Good morning!

WBA/Yodi – You have Boots in Europe – have people stopped going?  I guess that guy doesn't like them but he still went there to get his shot.  Revenues and profits are back to 2019 levels, heading towards $4Bn per year and you can buy the whole company for $43Bn.  Do you know who you buy drugs on-line from in the US?  WBA!  The big pharmacies are also the big on-line sellers.

And look how crazy this is:

Are they going to have huge growth?  No.  Can we make 300% on a spread that's better than 80% likely to pay off?  Yes.  So I like them.  

You can sell 2024 $40 puts for $5 and that's net $35, which is $15 (30%) below the current price and would drop the PE down around 7 – so I consider that free money but, for a spread, I'd be more aggressive and sell the $50 puts:

• Sell 5 WBA 2024 $50 puts for $10 ($5,000) 
• Buy 10 WBA 2024 $35 calls for $15.60 ($15,600)
• Sell 10 WBA 2024 $45 calls for $9.50 ($9,500) 

That's net $1,100 on the $10,000 spread that's 100% in the money so start so all WBA has to do is not go lower and you make $8,900 (809%) in two years and that should cover your deductibles quite nicely.  Break-even is way down at $41, so WBA can drop 20% before you are out of pocket and worst case is owning 500 shares at $41.10 but then you can roll to lower strikes further out.  

So, you can keep hating on WBA all you want, Yodi, but I'm going to keep pointing out what an excellent value play they are.  

Walgreens (WBA) has certainly earned its title as one of the dogs of the DOW, given its underperformance and high dividend yield compared to its peers in the index. It’s easy to forget, however, that this stock was actually a Wall Street favorite just 4 years ago, with a share price in the mid-$80s and a healthy PE valuation.

While Walgreens has its share of headwinds, I believe the doom and gloom has been priced in, and see reasons to be optimistic about its future. In this article, I explore what makes WBA a worthy Buy in today’s expensive market for potentially healthy long-term returns, so let’s get started.

Why WBA Is A Buy

Walgreens Boots Alliance is a global leader in retail pharmacy with a 120-year history in this space. It has more than 21,000 stores in all 50 states and 11 countries, and was included in the Fortune 2021 list of the World’s Most Admired Companies. At present, WBA has the largest retail pharmacy market share in the U.S. at around 20%, giving it significant cost advantages and scale, and in addition, has a 26% stake in the drug distribution giant, AmerisourceBergen (ABC).

 

Starting with the negatives, it’s no secret that Walgreens has come under pressure in recent years, despite its scale advantages over smaller pharmacy chains. This is reflected by the decline in gross margins from just under 30% back in 2013 to 20% over the trailing 12 months. This was a result of ongoing reimbursement pressures as it relates to generic drugs and the growth in negotiating leverage that PBMs (pharmacy benefit managers) have over retail pharmacies.

Plus, the overhang of e-commerce juggernaut Amazon (AMZN) entering into the pharmacy space as well as the potential for an increase to the corporate tax rate only added fuel to the fire. These are the primary reasons for why Walgreens’ price has fallen substantially in recent years, and trades at a forward PE of just 10.7.

While these are legitimate reasons to be concerned, I do see reasons to be optimistic around the future for WBA. For one thing, the recent divesture of the Alliance Healthcare business (pharmaceutical distribution in Europe) to AmerisourceBergen enables management to be more focused around WBA’s core pharmacy business, while providing capital to fund business transformation efforts and pay down debt.

Walgreens has also proved the need for physical retail locations, considering that it’s administered over 9 million COVID tests, and over 25 million vaccines to date, with 95% of its locations administering shots. Plus, WBA’s revenue solidly bounced back during the third quarter (ended May ’21) with a 12% YoY increase, landing at $34 billion, which beat expectations by $560 million. It’s worth noting that WBA’s Q3’21 revenue now sits above the $29.9 billion in Q4’19 (pre-pandemic). Free cash flow also improved by 36% to $3.3 billion, and management is guiding for 10% EPS growth this year.

