Happy Friday to Barchart.com readers.
This morning, the February jobs report came out, and it was surprisingly strong. The U.S. economy added 275,000 jobs, up from 229,000 in January. The unemployment rate, up two basis points to 3.9%, remained under 4.0% for the 25th consecutive month.
I live in Canada. I would love for our economy to be this strong, yet many Americans feel the economy is in bad shape. I guess it’s all relative.
If you’re building a nest egg for retirement, stocks remain your best bet to achieving your goals. The S&P 500 is more than 8% through the first 68 days of 2024 and 29% over the past year.
Today’s economic news on the jobs front suggests the markets will continue to do well over the final 297 days of 2024.
On Fridays, I find 2-3 unusually active options worth considering. In today’s iteration, I’ve selected three call options that were unusually active on Thursday, are excellent stocks in their own right, and can be bought for 5% or less down.
I hope you have an outstanding weekend.
Qiagen (QGEN)
First up is Qiagen (QGEN). The Dutch-based company “is one of the world's leading providers of technologies and products for the separation, purification and handling of nucleic acids DNA/RNA,” Barchart.com’s Qiagen overview page states.
Full disclosure: I was a terrible science student in high school. Understanding even the most basic scientific concepts requires too much brainpower, so you should do your due diligence.
Qiagen’s July 19 $50 call had a volume of 5,163 on Thursday, 23.58x its open interest. With 133 days to expiration, the ask price of $2.15 was a down payment of 4.3%. To consider exercising your right to buy 100 QGEN shares at expiry, its stock must appreciate by 18%—based on a $44.53 closing price—over the next 19 weeks.
The stock’s performance at most points over the past five years has been anything but good—its shares are up 11% over the past 60 months—so it’s easy to be doubtful that it could do so over the next five months.
In 2023, sales fell 8% year-over-year, while operating income was down 23%. Not inspirational. However, in Q4 2023, excluding currency, its non-Covid revenue grew 8%, with 4% adjusted earnings per share growth, to $0.55.
In 2024, it expects $2.0 billion in revenue, 2% higher than in 2023. Non-COVID revenue growth will be in mid-single digits in the year's second half, and 2024 adjusted EPS will be at least $2.10. It currently trades at 21x its 2024 earnings projection.
Analysts are lukewarm about its stock. Of the 14 covering it, eight rate it a Buy (4.07 out of 5) with a target price of $52.37, 17% higher than where it’s currently trading.
What is the best about this call? You can double your money selling the call before expiry if its shares increase by $5.92 (13.2%).
Its business is getting stronger at just the right time.
Microsoft (MSFT)
Who doesn’t want to own Microsoft (MSFT) stock? CEO Satya Nadella’s strong leadership has led to a 1,015% increase in the value of Microsoft stock in the past decade, and there’s plenty more to come.
Not that analysts are the be-all and end-all, but the 36 covering it rate it a Strong Buy (4.86 out of 5) with a $438.97 target price, 8% higher than where it’s currently trading. Up 61% over the past year, analysts are being conservative in their forecasts.
Microsoft supporters' biggest concern at the moment is the whole OpenAI situation and Elon Musk. The eccentric billionaire wants OpenAI to break its contract with Microsoft and become a non-profit again.
Musk wanted OpenAI to remain open-sourced and non-profit. Walter Isaacson, who wrote the book about Musk, appeared on CNBC recently saying that Musk was offered shares in the for-profit part of OpenAI; he said no, he didn’t want money but instead wanted to keep it out of the hands of Microsoft and Google.
In January 2023, Microsoft was rumored to have invested $10 billion into Open AI, on top of the $3 billion it had already invested, in return for 49% of the for-profit part of OpenAI.
However, according to the Financial Times, it does not have a stake in the company. Instead, it will receive up to 49% of the profits from OpenAI Global LLC, which controls that business.
Whatever the case, it is not going back to being exclusively non-profit, which provides Microsoft with another tremendous revenue stream. In many ways, it’s in a better position than Apple (AAPL).
The call in question is the Oct. 18 $460 call with an ask price of $16.50, a 3.5% down payment on 100 MSFT shares. Yesterday's Vol/OI ratio was 16.53, with a delta of 0.34539. If the shares rise by $47.77 (11.7% based on $409.14 closing price) over the next 224 days, you can double your money on the call by selling at $456.91, $20 shy of what you’d pay to exercise your right to buy 100 MSFT shares at a net price of $476.5o.
It's more than doable, nearly two-thirds of a year until expiration.
Berkshire Hathaway (BRK.B)
Berkshire Hathaway (BRK.B) is one of those stocks that everybody loves to follow. It might not produce massive returns like Nvidia (NVDA), but Warren Buffett has always been a great teacher of the markets. It’s an outstanding defensive stock—since 2000, it’s had 20 years of positive returns out of 24, compared to 18 for the S&P 500—that tends to do well in most economic scenarios.
Buffett’s 2023 shareholder letter is a must-read for anyone who cares about learning from one of the world's most level-headed people. This year’s version was an ode to the late Charlie Munger, whom Buffett called the architect of Berkshire Hathaway.
“In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire
has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect,” Buffett writes.
An excellent characteristic of a true leader is someone who shines the light on others rather than himself. Buffett is 100% that type of leader.
In 2023, Berkshire's operating earnings were $37.35 billion, 21% higher than a year earlier. However, if you remove the insurance businesses’ investment income, the operating earnings increased by a more modest 14% to $27.78 billion.
But that’s the beauty of Berkshire Hathaway. It wins and loses through its insurance operations. In 2023, they were on fire, accounting for 40% of its operating earnings, up from 21% in 2022.
While its BNSF railroad and Berkshire Hathaway Energy businesses had poor years on a relative basis, insurance more than picked up the slack. It is the best no-fee mutual fund you can own.
The call option is the June 20/2025 $450 strike with a $21.75 ask price. It doesn’t expire for 469 days (67 weeks), providing plenty of time to move from the low $400s to $472, the minimum price you need to reach to consider exercising your call.
Can it rise by 17% over the next 17 months? It can gain 1% on average each month. In the past 10 years, Berkshire’s stock increased by 12% or more (1% per month) in six years.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
