The stock market “gives” and the stock market “takes away” after 3 straight days of gains the market has turned down this morning.
This alert is the alert with “No Action” on 3 of our stocks that announced earnings this week. All 3 companies beat estimates and all 3 stocks are down today for a variety of reasons including the market sell-off. However, chasing declining stock prices with covered calls in this volatile of a stock market invites getting run over on the way back up. Let’s be patient this week on these 3 positions.
Blackstone (BX): 94.30
Blackstone’s earnings came out this morning with a solid $1.49 EPS and a beat of $0.04 while revenue rose to $4.15 billion beating estimates by $690 million. The other important number was total assets under management (AUM) at $940.8 billion, up 38% year-over-year.
A good report and continuation of strong performance for the company. Over the last 2 years, the Blackstone has beat earnings estimates 88% of the time and revenue estimates 75%.
And of course, Blackstone stock is selling off this morning down over 6%. Stripping out the success numbers, Wall Street didn’t like what it is saw in revenue decline from some of their core strategies including real estate, credit lending and private equity investments.
BX the company is well diversified but they still primarily play in the financial asset management and credit lending marketplace. With the stock market down, fees from assets are lower and the lending market is getting tighter.
Blackstone also declared a $1.27 dividend, a 3.8% decrease from the prior dividend of $1.32 … however the forward yield is still a solid 5.02% which is in our target range.
So where does that leave us?
Blackstone goes ex-dividend next Wednesday (7/27) and we don’t like to sell covered calls into a stock that is falling this fast. BX stock price could easily bounce 5% to 7% higher on a market rebound after the earnings news is absorbed and our calls could get run over.
Let’s be patient, hold the stock, and look to sell a covered call early next week closer to the ex-dividend date.
ACTION: No Action.
DOW Inc. (DOW): 50.41
Dow Inc. also reported earnings this morning. The company reported EPS of $2.31 beating estimates by $0.17 and revenue of $15.7 billion that beat estimates by $160 million. But revenue volumes at two of their three main businesses were down this past quarter. Their Performance Materials & Coating segment gains were reduced by higher energy costs across the company.
Dow stock is down around 3% and our 22 Jul 54 call should expire worthless. Let the 22 Jul 54 call expire worthless and we will sell a new call next week.
ACTION: No Action. Let the 22 Jul 54 call expire worthless.
IBM (IBM): 125.73
Same story as Blackstone and Dow. Solid earnings report by IBM reporting EPS of $2.31 over the $2.29 estimate and revenue of $15.45 billion beating by $360 million. However, the company reduced their full year free cashflow forecast primarily due to currency exchange rates and a slow-down in their European business.
Overall, Wall Street doesn’t like this kind of report from IBM because they are looking at IBM as a growth stock … and we (and others) tend to view the stock as a more stable, dividend value play as IBM has shed much of its traditional tech businesses and primarily plays in the more highly profitable cloud space.
The stock hasn’t been able to break through the $140 level and is down 12% from its recent high. While we haven’t been able to extract as much premium out of IBM this year as we did in 2021, we will stick with IBM for now as we expect the stock to stabilize and trade in the 120 to 130 range for a while where we can continue to sell covered calls.
We will let our 22 Jul 138 call expire worthless and look at re-entering a new call position sometime later next week.
ACTION: No Action. Let the 22 Jul 138 call expire worthless.
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