(Source: Q3’21 Investor Presentation)

Looking forward, I see a company in motion, as management aims to deliver $2 billion in annual cost savings by FY 2022. One of the ways to achieve this is by modernizing and automating its pharmacies, as highlighted by WBA’s investment in iARx, which aims to bring together pharmacy automation with enhanced workflow capabilities.

 

In addition, WBA is ramping up personalized offerings through membership of myWalgreens, which saw 34% YoY membership growth. This helps to enhance WBA’s omnichannel capabilities, with 6 million curbside, drive-through, and last mile delivery orders completed since program inception. Lastly, the company is making good progress in its business transformation efforts. This is reflected by positive market reception and accelerated rollout of its VillageMD offering along with expansion of its testing and diagnostics business inside stores, as noted by management during its recent conference call:

 

We are also accelerating our rollout plans with VillageMD following continued positive patient response. We have already opened 46 sites, and we have identified a further 35 locations to be opened by the end of this calendar year. This will bring the number of co-located sites to approximately 80 by the end of this calendar year.

In addition to these physical co-locations, we formed an integrated virtual healthcare collaboration with VillageMD in an additional nine Walgreens locations. This will give patients access to the same expanded pharmacy services that are available at the co-locations. Finally, building on our success in COVID testing, we are developing our testing and diagnostics business to provide a wider range of solutions for our customers going forward.

Balance Sheet and Dividends

Walgreens maintains a prudently managed balance sheet, with $1.35 billion cash on hand, and a BBB credit rating from S&P. It repaid $2.8 billion worth of long-term debt at the end of FY 2020, and currently has a net debt to TTM EBITDA ratio of 3.2x. I would expect for the leverage ratio to trend down, as we move away from the pandemic months of last year.

Meanwhile, WBA pays a relatively high 3.7% dividend yield with a low payout ratio of 39.7%. Let’s also not forget that WBA is a dividend aristocrat, with 46 years of consecutive annual raises.

The low payout ratio enables the use of retained capital to further business transformation efforts currently underway. As seen below, WBA’s dividend yield now sits at the highest level outside of the pandemic timeframe.

Note: The 3.6% yield is based on TTM. Forward yield is 3.7%.

SPWR/Pman – Got to check our portfolios in case we need more cowbell!  

Future is Now:

This is a $75,000 position at net $32,025 so plenty of upside and we're almost 100% in the money.  We'll sell 2024 puts when these are closer to expiration or if earnings are good enough to make them very unlikely (they kind of are already), the $25 puts are $6.25 so we'll get some nice money for those too.   Actually, I can't believe you can still get $2.55 for the 2023 $20 puts – talk about free money!  

LTP:

Here we have a $112,500 spread – essentially the same one, at net $42,525 so the upside if SPWR can make it to $35 over the next 12 months is $69,975 (164%) – not a bad ROI.  

Money Talk:  

I am sad we can't add to this (we only make changes on TV).  This is a $15,000 spread that's 100% in the money at $8,750 so there's no reason to take it off but I'd add another leg if I could.

The leg I would add since the MTP is up 107% and has $167,589 out of $207,249 in cash is as follows:

• Sell 10 SPWR 2024 $25 puts for $6.25 ($6,250) 
• Buy 25 SPWR 2024 $30 calls for $12 ($30,000)
• Sell 25 SPWR 2024 $40 calls for $9.25 ($23,125) 

That's net $625 on the $25,000 spread so $24,375 (3,900%) upside potential at $40 and our worst case is owning 1,000 shares at $25.625/share, which is 22% below the current price.  When you REALLY want the worst-case to happen – it's a good spread!  This is too good not to take so let's put it in the Earnings Portfolio!    

Why so aggressive on this one (usually we go a bit more in the money)?  Because I like the no-cost trade ahead of earnings and it will be cheap to roll the long calls lower (the $25s are now $14.50, the $20s are $16.75) so we're just keeping the money on the side for a rainy day.  If SPWR pops, we'll just have to be content making 3,900% in two years.  

Oops, Webinar time! 

