This week’s idea is a stock in a hot sector, though can be volatile day-to-day.
Cabot Profit Booster 146
The Cabot Profit Booster portfolio closed four more positions for solid profits last week and yesterday. Here were those gains and yields:
HZNP $575 per covered call, yield of 7.9%
PENN $890 per covered call, yield of 17.41%
MOS $162 per covered call, yield of 9.32%
PINS $235 per covered call, yield of 7.88%
Moving on to the market and our November positions … even though the market has again come under pressure, our three open positions are in good shape and we will continue to push forward with the strongest stocks, while keeping the portfolio diversified. Which brings me to this week’s idea, which is a stock in a hot sector, though can be volatile day-to-day:
The Stock – Plug Power (PLUG)
The fuel cell market is expected to grow at a compound annual rate of more than 15% from 2020 through 2025 as the number of hydrogen refueling stations and fuel cell-powered vehicles (mostly commercial) are expanding worldwide. The industry is thriving, and we can expect new companies to enter the fray. (Just recently, special purpose acquisition company, AMCI, announced that it is buying Advent Technologies and bring it public in the fourth quarter of 2020 or early 2021.)
While some industry observers think new competition might dampen Plug Power’s prospects, the company has been on fire this year and management sees only bigger and better things over the next few years.
Plug Power is the industry’s pioneer, helping to commercialize hydrogen fuel-cell technology when it began substituting fuel cells for lead-acid batteries in its lift trucks in the company’s distribution centers in the late 1990s. That innovation has led to powering buses and delivery vehicles—its products are being used by BMW, Amazon, Sysco and Walmart among others, and there’s huge potential in many areas (including forklifts).
Plus, the firm’s buyout of United Hydrogen gives it a major opportunity in the distribution of hydrogen, demand for which should expand in a big way as fuel cells become more commonplace.
Investors have pushed Plug higher since the company announced its four-year growth targets: By 2024, the firm expects $1.2 billion in sales (up from $260 million now), $200 million in operating income and $250 million in EBITDA. The next earnings report is due on November 5, Plug Power is expected to lose $0.07 per share on revenues of $103.9 million (up more than 85% since last year).
Technical Analysis
PLUG has had a big move in recent months, so it’s not in the first inning of its advance, but the price and volume action continue to tell us the stock is under accumulation. The latest rally off the 50-day line was excellent, with shares zooming as high as 19 on massive volume before pulling in. And that pullback to this point has been completely normal—if anything, it could go on a bit further and still be in good shape. We’re OK starting a position here. Stop — 13.5
The Covered Call Trade
Buy Plug Power (PLUG) Stock at 16.75, Sell to Open November 17 Strike Calls (exp. 11/20/2020) for $1.50, or a Net Price of 15.25 or less
Static Return: $150 per covered call (9.83%)
Breakeven: 15.25
Covered Call Return (if assigned): $175 per covered call (11.47%)
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 15.25 or less. (In this case 16.75 minus 1.50 = 15.25. Or another example is you could pay 16.5 for the stock and sell the call for 1.25, which also equals 15.25)
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
