Investors Are Buying this Dip, and You Can Sell Puts on Logitech

This week’s news about the Pfizer (NYSE:PFE) vaccine sent many stocks higher, but some of the stocks that have benefited from the trends towards distance education, remote work, and at-home entertainment were hit pretty hard.

We feel that in most cases, the market overshot its expectations that such an announcement would trigger an immediate return to normal. A reversion to the mean in the short term would be pretty typical.

There is probably a valid argument for some of the most extraordinary high-flyers, like Zoom (NASDAQ:ZM), to come back to a more reasonable valuation.

However, we think the selling was too aggressive on some stocks, including today’s recommendation. Logitech (NASDAQ:LOGI) has benefitted from changes in consumer behavior during the pandemic but also has solid underlying value beyond this temporary issue.

We think the trends in favor of remote work and esports that have been accelerated — as opposed to created — by the pandemic. And they should be more than supportive enough for LOGI to rise higher in the short term.

What LOGI Does and Why the Company Benefited from the Pandemic

LOGI isn’t a new trade for us, though the last time we recommended it in Strategic Trader was over a year ago.

LOGI is a Swiss manufacturer of technology peripherals. Mostly, this consists of keyboards, mice, headphones and similar devices used by gamers and your average computer user.

When we last checked in with the stock, it was doing well because it was insulated from issues created by the U.S.-China trade war — remember that?

Because of its position in Switzerland and strong distribution in Europe and Asia, it avoided some of the profitability problems of manufacturers focused on U.S. retail sales.

Given that the Swiss economy is expected to slide less than previously feared, LOGI’s location may have helped it again during the pandemic. But more likely, as the company previously said, it has benefited from the new trends in the market. As Reuters reported:

 The maker of keyboards, mice webcams and headsets said it was benefiting from a shift to working from home during the Covid-19 pandemic.

It now expects annual sales to increase between 35% and 40% in constant currencies, up from its previous view for a 10% to 13% increase.

For the year to the end of March it expects non-GAAP operating income of between $700 million and $725 million, up from its previous forecast of $410 to $425 million.

With results like that, it’s only natural that investors would worry about the end of the work-from-home trend. But working from home was on the rise well before this pandemic was underway.

Computer Economics published research earlier this year showing that while more than 60% of IT firms didn’t allow their workers to telecommute in 2008, that number had dwindled to just 8% by 2019.

From their report:

“Many business leaders are learning a hard lesson in 2020,” said Tom Dunlap, research director for Computer Economics, an Avasant company. “What’s the lesson? Having robust, companywide telecommuting capabilities in place — even if only used one or two days a week — should be deployed as a contingency measure during pandemics or other natural disasters.”

The eventual return to normal — which is still a long way off even with a vaccine — may slow down the work-from-home trend that has benefited companies like LOGI, but it won’t end them.

A Short-Term Position Based on Short-Term Support

We think investors have already taken our side in this argument, and you can see it in LOGI’s chart.

The stock sold off after PFE’s vaccine news came out, reaching the bottom of its earnings gap. That is usually a strong technical support level, which was confirmed yesterday as investors look for dip-buying opportunities.

We think the bottom of that earnings gap — the $75 level — gives traders an excellent strike price for a short-term put write.

Because the stock has been so volatile this week, premiums are inflated, which is a good thing for option sellers. If the stock closes the earnings gap again, traders will be in good shape to take some early profits off the table by buying back their short puts.

On the date of publication, John Jagerson & Wade Hansen did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

John Jagerson & Wade Hansen are just two guys with a passion for helping investors gain confidence — and make bigger profits with options. In just 15 months, John & Wade achieved an amazing feat: 100 straight winners — making money on every single trade. If that sounds like a good strategy, go here to find out how they did it.


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