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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 135

People are flocking to the company’s hobby photo- and video-sharing application, posting pics and videos of their cooking masterpieces, children’s activities, business décor ideas and just about any other creative task you can imagine.

Cabot Profit Booster 135

Despite some ups and downs in the market and intense sector rotation all of our positions remain in great shape. But that doesn’t mean that there won’t be some bumps in the road as earnings season ramps up.

And in fact, NVTA and UPWK will report earnings today after the market closes, and PLUG will announce their numbers Thursday before the open. Buckle up, earnings season is never easy!

This leads me to this week’s stock idea which is a company that just reported blowout earnings last week …

The Stock – Pinterest (PINS)

Pinterest went through the wringer after coming public early last year, but it looks like it’s joining the market’s leadership ranks after a very bullish earnings report last week.

People are flocking to the company’s hobby photo- and video-sharing application, posting pics and videos of their cooking masterpieces, children’s activities, business décor ideas and just about any other creative task you can imagine.

And the stock has turned strong thanks to a great Q2 report last week; while the absolute numbers weren’t sexy (revenues up just 4%, while the bottom line was still in the red), those figures easily topped expectations (beat by 8% on the top line and by seven cents per share on the bottom line). Even more important was the the huge increase in monthly active users, to a record 416 million, a 39% rise and clobbering the estimates of 373 million.

All of this implied that the new economic reality is beginning to play into Pinterest’s hands; so far in July, ad spending on its platform is up 50% from a year ago, while video views are booming (up 150% in the quarter) and, long-term, some industry gurus think Pinterest will surpass 700 million users. There’s lots of room for the company to grow, too, as the users are considered ‘sticky’; once there, they tend to get caught up in the ideas and stay around. As that group expands, so will advertising. Right now, the company makes about $3 per user per year in ad sales; by comparison, SNAP makes $6.50 and Facebook $30, so the upside looks big. To be fair, management is guiding cautiously given the uncertainties out there (looking for “only” 30% revenue growth in the current quarter despite July’s 50% surge), but big investors are clearly betting on upside.

Technical Analysis

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PINS came public last April, had a decent first few months, but then had the typical post-IPO droop, culminating with a plunge to 10 during the crash. The stock bounced with everything else after that, but it was more of a two-steps-forward, one-step-back type of advance as it rode its 10-week line higher. But last week PINS changed character, exploding higher on its heaviest weekly volume ever. Stop - 28.5

The Covered Call Trade

Buy Pinterest (PINS) Stock at 34.5, Sell to Open September 35 Strike Calls (exp. 9/18) for $2, or a Net Price of 32.5 or less

Static Return: $2 per covered call (6.15%)

Breakeven: 32.5

Covered Call Return (if assigned): $250 per covered call (7.69%)

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 32.5 or less. (In this case 34.5 minus 2 = 32.5. Or another example is you could pay 34 for the stock and sell the call for 1.50, which also equals 32.5)

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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