Trade Alert: Small Cap Industrial

One positioned to benefit from the growth of AI as well as the growth of domestic energy production.

Increasing Demand For Energy

As big tech companies build out more AI infrastructure, they are going to need more electricity to power them. The small cap industrial we are betting on today provides electrical systems used by electric utilities as well as oil and gas producers. When it reported earnings last month, it beat on both top and bottom lines, but it’s still undervalued, according to Chartmill data. Here’s a sampling of its ratings:

• Technical Rating: 9 (on a scale of 0-to-10, with 10 being the best).

• Fundamental Rating: 8

• Profitability Rating: 8

• Growth Rating: 8

• Valuation Rating: 8

• Piotroski F-Score Rating (on a scale from 0-to-9, with 9 being best): 8

The options market expects a move of about 18% in either direction after it releases earnings in December. Our bet here is that it climbs about 16.5% by then. If we’re right, we’ll make about 230% on this trade. The worst case scenario if we’re wrong is a loss of 100%.

Details below.

Our Small Cap Industrial Trade

The stock is Powell Industries (POWL 0.00%↑), and the trade is a vertical spread expiring on December 20th, buying the $185 strike calls and selling the $190 strike calls, for a net debit of $1.60. The max gain on 2 contracts is $680, the max loss is $320, and the break even is with POWL at $186.60. This trade filled at $1.60, but it filled really quickly. Consider trying to get an entry at $1.55 instead first.

Exiting This Trade

I’m going to set a GTC order to exit at $4.50 or $4.75, and lower that price, if necessary, as we approach expiration.