STP is still at $110,127 but LTP is up about $50,000 at $2,184,005 and we're swimming in CASH!!! ($1,770,548) so yes, let's add IBM and INTC to the LTP (and I'm open to other suggestions):

IBM – We wanted to sell the 2024 $125 puts for $25 but they are only $22.50 so far.  Still, the target is right – I was just wrong about the price of the options as the VIX has improved so much.  No harm in moving up to the $130s as I'd rather have my $2,500 than worry about paying $5 more for IBM and net $105 is still very nice, so:

• Sell 10 IBM 2024 $130 puts for $25 ($25,000) 
• Buy 30 IBM 2024 $125 calls for $13.30 ($39,900)
• Sell 30 IBM 2024 $150 calls for $6.50 ($19,500) 

That's a net $4,600 credit on the $75,000 spread that's at the money to start so, at $126, we make $3,000 on the calls and lose $4,000 on the puts, so that's about the break even and worst case is we end up owning 1,000 shares of IBM for about net $123.50.  Upside potential at $150 is a lovely $79,600 (1,730%) and plenty of room to adjust or even sell short calls along the way.

INTC has also made a good bottom so, also for the LTP, let's:

• Sell 20 2024 $45 puts for $6.25 ($12,500)
• Buy 40 2024 $40 calls for $13.($52,000) 
• Sell 40 2024 $55 calls for $6 ($24,000) 

That's net $15,500 on the $60,000 spread so only $44,500 (287%) upside but it's 2/3 in the money to start so I'm very comfortable with this "risk".  

Rocket Mortgage technology will be available over Salesforce financial cloud

RKT +1.93%Oct. 29, 2021 1:43 PM ET3 Comments

• Salesforce (CRM +0.1%) will make Rocket Mortgage's (RKT +3.0%) mortgage origination technology available to banks, credit unions and other financial institutions through Salesforce Financial Services Cloud.
• The move is intended to increase Rocket's (NYSE:RKT) market share in the U.S. Of the 5,000 FDIC-insured banks and more than 5,000 credit unions in the U.S., "most have disparate partners and technology vendors that handle home loans for them," the company said.
• "This will be the first time a home lender will provide an end-to-end 'mortgage-as-a-service' solution through Salesforce Financial Services Cloud – a platform that thousands of financial institutions already heavily rely on," said Rocket Companies (RKT) Vice Chairman and CEO Jay Farner.
• The partnership builds on Rocket's (RKT) existing relationship as a Salesforce customer.
• In August, Rocket (RKT) stock surged after Q3 guidance, CFRA upgrade.

That's a pretty good model for RKT and they are reasonably priced, I think (hard to tell as they are pretty new to profits).  

That's a good statistic to build on.  

What's keeping them down is a class action lawsuit from the shareholders who bought in the spike:

These are usually BS but you do have to be careful with them.

Still, that's a great catalyst and it's a $16.13 stock so how about we promise to buy 1,000 shares in the Future is Now Portfolio and build this spread:

• Sell 10 RKT 2024 $15 puts for $4 ($4,000) 
• Buy 25 RKT 2024 $13 calls for $6.25 ($15,625)
• Sell 25 RKT 2024 $20 calls for $3.50 ($8,750) 

That's net $2,875 on the $17,500 spread so that's a nice $14,625 (508%) upside potential at $20 or more and anything over $15 is in profits.  Worst case is owning 1,000 shares at $15 + $2.875 if it all goes to hell.

This is the most actionable item from the news this morning:

Moderna, Pfizer forecast for a combined $93.2B in COVID vaccine sales in 2022 – FT

• Pfizer (PFE) is projected to have $54.5B in COVID vaccine revenue, while the figure for Moderna (MRNA) is $38.7B.
• Airfinity says its estimates are supported by middle- and high-income countries buying booster shots.
• The firm said that other manufacturers, including AstraZeneca (NASDAQ:AZN), Johnson & Johnson (NYSE:JNJ), and Novavax (NASDAQ:NVAX) will bring in $124B next year.

