President Trump is at it again on Twitter this week…
You’ll recall, the last time his tweets flared up the U.S.-China trade war, we used it as an opportunity to enter a position in NXP Semiconductors N.V. (NXPI).
Back then, the stock was trading for roughly $78 and less than nine times forward earnings.
The investment thesis couldn’t have been more straightforward – the selling was overdone and the stock was simply too cheap.
Especially when we consider NXP represents a de-facto ETF on almost all the most promising and enduring tech trends, including…
Self-driving cars… electric vehicles… connected cars… voice assistants… 5G… mobile payments… wireless charging… IoT (both industrial and consumer)… artificial intelligence… robotics… machine learning… edge computing and security… cloud computing.
Fast-forward almost six months and our thesis is playing out.
Shares rallied as much as 40%, eliminating the extreme and undeserved discount. (The stock’s still cheap at roughly 11 times forward earnings).
More importantly, the company’s latest quarterly update indicates a rebound in the underlying business is in store for the second half of the year.
To be clear, NXP’s optimism isn’t based on wishful thinking about a favorable outcome to the trade war. Rather, it’s based on “specific design wins we have that will drive our revenue increase,” in the words of CEO Rick Clemmer.
So why bother selling now if the stock remains cheap and the future remains bright?
I’m not selling the stock.
I’m more than happy weathering any more trade war-induced volatility in shares. It won’t endure or overpower the company’s long-term growth drivers.
But I am selling the January 2020 $85 calls I also recommended. We purchased them for under $10 and they’re now trading for more than $20.
Should the trade war drag on – and temporarily drag shares down even more – we’ll start getting closer to expiration than I care to get. And in turn, closer to break even.
I’ve learned the hard way it’s better to take a 100% gain while it’s available rather than let it ride and run out of time.
I’ll share more on NXP’s compelling long-term fundamentals in a future update. Today, it’s all about taking (meaningful) profits while we can.