Cabot Profit Booster 149

The good news is the election has passed, and there is hope in the race to find a coronavirus vaccine. The bad news is that these two developments aren’t necessarily great news for all stocks, as money viciously rotated yesterday out of hyper-growth stocks, and into cyclicals.

Cabot Profit Booster 149

Regardless, because we have a diverse portfolio made up of the best stocks, for the time being all six of our positions are in great shape.

And in an effort to continue to keep the portfolio as diversified as possible, and avoid too much exposure to any one sector that may fall in and out of favor, this week we are adding a consumer product stock that recently blew away earnings estimates.

The Stock – Yeti Holdings (YETI)

Yeti has become the go-to brand for best-in-class (and they charge you for it) drinkware (58% of revenue) and coolers and other equipment (41% of revenue), allowing millions of consumers to keep their beer or wine cold at the beach or coffee hot while on the go.

Yes, there are knockoffs, but you get what you pay for, and Yeti’s brand and distribution is second to none—plus, the market opportunity has expanded from niche hikers and campers 10 years ago to just about everyone who enjoys a nice beverage today.

The company has been doing well for years, and the pandemic environment has only helped—in Q3, revenue growth accelerated to 29% while earnings more than doubled thanks in large part of direct-to-consumer (read: e-commerce) sales, which soared 62% and made up more than half of all revenue.

Growth probably will cool off some going forward, but longer-term, the sky’s the limit, especially as Yeti’s products become popular for gifts (the holiday season could be big) and as the company expands internationally; Q3 saw triple-digit sales growth overseas, though that segment makes up just 7% of the firm’s total. It won’t be a lightning-fast growth story, but big investors are betting Yeti is a new dominant brand that will produce dependable 15% to 20% growth for many years to come. It’s a solid story.

Technical Analysis

YETI came public in October 2018 and was at the same level as that after crashing in March of this year, but it’s been a different beast since then; shares motored to decisive new highs during the following few months, finally hitting some resistance near 50 in August. The stock then went into a 12-week correction and consolidation, which set up things for the breakout last week after earnings. Today’s action was far from ideal and could be a sign that the stock needs a little time; even so, we think it’s a decent risk/reward around here. Stop — 45

The Covered Call Trade

Buy Yeti Holdings (YETI) Stock at 51.5, Sell to Open December 52.5 Strike Calls (exp. 12/18) for $2, or a Net Price of 49.5 or less

Static Return: $200 per covered call (4.04%)

Breakeven: 49.5

Covered Call Return (if assigned): $300 per covered call (6.06%)

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 49.5 or less. (In this case 51.5 minus 2 = 49.5. Or another example is you could pay 51 for the stock and sell the call for 1.50, which also equals 49.5)

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 …

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