Under Armour

Under Armour

Posted On January 6, 2016 1:21 pm

It’s what you’ll be wearing, and it’s the stocks to be buying.

The Consumer Electronics Show (CES) is currently underway in Las Vegas and while I don’t attend and view such confabs with a jaundiced eye, it is undeniably an important event. It not only casts a light on the future, identifying new technology and applications but also has on display what’s available here and now.

Of course there’s also a bunch of gadgets whose usefulness is obscured by a cloud of buzzwords and will rightfully that will never see the light of day.

But one trend that is taking center stage and will clearly be a part of people’s lives is technology that monitors motion, environment and bodily functions.

Everything from steps taken such as heart rate to glucose levels can be tracked for vanity or lifesaving purposes. But the jury is still out as to when or how these will be adopted or integrated into our lives. Most of the technology comes in the form of standalone devices such as Garmin (GRMN) driver awareness pads and wearables like such as Apple (AAPL) watch and Fitbit (FIT) bands. These all seem like amazing and helpful things.

So it was shocking a rebuke to see Wall Street’s reaction to FitBit unveiling its new watch; it has a price point of $199, a full 50% below iWatch, and a five day battery life, more than triple an iWatch. On the face of it this seems like a killer device yet FITs shares tumbled over 18% to an all-time low of $24.20 a share. Apparently investors took this as a sign that wearables will become commoditized or not worn at all.

See Me, Where Me

But I don’t think we can completely dismiss the notion that monitoring our bodies, for both health and vanity, will become an integral part of many people’s lives.

On this front I think Under Armour (UA) presents the most intriguing and potentially revolutionary development. Or maybe it’s really just evolutionary in that Under Armour is integrating health and fitness applications into existing products. Namely, the clothes we wear every day. Shirts, shoes, hats and headphones.

The sportswear company unveiled its Connected Fitness product portfolio, which includes a smart shoe, scale, heart rate monitor, headphones all of which sync up with its fitness app, UA Record.

It has partnered with Harman (HAR) to produce wireless headsets, bands and watches and inserts for its shoes and already has attracted 60 million users, or nearly half, of the current 150 potential users. Both numbers are expected to grow by 30% plus over the next few years and reach 200 million users by 2020.

I had recommended Under Armour exactly one year ago when shares were in around the $65 level. We made some good money on the run up towards $90 by rolling our calls higher into the spring but then exited the position once it broke back below 20 dma near the $80 level.

I stayed on the sidelines on valuation concerns and kicked myself as shares quickly climbed back and ultimately made new highs above $100 this summer. But it’s been a steep decline since then and we are now back to the $80 level.

UA Chart 1.06.16

I think this offers a fantastic buying opportunity. All the above trends I discussed in the original article are still in place and now we have the added element of integrated technology.

I already have a bullish position in the 20k Portfolio which I’ve added to today. Now I want you guys to join in.

I’m using basic vertical call spread on the premise shares will above $90 come July.

-Buy July $80 Calls

-Sell July $90 Calls

For a $4.10 Net Debit for the Spread.

Here is what the risk graph looks like:

UA July spread 1.6.15

This gives us over six months for the bullish thesis to play out. If shares are above $90 at the July 15 expiration the spread will be worth $10 for a 160% gain.

Log that into your step counter!

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.