This week I’m adding American supplier of camping supplies, recreational vehicles, parts and service, Camping World Holdings (CWH).
Market Overview
The holiday-shortened week started out fairly mundane, but ended with fireworks, as news of a new Covid-19 strain, Omicron, hit the stock market. The thinly traded equity markets didn’t take kindly to the news as the market saw its worst one-day loss in several months.
By week’s end, the Dow had lost 2%, the S&P 500 fell 2.2% and the tech-heavy Nasdaq dropped 3.5%.
The pullback was just another stark reminder that the pandemic, and policy risks, still exist and can throw the market off-kilter when you least expect it.
However, on Monday, the buy-the-dippers were back in action as all of the major indices advanced. Will the advance last? Recent history tells us yes. But, as always, we will keep a close eye on price action and act accordingly.
This week I’m adding American supplier of camping supplies, recreational vehicles, parts and service, Camping World Holdings (CWH).
New Recommendation
The Stock – Camping World Holdings (CWH)
Why the Strength
RV and camping equipment suppliers were among those that benefited from the pandemic, as many decided to hit the road last year as an antidote to cabin fever. And while some believe the outdoor recreation trend might be coming to an end as the economy returns to normal, Camping World, America’s largest retailer of RVs and camping-related products and services, sees no evidence of this.
Indeed, the company recently reported that demand is at an all-time high, thanks in part to a surge of retiring Baby Boomers and increasing interest from Millennials pursuing the “van life.” Record revenue of almost $2 billion in Q3 was 14% above the year-ago quarter, while per-share earnings of $1.98 beat estimates by 17 cents.
Further underscoring the momentum was a record EBITDA tally that was up 33% from last year’s record Q3. Another indication that growth prospects for Camping World haven’t diminished was record cash flow for Q3, prompting management to raise cash flow guidance for full-year 2021.
The company also increased its full-year EBITDA guidance from a midpoint of $850 million to around $920 million (up 8%). But Camping World isn’t assuming these trends will last forever and is expanding into other areas; it recently started a peer-to-peer RV rental platform, which it believes will increase sales while potentially converting rental customers into RV owners. The company also unveiled its first Electric World location in Utah with plans to sell prototype electric camping trailers and, eventually, electric RVs.
But the big idea here is that the massive surge in demand from 2020 looks durable—analysts see earnings up 22% this year even after a record 2020, with the bottom line staying elevated in 2022 as well. The big 4.4% dividend adds a nice bow to the package.
Technical Analysis
After running up from 25 in January to just shy of 50 by May, CWH fell nearly 30% last spring and was a choppy performer for the next several months. But the net effect of the turbulence was the establishment of a lateral base between 35 and 44, and things have been improving of late—the Q3 earnings reaction in early November was bullish, and the stock is now up five weeks in a row.
We’re OK with a small position here or on dips, and possibly adding if CWH (and the market) heads up from here. Stop—39.50
The Covered Call Trade
Buy Camping World Holdings (CWH) Stock at 45, Sell to Open December 45 Strike Calls (exp. 12/17) for $1.70 or a Net Price of 43.30 or less
Static Return: $170 per covered call (3.92%)
Breakeven: 43.30
Covered Call Return (if assigned): $170 per covered call (3.92%)
** Please note, not included in the returns above is the potential $0.50 dividend that we may capture in mid-December **
Also 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 43.30 or less. (In this case 45 minus 1.70 = 43.30. Or another example is you could pay 46 for the stock and sell the call for 2.70, which also equals 43.30.)
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 Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Marvell Technology (MRVL) | 69.50 | 75.00 | 60.0 | December 70 -- $3.40 | $6.50 |
| Zoom Info (ZI) | 74.00 | 70.00 | 63.0 | December 75 -- $4.00 | $1.50 |
| Goodyear Tire (GT) | 22.93 | 21.00 | 19.5 | December 23 -- $1.17 | $0.40 |
The next Cabot Profit Booster issue will be published on December 7, 2021.
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