The trade war has been an ongoing series of back and forth maneuvers, delays, retaliations, etc., which has put investors at a disadvantage and increased volatility across the market. Although frustrating, this has also opened up a few interesting opportunities with manufacturers who are still dependent on China but have distribution channels that protect them from many of the trade problems.
We are recommending a new bullish trade on Logitech International S.A. (NASDAQ:LOGI), a Swiss manufacturer of technology peripherals. Mostly, this consists of keyboards, mice, headphones and similar devices used by gamers and your average computer user.
LOGI’s position in Switzerland and strong distribution in Europe and Asia have insulated it from some of the profitability problems of manufacturers focused on U.S. retail sales. That makes it a good target for a bullish put write.
Strong Earnings Despite Trade Issues
The company has been able to use that position to its advantage, increasing operating margins 11-12% per year since the trade war began. That has increased cash flow, which LOGI has plowed back into dividends, buybacks, and acquisitions.
If you look at the company’s last earnings report, which was in late July, you can see that LOGI beat both earnings per share (EPS) and revenue expectations. That report came out right after a lot of volatility on the trade front.
During May and early June, the U.S. and China both raised tariffs, and the U.S. put Huawei on its “entity list” barring it from purchasing from U.S. companies. Then, China established its own unreliable entity list. LOGI’s earnings report only proved how resilient the company is to all this back and forth.
With resolution to the trade war in sight, we think this stock is a good name to trade on.
A Possible Break Above $42
From a technical perspective, LOGI is just on the verge of a breakout above $42 per share. However, because this is a little early, we want to be cautious about the entry and are recommending a lower strike price to reduce risk.
Daily Chart of Logitech International S.A. (LOGI) — Chart Source: TradingView
If the stock breaks above $42 as expected, we want to roll these puts out again to compound our short-term income as quickly as possible. Since a move above $42 isn’t guaranteed, selling a put with a strike around the $40 level, which could act as support now that LOGI is heading higher, is probably safer.
To find out which LOGI covered calls we’re selling—and to get access to our full portfolio of income-generating trades—sign up for a risk-free trial of Strategic Trader today.
InvestorPlace advisers John Jagerson and S. Wade Hansen, both Chartered Market Technician (CMT) designees, are co-founders of LearningMarkets.com, as well as the co-editors of Strategic Trader.