The automobile industry is booming…
AutoNation just broke records.
Despite the financial hardship that the pandemic has brought on, the automobile industry has been booming. New cars are continually coming to market, production has ratcheted up, and overall, Americans are shifting their attitude toward personal vehicles.
Pre-pandemic, we saw many Americans learning towards public transportation for an array of reasons. From cost-saving mechanisms to just not wanting the hassle – many just never saw the point. But now, coming out of lockdown, Americans want their own space and aren’t looking to share in the day-to-day.
And several companies have seen a boost from this – but there’s one that has caught my attention.
Where’s the money?
AutoNation is the country’s largest auto dealership – and recently, it just reported its best quarter ever. The company’s third-quarter revenue came in at $5.4 billion, totally eclipsing analysts’ expectations of $5.19 billion. Earnings-per-share rolled in at $2.38, which set a record and beat the $1.65 prediction Wall Street had tacked on.
The surge in demand makes sense, given the shift in attitude for consumers and unbelievably low-interest-rate currently available. And this demand isn’t just focused on one portion of the auto industry – now, we see all price points and new and used vehicles flying off the lot.
And here’s what I have to think about this increase…
How do I get some?
We continue to see stocks that do not require the consumer to go to the physical location soar. And we also continue to observe the automobile and real estate industry on fire. And it makes sense that people are spending a lot of time in their homes and avoiding public transportation when they decide to leave.
And truthfully, I don’t see the demand for specifically for automobiles slowing down. So, this impressive earnings report that Autonation posted isn’t the last piece of positive news we’ll see from this company. And that’s precisely why I’m adding this stock to my lineup.
Now, there’s no denying that we see substantial volatility in the market right now. But the best way to offset an uncertain market is with a risk-conscious trading strategy. And that’s why I’m looking at selling a put spread trade to add this automobile retailer to my portfolio.
Here’s how selling a put spread works: you buy one put option with a higher strike price while selling the same number of put options at a lower strike price (in the same transaction). This setup can lower the cost of entering an options trade while maintaining an acceptable risk to reward ratio.
Here’s how I’d do just that with Autonation (AN).
Sell-to-open AN January 15, 2021 $60 put and Buy-to-open AN January 15, 2021 $55 put, creating a vertical put spread for a $1.60 credit. If you agree, all you have to do is tell your broker that you want to Sell-to-open AN January 15, 2021 $60 put, and Buy-to-open AN January 15, 2021 $55 put for a $1.60 credit, and just like that, you’ve got skin in the game.
In the spotlight: This social media app has caught my eye…
Lately, in the live trading room, we’ve been seeing an influx of call buyers in Snapchat. And now, we know why. The social media app recently announced that it had 249 million daily active users at the close of the third corner. This number is an 18% jump from the same time a year later. This makes two quarters in a row that the app has seen an increase in users.
And that’s not the only thing increasing. The app also saw a massive jump in revenue, coming in at $679 million – an increase of 52% compared to the previous year. This set a company record high and bypassed Wall Street’s expectations as well.
Snapchat also revealed that the average number of snaps – which are disappearing photos and videos – created by users increased by 25%. On top of this, users also spent more time watching Snapchat generated content – growing by 50% year-over-year.
Investors reacted well to this news, and the stock saw a slew of buyers ran into the stock, which caused it to surge more than 24%. And the pandemic could be credited for this immense growth seeing that many we’re stuck at home and turned to social media for some form of entertainment. That’s why I’m going to be keeping a close eye on this stock in the near future. We could see even more people coming into this app as the pandemic continues.
And I’ll be sure to keep you updated.
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