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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 172

Not to sound like a broken record, but day-to-day sector rotation continues to be the story of the last week of trading, and almost all of 2021. The good news is that this is a fine situation for the Cabot Profit Booster portfolio as we are rotating with the market, buying the best stocks, and keeping the portfolio as diversified as possible.

Cabot Profit Booster 172

Not to sound like a broken record, but day-to-day sector rotation continues to be the story of the last week of trading, and almost all of 2021. The good news is that this is a fine situation for the Cabot Profit Booster portfolio as we are rotating with the market, buying the best stocks, and keeping the portfolio as diversified as possible.

This brings me to this week’s stock, which is a recent earnings season winner that broke out to new highs last week …

The Stock – Harley-Davidson (HOG)

Why the Strength

For years, Harley-Davidson (H-D) was plagued by falling sales as baby boomers (its traditional market) aged, while attempts to attract younger customers failed as competitors stole the spotlight with smaller, cheaper motorbikes. But last year marked a turning point for the iconic U.S. motorcycle maker, as bike sales increased on the back of pandemic-driven demand for “distanced” recreational activity.

Also, the company unveiled a five-year turnaround plan to increase annual revenue in the mid-single digits and earnings growth in the low double digits. H-D plans to return its focus on making classic big bikes and selling them to mostly older, affluent U.S. and European customers.

In addition, the firm has cut its workforce and dealer network, trimmed inventory and eliminated low-selling models, allowing it to charge the full sticker price for its bikes. And it also plans to continue its foray into electric motorbikes (launched in 2019) by building a separate division focused on the development of EVs.

A big reason for the stock strength was last week’s first-quarter report, which provided proof that the turnaround strategy is working. The top line rose 10% from a year ago (the first increase in many quarters), with motorcycle sales roaring to levels not seen in four years (up 12%, thanks to strong demand for touring bikes). Per-share earnings of $1.68, meanwhile, more than tripled and beat estimates by 89%. And analysts foresee further growth, including a 109% Q2 revenue bump, with earnings rebounding back above $3 per share this year.

Looking ahead, H-D plans to introduce new bike models in sync with current market trends and aims to launch 100 motorcycles by 2027. It also announced the first certified pre-owned H-D motorcycle program designed to reach new customers. All in all, it’s a solid turnaround story.

Technical Analysis

HOG hit a long-term peak at 74 back in 2014, then headed south for the next six years. It bottomed out around 14 last March, then rode steadily higher in the following months before revving up to yearly highs in November. The base-building effort from there was choppy, but not abnormal, and the stock decisively blasted off last week after earnings. Stop — 40.5

CPB_Weekly-Update_4-27-21_Hog

The Covered Call Trade

Buy Harley Davidson (HOG) Stock at 49, Sell to Open May 49 Strike Calls (exp. 5/21/2021) for $1.50, or a Net Price of 47.50 or less

Static Return: $150 per covered call (3.15%)

Breakeven: 47.5

Covered Call Return (if assigned): $150 per covered call (3.15%)

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 47.50 or less. (In this case 49 minus 1.50 = 47.50. Or another example is you could pay 48.75 for the stock and sell the call for 1.25, which also equals 47.5)

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

If our stop is hit, I will send an alert giving detailed instructions on how to exit the trade. But don’t get too worried about setting the stop. I will manage that for you.

CPB_Weekly-Update_4-27-21_Table

The next Cabot Profit Booster issue will be published on May 4, 2021.