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Profit Booster
Make Money 3 Ways from Great Growth Stocks

January 4, 2022

This week I’m adding American worldwide manufacturing services company Jabil (JBL) to the portfolio.

Market Overview

Happy New Year!

The S&P 500, Dow and Nasdaq closed 2021 up 26.9%, 18.7% and 21.4%, respectively.

Moreover, the S&P ended 2021 with its best three-year stretch in over 20 years, up 72.1% cumulatively—an incredible stretch of positive returns, to say the least.

Now the focus turns to 2022 with a hope for continued good fortune. Where the market ends up is anyone’s guess. So, as always, we will take a conservative approach and allow the market to dictate our decisions.

This week I’m adding American worldwide manufacturing services company Jabil (JBL) to the portfolio.

New Recommendation

The Stock – Jabil (JBL)
Why the Strength
Jabil is helping some of the world’s biggest brands navigate today’s turbulent supply chain environment. The global contract manufacturer makes a huge variety of products and offers electronics design engineering and consulting services for clients across several major industries—including healthcare, automotive and semiconductors.

But it’s Jabil’s supply chain insights that are garnering interest right now, as touted in the firm’s results for fiscal Q1 2022 (released in mid-December). The Q1 top line of $8.6 billion rose 9% from a year ago and was 4% above estimates, while the bottom line of $1.92 per share beat the consensus by 12 cents.

The firm was confident enough in its outlook that it also raised its fiscal 2022 (which ends in August) earnings outlook by 20 cents per share, to $6.55, while predicting sales of around $32 billion; if both are realized, that would amount to year-over-year growth of 17% and 9%, respectively.

A major driver is Jabil’s biggest customer, Apple, for which Jabil makes iPhone and iPad casings, and which is expected to increase its iPhone offerings in the coming years. (Additionally, Jabil just announced a partnership with Carnival to make the cruise line’s wearable electronic boarding pass for passengers.) Buybacks remain a high priority as well, as Jabil repurchased 2.1 million shares in Q1 and has around $830 million left on its $1 billion buyback authorization.

Looking ahead, management guided for Q2 revenue of $7.4 billion and per-share earnings of $1.45 at the midpoint, both in line with estimates. The last attraction here is certainty, as the firm booked 98% of its estimated current-quarter revenue in the first 16 days of the quarter(!).

It’s not a great growth story, but the combination of a cheap valuation (12 times earnings) and steady, predictable results should keep big investors interested.

Technical Analysis
After breaking out of a big-picture base last March, JBL has been stair-stepping its way higher. The latest rest saw the stock consolidate for 12 weeks starting in September, which ended with shares kissing the 40-week line in November. And JBL has been strong since, with a positive earnings reaction boosting the stock to new highs. Stop—62.50


The Covered Call Trade
Buy Jabil (JBL) Stock at 71.50, Sell to Open February 70 Strike Calls (exp. 2/18) for $3.10 or a Net Price of 68.40 or less

Static Return: $160 per covered call (2.34%)

Breakeven: 68.40

Covered Call Return (if assigned): $160 per covered call (2.34%)

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 68.40 or less. (In this case 71.50 minus 3.10 = 68.40. Or another example is you could pay 70 for the stock and sell the call for 1.60, which also equals 68.40.)

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
Goodyear Tire (GT)22.9322.3019.5January 22 – $0.65$1.00
Pure Storage (PSTG)33.1532.3026.5January 33 — $2.25$0.70
Ciena (CIEN)74.2077.2564.0January 75 — $2.50$3.00
Alcoa (AA)55.2560.5044.5January 55 — $4.25$7.00

The next Cabot Profit Booster issue will be published on January 11, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chief Investment Strategist: Timothy Lutts
Cabot Heritage Corporation, doing business as Cabot Wealth Network
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