Cabot Profit Booster 137
This week is the expiration of our August positions, all of which are in great shape. That doesn’t mean we won’t have to adjust one or two Friday morning if the market, or those stocks wobble, but for now, all is well!
Be on the lookout for your expiration breakdown Thursday afternoon or more likely Friday morning.
Moving on to this week’s stock idea …
The Stock – Builders FirstSource (BLDR)
Although June housing starts were down by 4% over last year, they rose 17.3% from the month prior to an annualized rate of 1.19 million (nicely higher than forecast). That was the highest reading in three months and bodes well for Builders FirstSource, which is a major supplier of wood floors, roof trusses, stairs, siding, insulation, cabinets, and any number of other building products to homeowners, builders and professional remodelers.
As we’ve written before, the virus was expected to crunch construction, but it seems to be having the opposite effect, at least on the residential side of the industry. That strength drove this firm’s second quarter earnings to $0.67 per share, which was up just 6% from a year ago but obliterated expectations of $0.27 per share. Revenues also beat forecasts by more than 7%, coming in at $1.95 billion. That’s the fourth quarter in a row that Builders FirstSource has surpassed estimates on both profits and sales.
The company said it saw a “sharp sequential rebound in sales” in June, indicating big momentum for the current quarter. Growth was helped by acquisitions, rising demand for windows, doors and millwork, as well as the rise in commodity prices. For the full year, the firm is forecast to earn $2.02 per share on $8.03 billion in sales, but estimates keep rising (this year’s estimate was just $1.25 per share a month ago!). Today, the stock will be added to the S&P MidCap 400 Index, which will make it a touch more attractive to big investors.
Technical Analysis
BDLR was in a great-looking uptrend for basically all of last year and early this year before the crash wiped away those gains. Like many cyclical names, shares quickly popped back, but after reaching nearly 25 in early June, the stock took a breather for a bit (seven weeks), found support near its 50-day line and has come to life of late, powering to new highs. Stop – 24.5
The Covered Call Trade
Buy Builders FirstSource (BLDR) Stock at 30, Sell to Open September 30 Strike Calls (exp.9/18) for $1.50, or a Net Price of 28.5 or less
Static Return: $150 per covered call (5.26%)
Breakeven: 28.5
Covered Call Return (if assigned): $150 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 28.5 or less. (In this case 30 minus 1.50 = 28.5. Or another example is you could pay 30.25 for the stock and sell the call for 1.75, which also equals 28.5)
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
