There is a lot of news in the financial world, but tariffs seem to top the list. While the Trump administration's new tariffs are all anyone can talk about right now, this is just the beginning of the story. It could end up being significant, or it could become trivial. We won't know for sure for at least several weeks, until we have a chance to see exactly what the president decides to do and how other countries react.
Higher interest rates are also a popular topic for journalists. For several years now, we have heard that rates are going to go up. And they most certainly will... someday. But we don't know exactly when someday will be. What I do know is that it's unlikely that it will be an issue for stocks in the near term.
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In theory, higher interest rates mean bonds will start paying out higher yields to bondholders, making them more attractive. Investors are likely to shift money from stocks to bonds when that happens. But at what point do bonds become more attractive than stocks?
I don't think it will happen until rates are significantly higher.
And of course, the overvaluation of the stock market always seems to be a popular topic... as is every earnings miss and every bit of economic news.
If you spend your day paying attention to the news, it can all become overwhelming at times. And while I follow the news (and try to keep you up to date on a variety of issues going on), I don't let it affect my overall strategy, which focuses on finding low-risk, high-income opportunities.
But occasionally, the news can act in our favor... like when traders overreact to news and provide optimal opportunities for income-producing trades.
An Attractive Tech Stock At A Killer Price
This week, I'm recommending an income opportunity in Analog Devices (Nasdaq: ADI). It's a stock that fared better than most in the recent selloff, a bullish indicator for the short term.
At the bottom of the chart is the stochastic oscillator, which is a popular measure of momentum. Bullish crossovers of the indicator tend to be followed by several weeks of rising prices in the stock.
More importantly, the indicator held up under selling pressure last month. In the bottom section of the chart, you'll see two dark grey lines. The lower grey line represents the "oversold" level of the indicator. Oversold extremes are reached when prices drop sharply. Previous declines in ADI pushed stochastic oscillator below this level (marked by the blue and purple lines crossing below the lower grey line).
But as you can see, the most recent price decline ended with the stochastic oscillator above that level. This indicates momentum traders used the selling as an opportunity to add to their positions. It also means that the likelihood of a significant decline in ADI is rather small.
I've written about this company before. ADI manufactures analog, mixed-signal and digital-signal processing (DSP) integrated circuits (ICs) used in electronic equipment. These technologies are used to convert, condition, and process real-world phenomena -- such as light, sound, temperature, motion and pressure -- into electrical signals. Its customers include Apple, Boeing and a number of other defense contractors, along with carmakers and chip manufacturers.
Growth in the demand for chips has led to a strong uptrend in ADI that can be seen in the long-term chart below.
The Internet of Things, driverless cars, and other new technologies should provide even more demand for ADI's chips, and that makes the company attractive for the long term.
Both the company's management and market analysts agree with my assessment. ADI released Q1 earnings at the end of February, in the midst of the market selloff. Analog Devices reported earnings per share (EPS) of $1.42 and sales of $1.52 billion -- exceeding analysts' expectations for EPS of $1.29 and sales of $1.50 billion. Despite a strong report, the downtrend in the market pushed the stock lower.
For the current quarter, Analog Devices expects to earn $1.37 a share on sales of $1.47 billion based on the midpoint of its guidance. This is also above analyst expectations, which are for EPS of $1.24 and sales of $1.45 billion for this quarter.
After the news was released, at least seven analysts raised their price targets for ADI.
B. Riley FBR was the most bullish, raising its price target to $122 from $113, and noting in its report that the company should benefit from such tailwinds including 5G wireless infrastructure, Internet of Things, advanced driver-assistance systems and self-driving cars.
While the long term does look promising, I am focusing on the short run with an option that expires in less than two months.
How I'm Trading This Stock -- Without Buying A Single Share
If you're interested in catching some of the potential upside, you can always buy shares of ADI and wait for further positive earnings surprises... if they happen.
But I found a better trade... I plan on trading ADI a fourth time -- and guarantee that I will collect 3.1% in income in just a little over a month. That's a more-than-comfortable 26.7% annualized. And all without buying a single share of the stock. This trade uses a high-income, short-term put option on ADI.
Now, I understand not everyone is comfortable selling options, but you shouldn't let that keep you from taking advantage of this tool. The truth is, options can be as risky or conservative as you want them to be. It all depends on the strategy you're using.
My strategy is one of the safest around. In fact, I'm making a guarantee to new subscribers to show how low-risk options can be:
If you follow along with my trades and don't make money at least 90% of the time... I'll work for you for free. That's how confident I am.
In fact, right now every single one of my options expiring this month is in the green -- meaning my readers and I are on track to simply pocket the easy cash we earned selling them.
I recently released a special report that will tell you everything you need to know, including how my readers are making about $568 a week from selling options. There's even a list of three questions to ask yourself to help determine if you're ready to trade options. Simply follow this link to check it out.