Stock Selection Example for a Potential Covered Calls Position

I thought you might be interested in an example of how I identified and researched a company this weekend as a potential candidate as a Covered Calls investment.  That company turned out to be Hologic Inc.

Step 1: Of the 3,500+ stocks with options, how do we narrow it down to a manageable number of companies to consider?  For me, I've found online stock screeners (available free from your broker or by subscription from investment services) to be a good tool to do this.

Step 2: Over the past several years, I've developed numerous screeners which are customized for different purposes.  For example, the one I used here is a "Large-Cap Value, Profitability, and Growth" screener.  I won't get overly detailed now by describing the nine metrics used in this particular screener, but the companies identified by it were: Rio Tinto Inc., HCA Healthcare, Laboratory Corp., Hologic, Inc., Pulte Home Group, McKesson Corp., NVR Inc., Anthem Inc., and Lockheed Martin.  By the way, only 9 stocks from this screen is the lowest number I can remember.  With the market at all-time highs, it seems like it is now more difficult to find good undervalued companies to invest in.

Step 3: As you might recall, I already have a current position in Rio Tinto (see link).  Looking at the numbers for these 9 companies and then reading further about each one, my interest narrowed further to Hologic, Anthem, and Pulte.  During the past several months, I had already done detailed research on both Anthem and Pulte (and had successful positions in both of them), so I decided to research Hologic in more detail using my Options and Company Checklist:   

 

Step 4: Make a decision.  Hologic seems like a great candidate for a Covered Calls position, but my one remaining question is the extent to which Hologic's dramatic increase in revenue as a result of the dramatic increase in Covid assays performed by their Panther machines during the past year will decrease during the upcoming year and the impact of that on this year's revenue and earnings.  I will see if I can find existing comments from Hologic's CEO or CFO and also from any other resources on this question.  If I can get a good answer to this question and I like what I learn, then I'll establish a Covered Calls position and of course will post it on this blog site on the same day the position is established.  If not, I'll be satisfied to have learned a lot about the company and it would remain on my radar to consider as a possible future investment.

 

Step 5: After making a decision on Hologic, then proceed to further reading, research, and thinking in search for other potential Covered Calls investment opportunities.  Remember, "Good stock selection is Job #1 for us Covered Calls investors".

 

Hope you found something interesting and useful in this post.  As always, please email me with any questions.

 

Best Wishes and Godspeed,

Jeff Partlow
partlow@cox.net