The healthcare industry has had its share of ups and downs, with most of the attention being showered on the biotechs that hope to produce COVID-19 vaccines. But after the recent outlook upgrade of today’s recommendation, investors may want to broaden their healthcare watch list.
Cabot Profit Booster 143
Despite the market’s 10% decline the Cabot Profit Booster portfolio continues to be in the right stocks—all four of our holdings are near recent highs. At some point we will have a stock go sideways, but until then we will aim to be in the strongest stocks, and will keep the portfolio diversified.
Which leads me to this week’s pick ...
The Stock – Owens & Minor (OMI)
The healthcare industry has had its share of ups and downs, with most of the attention being showered on the biotechs that hope to produce COVID-19 vaccines. But after the recent outlook upgrade of Owens & Minor, investors may want to broaden their healthcare watch list.
For the second time in three months, this provider of medical supplies and healthcare logistics and marketing programs upped its forecasts for 2020, which has reinvigorated the stock. In July, Owens raised its annual EPS guidance from $0.50-$0.60 to $1.00-$1.20. Now, the company says it expects EPS this year to come in between $1.75-$1.90! According to the firm, the growth is based on “better-than-expected manufacturing output and improved operating efficiencies.”
As you might expect, its personal and protective equipment (PPE) kits are in high demand—and being delivered ahead of schedule; the company shipped nearly five billion (!) PPE units from February through the first week of August.
But the industry has also caught a surprising updraft from the better-than-expected demand for elective procedures, which had fallen 40% to 80% during the shut-ins. They are now steadily rising, especially in Illinois (up 24%), Arizona (up 17%) and Texas (up 72.3%). Of course, all of this doesn’t make Owens a great growth outfit, but management is confident it can grow earnings at a double-digit pace in 2021 on top of this year’s boom, which isn’t bad at all, and could prove conservative if trends continue.
Technical Analysis
We took a swing at OMI back in July after it catapulted to new highs on earnings, but were knocked out a few days later on a big shakeout. Still, we’ve kept our eye on it, and while the stock meandered for many weeks after that, last week’s bumped guidance caused another big-volume eruption. Stop - 17
The Covered Call Trade
Buy Owens & Minor (OMI) Stock at 22.25, Sell to Open November 22.5 Strike Calls (exp. 11/20) for $2.50, or a Net Price of 19.75 or less
Static Return: $250 per covered call (12.65%)
Breakeven: 19.75
Covered Call Return (if assigned): $275 per covered call (13.92%)
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 19.75 or less. (In this case 22.25 minus 2.50 = 19.75. Or another example is you could pay 22 for the stock and sell the call for 2.25, which also equals 19.75)
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
