for its cloud data center and 5G products, a trend that should continue even as economies reopen, while chips for ARM servers are another growth driver.

The stock is strong today because the Q1 report of a couple of weeks ago easily topped expectations (sales up 5%, earnings up 13%), but far more important is that analysts see that as the first of many quarters of accelerating growth—cloud revenue topped 10% of Marvell’s total for the first time in history (sure to go much higher going forward), with overall networking revenue leaping more than 10% from the prior quarter. Meanwhile, wireless infrastructure benefited from a pickup in 5G demand despite some industry hiccups, with management saying its wares are designed into the latest generation of base stations for multiple suppliers. (“We are still at the very beginning of the industry transition from 4G to 5G and look forward to driving significant revenue growth from this end market” per the CEO.) Throw in optimism about connected auto end markets and Wall Street is excited—analysts see earnings up 44% this year and 48% next as business picks up steam. We think the future is bright.

Technical Analysis

cpb stock

MRVL had a big run through early 2018, but after topping at 24.5, it had a tough go of it—it hit slightly higher highs in 2019 and much lower lows along the way, but as of a month ago it was still hanging around the mid 20s. But now MRVL has completely changed character, not only breaking out but following through beautifully over the past couple of weeks. We think a dip of a point or two would be an opportunity to start a position. Stop - 28.5

The Covered Call Trade

Buy Marvell (MRVL) Stock at 34.75, Sell to Open July 35 Strike Calls (exp. 7/17) for $1.50, or a Net Price of $33.25 or less

Static Return: $150 per covered call (4.51%)

Breakeven: 33.25

Covered Call Return (if assigned): $175 per covered call (5.26%)

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 33.25 or less. (In this case 34.75 minus 1.50 = 33.25. Or another example is you could pay 35 for the stock and sell the call for 1.75, which also equals 33.25)

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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