Play to Win Off of Tech Company Pulling Ahead of the Pack

Shah Gilani|January 31, 2022

Here’s the thing about Apple Inc (AAPL).

Over the last year, the stock has come down more than 10% – but that’s no surprise. Skittish investors concerned about rising rates have dragged down the whole tech sector.

But they may be humming a new tune now that this tech giant has reported its first-quarter earnings.

The company reported a record revenue of $123.9 billion, which easily beat analyst estimates of $118.66 billion and beat last year’s numbers by 11%. On the bottom line, earnings came in at $2.10 per share, which exceeded its $1.89 estimate and represented a 25% increase over the same period a year ago.

This is an incredible jump forwards for Apple, especially considering the company’s growing concerns that supply chain issues and chip shortages would hurt its sales. Instead, almost all of its product lines grew over the past year.

With Q1 solid numbers in the books, I like targeting AAPL, but let’s wait until the initial excitement cools down and the stock pulls back. I want to see Friday’s exuberance give way to some profit-taking before we move in.

If shares of AAPL trade down to $158.00 by February 11, let’s buy AAPL April 14, 2022 $160/$165 Call Spread for $2.25 or less. Plan on selling the position for a 100% profit or if shares of AAPL close below $147.00.

But that’s not all I’m watching this week.

The Only Company Rising on the DOW

Apple and Visa Inc. (V) were long stars on the DOW last week – but in addition to market success, Visa reported something exciting.

In addition to a neat revenue of $7.06 billion (an increase of 24% over last year) that beat estimates of $6.8 billion, the company revealed data showing that consumer spending is on the rise.

Payment volume for the quarter was $2.97 trillion, which represents a 20% increase (on a constant currency basis) compared to estimates of 15%.

And cross-border volumes (on a constant currency basis) were up 40% versus expectations of 26.5%.

That tells me that spending is on the rise as the pandemic eases and people begin traveling abroad – which bodes well for the company, and its investors, in the long run.

As a result of the strong quarter, shares of V were up more than 7.5% in early Friday morning.

That’s great, but I want to see the stock move above its 200-day moving average before committing any fresh capital to a trade.

If shares of V close above $225.00 by February 11, 2022, let’s buy the V April 14, 2022 $230/$235 Call Spread for $2.00 or less. Plan on selling the call spread for a 100% profit or if shares of V close below $209.00.

And lastly, I’m watching Robinhood Markets Inc. (HOOD).

The popular retail brokerage reported its fourth-quarter results last Thursday, which missed analysts estimates on several key metrics.

Revenue came in at $362.71 million, which missed estimates of $370.92 million, and adjusted earnings were a $0.50 loss, which was worse than estimates of a $0.42 loss.

Those numbers aren’t much of a surprise when you consider monthly active users declined 8% (quarter over quarter), and average revenue per user was down 39%.

Shares were down more than 10% in Friday’s premarket. That’s no surprise.

The stock had swung to a 4% gain by mid-day, though. That tells me the buy-the-dip crowd piled in hoping for a rebound.

Not so fast.

At this point, the company has missed analyst expectations for the last four consecutive quarters. That’s never good, and it’s showing up in the stock’s performance. Shares of HOOD are down 65% from the close on July 29, 2021 (when shares started trading publicly).

In the current rising rate environment, I think we could see another leg down as the market shifts capital to profitable companies with rock-solid balance sheets.

If shares of HOOD trade up to $13.00 by February 11, let’s buy the HOOD April 14, 2022 $10/$9 Put Spread for $0.40 or less. Plan on exiting the HOOD April 14, 2022 $10/$9 Put Spread for a 100% profit or if shares of HOOD close above $15.00.

What a start to the week… Let’s keep this going. You’ll be hearing from me about tomorrow morning with another stock play.

See you then,

Shah