PFE's TOTAL SALES in 2019 were $41Bn and $42Bn last year so shots were not a big revenue item last year as shots didn't start until right at the end of last year.  Projected sales for 2021 were $80Bn and that seems right but, at $54.5Bn, 2022 estimates of $71.4Bn are way too low and that means earnings projections of $21Bn are way too low.  PFE is only trading at $232Bn at $41.50 so that's – you guessed it – way too low!  

Even better for MRNA as last year's sales were $800M, this year $20M and next year projected at $20Bn, both with about $12Bn in profits but WAY TOO LOW by about 50%.

Of course, the thing about MRNA is that, after Covid, they go back to $1Bn in sales so paying $130Bn for them at $335 is a little iffy (we did just sell 5 2024 $200 puts for $25 in the LTP – still good for a new trade – so we'll leave them alone.

PFE, however, was cashed out of the LTP but it does seem like they have another great year ahead of them, even without more variants and, of course, they have $40Bn in regular sales to fall back on.  So, while they are low in the channel, let's get back into PFE in the LTP with the following:

• Sell 15 2024 $35 puts for $4 ($6,000) 
• Buy 25 2024 $35 calls for $8.50 ($21,250)
• Sell 20 2024 $45 calls for $4 ($8,000) 

That's net $7,250 on the $25,000 spread that's more than half in the money with $17,750 (244%) upside potential.  The plan would be to sell 10 March $45 calls, which are now $1, for $2, which should happen when PFE hits $45 (since the delta is 0.28) and that would be $2,000 using 151 of the 823 days we have to sell so 5 or 6 of those sales will pay for the whole spread and our worst case would become owning 1,500 shares for $35 ($52,500), which is fine for the LTP.

This is the point of reading all this news – once in a while we come across actionable items but you can't limit yourself to just reading things that mention stocks you are already watching – you have to let the news lead you to stocks or sectors that are interesting and then our training in spotting undervalued stocks and using options does the rest.   Spend a little time reading and investing and PRESTO! – you have a nice portfolio!  

BABA/Pman – Yes, way too low at the moment.

Coinbase stock climbs as waitlist for NFT platform gets 1.35M signups

• Coinbase Global (COIN +5.3%) stock advances after the crypto exchange platform signed up more than 1.35M people as of this morning for its not-yet-launched non-fungible token platform (NFT) platform, according to a note from BTIG analyst Mark Palmer.
• That's more than the 300K+ users on OpenSea, the world's largest NFT marketplace, Palmer wrote in a note to clients. He reiterates his Buy rating and price target of $500.
• The company plans to launch Coinbase NFT, a peer-to-peer marketplace through which users could mint, collect and trade NFTs, and on Tuesday opened a waiting list for users to get early access to the platform.
• Palmer sees the NFT platform "offering promise of new, higher-margin revenue stream" as part of its "accelerating diversification effort."
• The BTIG analyst estimates the new platform could add $137.5M to Coinbase's (NASDAQ:COIN) revenue, or about 2% of Palmer's full-year 2021 revenue estimate.
• The Buy rating aligns with the Bullish SA author's rating of 3.58 and the Bullish Wall Street analysts rating (9 very Bullish, 5 Bullish, 6 Neutral, 1 Bearish).
• On Wednesday, ViacomCBS teamed up with RECUR to enter the NFT word.

COIN is kind of interesting as they are well below their IPO price but NFT is a whole other (and more realistic) revenue stream for them, in addition to being a crypto exchange.  They are making about $1Bn per Q and $260 is $67Bn in market cap – so not too bad, actually.  Good one for the Future is Now Portfolio so let's add:

• Sell 2 COIN 2024 $200 puts for $44 ($8,800) 
• Buy 5 COIN 2024 $200 calls for $105 ($52,500) 
• Sell 5 COIN 2024 $300 calls for $70 ($35,000) 

That's net $8,700 on the $50,000 spread that's over $25,000 in the money with upside potential of $41,300 (474%) – the future is fun!  

In the LTP, let's just sell 5 of the 2024 $200 puts for $44 ($22,000) just to keep an eye on them.  We either own them for net $156 ($78,000 – 40% below the current price) or we just keep the $22,000 – I'm good either way…

And, of course, we wouldn't go in at $156 as we'd roll and sell calls, etc so it's doubtful we're even committing more than 1/2 of a $100,000 allocation block to this one.  

