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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 141

Fertilizer companies aren’t the sexiest names on Wall Street, but the sector has shown an ability to trend when conditions are right, and that time looks to be here.

Cabot Profit Booster 141

This Friday is the expiration of September options, and the good news is we have five positions in great shape headed into their expiration.

As of this morning, MTH, PINS, APPS, BLDR stocks are above the strike we sold, and JD is right at the strike that we sold. This is a great situation, especially given the markets declines the last two weeks.

Expect to receive an email from me Thursday afternoon or Friday morning on how we will handle all of these positions.

Moving on to this week’s idea … because the sellers have been punishing growth stocks of late, this week I’ve chosen a “defensive” play in a sector that has perked up as of late.

The Stock – Mosaic (MOS)

Fertilizer companies aren’t the sexiest names on Wall Street, but the sector has shown an ability to trend when conditions are right, and that time looks to be here.

The industry is garnering attention after top-consumer China’s looming corn shortage (due to weather-related issues) and a recent vow to increase its agricultural imports from the U.S. That’s good news for Mosaic, the largest producer of phosphate and potash fertilizers in the U.S. Both inputs are essential for all major crops (the potash is mined in Canada and New Mexico, while the phosphate is mined in Florida, with additional facilities in Brazil).

Mosaic reports higher fertilizer demand from farmers in Brazil (who are having excellent years) and sees a big opportunity for capacity additions in that country. Moreover, phosphate prices are rebounding (up $13/ton in Q2), with rising ag commodity prices (especially soybeans) likely to boost the firm’s profit outlook via higher demand.

In Q2, Mosaic posted per-share earnings of 11 cents, down 8% from a year ago but easily beating estimates of two cents. Sales volumes in all its three businesses were higher in the quarter (records were reached in its potash and Fertilizantes segments), and cash flow increased, with $814 million generated from Q2 operations (it also has a liquidity position of $3 billion).

But this is really all about the future—analysts expect earnings to grow 87% in Q3, 50% for full-year 2020 and an explosive 274% in 2021! While COVID continues to impact the world economy, ag and food security are high priorities, which means fertilizer demand will remain high (with prices likely rising), all of which should keep buyers interested.

Technical Analysis

cpb stock

MOS has been out of favor for years, with its latest slide coming to an end in March at 6.5. The upmove after that was choppy, with a sharp dip in April and a shallow eight-week consolidation in June and July. But the Q2 report has changed the stock’s character, causing MOS to rip above its 200-day line last month, and the tight consolidation of that move in recent weeks is constructive. We’re OK starting a position here with a stop under the 50-day line. Stop 15.4

The Covered Call Trade

Buy Mosaic (MOS) Stock at 18.25, Sell to Open October 19 Strike Calls (exp.10/16) for $0.60, or a Net Price of 17.65 or less

Static Return: $60 per covered call (3.39%)

Breakeven: 17.65

Covered Call Return (if assigned): $135 per covered call (7.64%)

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 17.65 or less. (In this case 18.25 minus 0.60 = 17.65. Or another example is you could pay 18 for the stock and sell the call for 0.35, which also equals 17.65)

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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