This week I’m continuing to diversify my overall portfolio exposure by adding American subscription-based software company ZoomInfo (ZI).
Market Overview
Traders and investors managed to push the S&P 500 higher for the fifth straight week on the backs of continued earnings strength, dovish Fed speak and a strong October jobs report.
The S&P 500 rose 2.3%, the Dow climbed 1.4%, and the Nasdaq added 3.1%. Year-to-date the S&P 500, Dow and Nasdaq are up 25.1%, 18.7% and 23.9%, respectively.
The October jobs report on Friday and Fed announcements Wednesday were the big events last week, and both managed to please the bulls. Couple the positive economic news with 90% of the S&P 500 reporting higher revenues and growth, as well as positive Covid news from Pfizer, and it’s not hard to understand why the bulls continue to rule the day.
This week I’m continuing to diversify my overall portfolio exposure by adding American subscription-based software company ZoomInfo (ZI).
New Recommendation
The Stock – ZoomInfo (ZI)
Why the Strength
ZoomInfo has made Top Ten a few times this year, and for good reason: It boasts consistently strong earnings and revenue growth and has a unique growth story with some powerful secular tailwinds.
ZoomInfo has emerged as a leader in the customer relationship management (CRM) space, boasting a best-in-class “intelligence platform” that uses AI and machine learning of publicly available data (plus information sharing among clients) to dynamically update its contact data. It’s estimated that sales people spend a third of their time on legwork, so this solution makes it easier for them to develop leads and sell by doing much of the busy work for them (including gathering, tracking and entering data on potential clients from over 100 million companies and 130 million professionals).
ZoomInfo’s rapid growth is partly reflected in its client base of over 25,000 paying customers as of the third quarter, including 1,250 paying more than $100,000 annually—a figure that’s up 70% from a year ago (this group makes up 40% of subscription revenue).
The growth story continued in Q3, as the company delivered another quarter of accelerating operating margins and strong free cash flow. Revenue of nearly $200 million in Q3 was 60% higher from a year ago, while per-share earnings of 13 cents topped by a penny. International revenue growth, meanwhile, was higher by 80% in Q3. The company is also growing through acquisitions, buying Chorus.ai in the quarter, a leader in conversation intelligence (an estimated $18 billion opportunity).
Moving forward, ZoomInfo guided for Q4 sales of around $207 million (6% above consensus) and EPS between 12 and 13 cents (in line with estimates). We like this story a lot as it promises rapid, reliable and profitable growth for years to come.
Technical Analysis
After coming public last June, ZI established a 13-month post-IPO launching pad that seemed to give way in early August on a huge-volume, earnings-induced breakout. But the market wasn’t ready yet, so ZI chopped around for another three months between 60 and 70, and now it’s looking like the weak hands are out, with shares pushing to new highs last week on a great pickup in volume. It’s still choppy, but you can start a position here. Stop—63
The Covered Call Trade
Buy ZoomInfo (ZI) Stock at 74.30, Sell to Open December 75 Strike Calls (exp. 12/17) for $3.60 or a Net Price of 70.70 or less
Static Return: $360 per covered call (5.09%)
Breakeven: 70.70
Covered Call Return (if assigned): $430 per covered call (6.08%)
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 70.70 or less. (In this case 74.30 minus 3.60 = 70.70. Or another example is you could pay 75 for the stock and sell the call for 4.30, which also equals 70.70.)
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 |
| International Game Technology (IGT) | 28.10 | 31.00 | 22.5 | November 26 -- $3.50 | $5.00 |
| Builders FirstSource (BLDR) | 55.50 | 68.00 | 49.0 | November 55 -- $3.40 | $13.00 |
| Datadog (DDOG) | 157.60 | 195.00 | 135.0 | November 152.5 -- $12.50 | $42.50 |
| Marathon Oil (MRO) | 16.87 | 17.35 | 14.2 | November 16.5 -- $1.01 | $1.00 |
| Marvell Technology (MRVL) | 69.50 | 73.50 | 60.0 | December 70 -- $3.40 | $6.00 |
The next Cabot Profit Booster issue will be published on November 16, 2021.
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