Our Money Talk Portfolio has 6 strong trades that are all good for new with huge upside potential!  

Money Talk Portfolio Review:  This one is easy as we can't touch it between shows and I was last on TV on September 1st, when we added BYD and HPQ while cashing out of IBM.  At the time, the porfolio was up 95.9% at $195,906 and, at last month's review, we had made no progress at $194,944 but this month we're up 100.5% at $200,491 so congratulations to all who played along at home.

We have $167,589 (83.5%) in CASH!!!, so we're not too worried about the market dropping.  I should be on the show again around Thanksgiving, where we'll be picking our 2022 Trade of the Year, which is likely SPWR, which we already have, though T is becoming a contender as it gets cheaper and cheaper.  

• BYD – Great gains already as we sold plenty of premium and the stock popped already.  It's a $40,000 spread we paid just $6,760 for and it's already at net $11,950 for a $5,190 (76.7%) gain on cash in 6 weeks.  There's still $28,050 (234%) left to gain so still good for a new trade and it's designed to make even more money by selling more short calls along the way.  

• GOLD – Another potential candidate for stock of next year having slipped back below $20.  This is a $30,000 spread at net $3,550 and we may need to buy more time down the road but I'm confident in the target.  Earnings are November 4th and we'll be very interested in what they have to say.  Upside potential is $26,450 (745%) so great for a new trade.  

• HPQ – Another new trade but this one took a bad turn to start.  It's a $20,000 spread and currently a net $4,740 credit so the upside potential is $24,750 (522%) from here – very nice if it works out.  

• PFE – They had a big pullback but, fortunately, we bought them ages ago for a very good price and set conservative targets so we expect to collect the full $7,000 on this spread, currently net $4,905 so $2,095 (42%) left to gain over the next 16 months.  

• SPWR – Should have doubled down on this one!  It's a $15,000 spread that's in the money at net $7,088 so all SPWR has to do is not fall below $25 and we make $7,912 (111%).  Aren't options fun?  

• VIAC – Maybe this will be our Stock of 2022!  This portfolio is full of amazing bargains.  Here we have a $30,000 spread that's $18,000 in the money at net $10,150 so we have $19,850 (195%) upside potential if VIAC ever wakes up.  If they are just going to give money away, you should take it!  

Here we have 6 option spreads using very little cash ($32,903) in a portfolio we only adjust live on TV once per quarter and we're already up over 100% and the trades we have open have the potential to make another $109,107 (109%) over the next 16 months.  

That means, right now, you could initiate this portfolio for a cash outlay of $32,903 and make $109,107 (331%) if all goes well so, PLEASE, don't tell me there's nothing good to trade!  

What fun gyrations we are having today.

BIG/Jeddah – They are a great value down here at $42.36 as that's $1.4Bn and they make a steady $200M/yr and made $600M last year, not less..  The earnings due to supply chain issues will go away eventually so it's perfect for a long-term investor.  We had a position in the LTP and closed it out around $60 but the original spread on 4/14 was 2023 $40 puts with the $45/65 bull call spread.  It's probably early to call for a re-entry but no harm in taking a small position we can scale back up in the LTP:

• Sell 10 BIG 2024 $40 puts for $10 ($10,000) 
• Buy 20 BIG 2024 $40 calls for $11 ($22,000)
• Sell 20 BIG 2024 $55 calls for $6.20 ($12,400) 

That's a $400 credit on the $30,000 spread and our worst case is owning 1,000 shares of BIG at $40 but then we could sell the 2025 $40 calls for $10 and more puts for $5 and we'd drop the net to $25 on our first 1,000 and maybe $35 for the next 1,000 so – as long as we don't mind owning 2,000 shares of BIG for $25 (40% off) – what's not to love?  

XRX/Yodi – We never followed through with them as we decided to cash out right after that pick but yes, I like them better now and, for the LTP, we can put in a placeholder by selling 10 2024 $25 puts for $7.85 ($7,850) as the worst case there is having to buy 1,000 shares at net $17.15, about 15% off the current price.  

