The U.S. jobs report came out at 8:30 a.m. on Friday. The U.S. economy added 142,000 jobs in August, with the unemployment rate falling 10 basis points to 4.2%. While the number of jobs created was 16,000 lower than expected, it was still decent.
Yesterday's ADP National Employment report showed that non-farm payrolls increased by 99,000 in August, the smallest increase in over 3.5 years and much less than the 144,000 expected. That had investors worried about what today’s report could bring.
The S&P 500 is down 1% in morning trading on concerns the Federal Reserve will only cut interest rates by 0.25% rather than a half point.
In today’s commentary, I’m looking to go dumpster diving for stocks exhibiting unusual call options activity from Thursday’s trading. I aim to find three call options you can buy for $100 or less that will make you money.
Have an excellent weekend!
Palantir Technologies
As AI stocks go, I have become very enthralled by Palantir Technologies (PLTR). CEO and co-founder Alex Karp is one interesting guy. The New York Times’s Maureen Dowd wrote a piece about him in mid-August. It’s a good read.
The company built and launched AIP (artificial intelligence platform) about a year ago, its fourth software platform. The other three are Palantir Foundry (data integration and analysis for businesses and government agencies), Palantir Gotham (data analysis for military and law enforcement agencies), and Palantir Apollo (which helps the other three manage software updates.
It makes money from software subscriptions with commercial and government agencies and professional services provided to its customers to support their use of its software. Much of its revenue is recurring in nature.
As of June 30, its commercial customers accounted for 45% of its revenue, while governments accounted for 55%. Its AIP platform has helped increase its quarterly commercial revenue. Commercial customers grew by 83% year-over-year in the second quarter to 295.
I’m no tech nerd, so I'm paraphrasing what it does. I’m sure there are much better descriptions to be found online.
However, I find the dynamic between Karp (a Democrat) and co-founder Peter Thiel (a Republican) to be an interesting one that helps it grow its business.
The ask price of $0.16 is a down payment of just 0.5% on its $34 strike price. The option expires in a week, and you can double your money by selling it before expiration if its shares appreciate by $1.42 (4.7%).
The Barchart Technical Opinion says it’s a Strong Buy, so it’s more than possible in the near term.
Ares Capital
If you're unfamiliar with Ares Capital (ARCC), it is a BDC (business development company). BDCs are attractive to investors because they must pay out 90% of their taxable income to qualify as a BDC under Section 54 of the Investment Company Act of 1940, which allows them to avoid paying corporate income taxes.
Based in New York City, Ares Capital is the largest publicly traded BDC with a market cap of $13.2 billion. It is one of the largest direct lenders in the U.S. It makes debt and equity investments to U.S. middle-market businesses with EBITDA between $10 million and $250 million. It is externally managed by a subsidiary of Ares Management (ARES), one of the largest alternative asset managers in the U.S.
As of June 30th, it had invested in 525 companies operating in 23 Industries. The top three industries were Software & Services (24%), Health Care Services (13%), and Commercial & Professional Services (11%). Senior secured loans accounted for 67% of its $25 billion portfolio.
If you invested $1 in ARCC stock at its IPO in 2004, assuming you reinvested dividends, it would be worth $10.89, $3.84 higher than the S&P 500.
Its dividend yield is currently 9.2%.
For the call, the ask price of $0.20 is a down payment of just 1.0% on its $21 strike price. The option expires in 42 days, but you can double your money by selling it before expiration if its shares appreciate by $0.52 (2.5%).
The Barchart Technical Opinion says Buy. 12 out of 15 analysts rate it a Buy (4.40 out of 5).
VF Corp.
VF Corp. (VFC) stock appears to have bottomed on May 23 when it hit a 52-week low of $11, its lowest point since November 2008.
VF is best known for four brands: The North Face, Vans, Timberland, and Dickies, although it owns more. The apparel brand conglomerate is in the middle of a turnaround by former Logitech (LOGI) CEO Bracken Darrell.
Analysts remain on the sidelines despite several big moves—of the 20 that cover it, only four rate it a Buy, with 15 a Hold and one a Sell -- that included the sale of its Supreme streetwear brand in July for $1.5 billion. Based— on what it paid for it in late 2020, that was a $600 million loss.
“‘Given the brand’s distinct business model and VF’s integrated model, our strategic portfolio review concluded there are limited synergies between Supreme and VF,’ Fortune reported Darrell’s comments from July,” I wrote about VF’s move in early August.
I believe Darrell is the right person for the job. VF should be trading much higher in the next 18-24 months.
In my August article, I suggested that the $0.55 ask price for the Jan. 17/2025 $25 call was the bet to make based on its unusual options activity. As I write this, the ask price on this call is $0.41 with 133 days to expiration. To double your money by selling before Jan. 17, it has to increase in price by $2.66 (15%) over the next 19 weeks.
As for the Sept. 13 $18.50 call from Thursday, its ask price of $0.26 is a down payment of just 1.4% on the strike price. Expiring in 7 days, you can double your money by selling the option before expiration if its shares appreciate by $0.81 (4.5%).
So, between PLTR, ARCC, and VFC, your total investment based on one call per stock is $62. You can’t even get a decent meal for this amount anymore.
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.
