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Profit Booster
Make Money 3 Ways from Great Growth Stocks

Cabot Profit Booster 181

The market bounced back last week in a significant way. For the week the S&P 500 added 2.57%, the Dow gained 3.37%, and the Nasdaq advanced by 2.23%.

Cabot Profit Booster 181

Note: Because of the Independence Day holiday, next week’s issue of Cabot Profit Booster will be published on Wednesday, July 7.

I also hope you’ll join me for the 9th Annual Smarter Investing, Greater Profits Online Conference, August 17-19. We have an incredible line-up of experts ready to share their best picks.

The market bounced back last week in a significant way. For the week the S&P 500 added 2.57%, the Dow gained 3.37%, and the Nasdaq advanced by 2.23%.

The bounce helped to crush volatility and the call premium in our three open positions (good situation). Consequently, our positions are shaping up for another profitable expiration cycle.

As I’ve stated numerous times in the past, we continue to rotate with the market, buying the best stocks, and keeping the portfolio as diversified as possible.

Keeping diversification at the forefront, we are going to add a cloud computing company that is breaking out to recent highs.

The Stock – Nutanix (NTNX)
Why the Strength
Post-pandemic, three trends have emerged that experts believe will continue for years to come, namely digital transformation, cloud migration and a shift to a remote work force. Nutanix is a cloud infrastructure company that deals in hyper-converged systems, which effectively combines servers and storage into a single platform (making deployment easier and providing fewer systems to manage), offering a flexible technology solution for all three trends.

Since 2019, the company has moved away from selling licensed software and moved to a subscription model, and a recent Investor Day event highlighted that the best is yet to come. Today, 90% of Nutanix’s business is subscription-based and management expects a “big growing stream” of automated renewal and upsell business to kick in over the next couple of years.

Consequently, Nutanix expects to be profitable by the second half of 2022, expects free cash flow of between $50 and $150 million in fiscal 2023 (after likely losing $175 million in the current fiscal year, ending in July) and, most important, anticipates 25% annual contract-value (ACV) billings growth through 2025. What’s more, the firm sees cash flow as high as $350 million by 2025, which caused several institutions to hike their price targets for the stock (a reason for the latest strength).

In fiscal Q2, Nutanix posted revenue of $346 million that was up 8% from a year ago, though it also delivered ACV billings growth of 14%, bolstered by the strength of new products (including hybrid cloud capabilities for its unstructured data storage offerings).

Looking ahead, Nutanix sees its total market expanding from $39 billion now to $60 billion by 2025, and Wall Street sees growth gradually accelerating from here.

Technical Analysis
NTNX didn’t make much net progress since last summer, spending most of the past 12 months chopping around in a range between 20 and 35. But the stock looks like a different animal now—it tightened up for many weeks right around its 40-week line in March and April and has taken off since May, rising nine weeks in a row, six of which sported above-average weekly volume. Stop — 32.50

CPB_Weekly-Issue_06-29-21_NTNX

The Covered Call Trade
Buy Nutanix (NTNX) Stock at 39.25, Sell to Open August 40 Strike Calls (exp. 8/20) for $1.90, or a Net Price of 37.35 or less

Static Return: $190 per covered call (5.09%)

Breakeven: 37.35

Covered Call Return (if assigned): $265 per covered call (7.10%)

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 37.35 or less. (In this case 39.25 minus 1.90 = 37.35. Or another example is you could pay 39.35 for the stock and sell the call for 2, which also equals 37.35)

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.

Stock Name and SymbolPrice BoughtCurrent Stock PriceStopOption - Price of Call SoldCurrent Option Price
Marathon Oil (MRO)13.6013.3911.5July 14 -- $0.69$0.36
GoPro (GPRO)12.1811.5810.5July 13 -- $0.55$0.15
Scientific Games (SGMS)76.5575.9662July 75 -- $4.80$3.90

The next Cabot Profit Booster issue will be published on July 7, 2021.

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Chief Investment Strategist: Timothy Lutts
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