Schnitzer Steel expects best Q4 operating performance since 2011

• Schnitzer Steel (NASDAQ:SCHN) +1.6% pre-market after providing above-consensusguidance for Q4, seeing adjusted EPS from continuing operations of $1.75-$1.83, well ahead of $1.57 analyst consensus estimate.
• Schnitzer says market conditions for recycled metals are strong, with average ferrous selling prices reaching their highest level since 2008 and nonferrous market selling prices trading at or near multi-year highs.
• Despite the impact of the fire at the company's steel mill in May, Schnitzer says it delivered its best FQ4 operating performance since 2011, with adjusted EBITDA expected at $78M-$81M.
• Schnitzer expects Q4 ferrous and non-ferrous sales volumes to increase 9% and 3% respectively, even though volumes were hurt by the delayed arrival of a ship and tight container availability.
• The company expects to generate $139M in operating cash flow in the quarter, reducing debt to $75M, its lowest level since 2005.

So SCHN is doing well (this is why we read the news) so maybe a good time for X or MT?   We played both of them last year and cashed out winners and now they've pulled back.

X is down to $6Bn at $22 and they expect to make $3.5Bn this year so I'd say that's a good one.  Last year they lost $1.2Bn but this makes up for it and infrastructure should be good for them. 

We certainly don't mind owning them for net $16 (25% off) so, for the LTP, let's:

• Sell 15 X 2024 $23 puts for $7.60 ($11,400) 
• Buy 30 X 2024 $15 calls for $10 ($30,000) 
• Sell 30 X 2024 $27 calls for $5.75 ($17,250)

That's net $1,350 on the $36,000 spread that's $21,000 in the money to start.  The put sale is aggressive but it's still a great spread if you sell less puts  or lower puts as the upside potential on this is $34,650 (2,566%) – so plenty of room to play with.  

Since we now have X again, let's just sell puts on MT for the LTP:

Sell 10 MT 2024 $30 puts for $7.50 ($7,500)

Our worst-case scenario here is owning 1,000 shares for net $22.50 (26% off) and MT is at $32Bn making $13Bn this year after losing $733M last year.  They should be consistently good for $3Bn+ so no worries owning them at $30, let alone $22.50.

Bonds getting crushed (rates moving higher):

I'm starting to like ReWalk (RWLK) and they are only at $100M with $75M on the balance sheet and no debt so I think they are a very fun penny stock ($2.42) to put into the Future Is Now Portfolio.  

This is great stuff and they have enough patents where I don't think they'll be buried by competition – more likely bought out by MDT or someone.  They've been held down by a court case in Germany (their biggest market) deciding whether or not the suit should be covered by insurance – that case should go in their favor.  Also, Sarcos (muscle augmentation suits) is going public via SPAC with ROT and that's going to be around $2Bn so it should be the catalyst RWLK needs to get back to $4.  As to the court case:

This case was advanced by one of the larger insurers in Germany. . . ruling as a direct compensation basically would eliminate any of the other challenges to the use of this product. Direct compensation is meaning does a ReWalk or an exoskeleton in general provide an ability to walk that you cannot otherwise get. If it were considered indirect compensation, it would suggest you could go back to a wheelchair. 

RWLK does not have long-term options but it's cheap and it does have options so let's buy 10,000 shares at $2.44 ($24,400) and sell 75 of the Jan $2.50 calls at $1 ($7,500) so we have some room to run and let's sell 50 Jan $2.50 puts for $1 ($5,000) so we get 5,000 more shares at net $1.50.  That puts us in 10,000 shares for net $11,900 ($1.19/share) and if mostly called away at $2.50, that's $25,000 so up $13,100 (and more) is a 110% gain in 119 days – not bad for the upside.  To the downside, if we're below $2.50 the short calls go worthless and we have the same $1.19 net and we have to buy 5,000 more for $2.50 ($12,500) and then we'd be in 15,000 shares for $24,400 or $1.62/share.  So our worst case is an 0.82 (33%) discount!