Quick note: Because next Monday is Memorial Day, our next issue of Profit Booster issue will be published Wednesday, May 29.
Coming out of May expiration we had five positions close for full profits (noted below), and we are going to exit one position today for a virtual breakeven as PR closed below the strike price that we had sold (totally fine). First, let’s start with the one trade we need to adjust …
Sell your Permian Resources (PR) stock position.
Now, here are the profits/yields on our other five trades:
TOST: 12.1%
CPNG: 7.14%
SG: 7.69%
CNX: 5.17%
EGO: 6.77%
Moving on …
The stock market’s 5% swoon from several weeks ago has quickly become a distant memory as the indexes are back to their previous highs following another week of strong performances, as the S&P 500 gained another 1.3% last week, while the Dow rose 1%, and the Nasdaq added 1.75%.
The Stock – Dutch Bros (BROS)
If you like cookie-cutter stories (like we do), then you’ll like Dutch Bros., which has all the makings of an up-and-coming player in the fast-service beverage slice of the restaurant industry.
The firm is usually known as a coffee shop, but it’s really different than Starbucks or Dunkin’—most revenues come from cold or frozen beverages (like its own energy drink) and it’s been able to bolster business of late with new offerings like boba and a protein coffee (the protein comes from a high-protein milk).
Then there is the operations side of things: The stores are drive-through heavy and even feature runners who go out and take your order—and, if your drink is ready before you get to the window, there’s a separate “escape” lane you can use where the runner will deliver the drink to your car.
It’s been very popular in the southern U.S. and is proving to be a hit everywhere, which has management expanding like mad—the firm has 867 shops today, up a huge 22% from a year ago, with plans on opening 160 or so this year (another 20%-ish expansion) and eventually having at least 4,000 across the country, backed up by solid (though not amazing) newbuild economics (30% cash return in year 2).
That said, the post-pandemic period was rough due to both sales (boom early in the pandemic but same-store sales rose just 0.6% and 1.5% the past two years) and costs (labor and other costs moved up meaningfully), but those issues have been fixed: In Q1, same-store sales lifted more than 10%, while restaurant-level margins rose five percentage points, allowing earnings (nine cents per share crushed estimates of one cent) and EBITDA (more than doubled to $54 million) to kite higher. Wall Street sees more of the same ahead, with 26% top-line growth this year and north of 20% next year while earnings push ahead. It’s a good story.
Technical Analysis
BROS hit a high of 81 in late 2021 after coming public and proceeded to steadily bump downhill from there, hitting as low as 18 in May 2022 but then repeatedly testing the 23 to 27 area for the next year and a half—including tests of that area this year in February and May. But now we’re thinking a turn has come, with the hugely bullish earnings reaction (second heaviest volume week since the IPO, many big-volume buying days) telling us big investors are starting to accumulate. Stop — 31
The Covered Call Trade
Buy Dutch Bros (BROS) Stock at 36.5, Sell to Open July 37.5 Strike Calls (exp. 7/19) for $1.50, or a Net Price of 35 or less
Static Return: $150 per covered call (4.28%)
Breakeven: 35
Covered Call Return (if assigned): $250 per covered call (7.14%)
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 35 or less. (In this case 36.5 minus 1.50 = 35. Or another example is you could pay 36.70 for the stock and sell the call for 1.70, which also equals 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
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Pan American Silver (PAAS) | 18.75 | 22 | 15.8 | June 19 -- $1.10 | $3.50 |
| Pinterest (PINS) | 41.5 | 42 | 35 | July 41 -- $2.75 | $2.60 |
| Oscar Health (OSCR) | 22.5 | 22.25 | 17 | July 22.5 -- $2.30 | $2 |
The next Cabot Profit Booster issue will be published on May 29, 2024.
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