2022 Roundup: The 10 Best Stocks for Covered Calls
Did you know that covered calls are an excellent way to generate income for your portfolio? A covered call strategy is most advantageous when the stock rises to the strike price, paving the way to profit for the long stock position. Simultaneously, the option premium sold becomes worthless, allowing the call writer to receive the entire premium income.
What is a covered call?
Before anything else, it's essential to go back to basics. What is a covered call anyway? A covered call is a stock position that includes the underlying stock shares and that stock's call option. You sell the option, and at the same time, you keep the underlying stock while executing a covered call.
A covered call happens when you own a hundred shares of a particular stock and sell a call option against your shares. This technique is quite bullish, and you would want to invest in high-quality stocks that are least likely to fail. When involved in covered calls, it wouldn't be wise to choose a stock with a high beta primarily because of its volatility. Why? Any prominent and random downward move might affect your investment. When it comes to covered calls, it's recommended to stick to recognized and heavily traded entities because they'll have better liquidity.
Covered calls permit the buyer to purchase the underlying stock at a special price while the seller receives a premium at a predetermined period. The main reason a covered call strategy remains an intelligent decision is the premium. A lot of stock advisory services suggest this method for selecting top stocks.
What can happen when the covered call matures? Here are possible scenarios:
- The shares' current price becomes less than the strike price.
- The choice expires, and there's no required further action.
- The stock price exceeds the strike price.
When the option is exercised, your shares are, by default, sold at the strike price. Whatever happens in that scenario, the seller will already have been paid the call option premium. In turn, the buyer purchases a covered call by accepting its underlying risks. Your timing can be saved if you're not wasting it on technical analysis to use stock signals to understand the market. To make the most of a covered call, the following scenarios must happen:
- Your stock price should reach the level you desired
- Following a piece of major company news or development, there's a significant jump in price
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What's in a great covered call strategy?
As with any investment strategy, you should consider several factors when selling or writing covered calls. The main things you should consider when you're involved in covered calls are the underlying stock, the strike price, and the period. Why should you analyze these three factors before you select the best-covered call stocks?
- Because the stock's performance will determine the investment return, you should choose a stock you intend to include in your current portfolio. Making a profit out of stock with known implied volatility will be challenging.
- The stocks for covered calls have premiums, and those stocks should be worth the risks involved. This is a calculated risk, not one you make on the fly.
The Ten Best Stocks For Covered Calls
Once you've considered these factors for covered call trade, it's time to start choosing the best stocks for covered calls. Here are some companies that should be on the top of your list today:
Oracle (NYSE: ORCL)
Oracle is a multinational computer technology company based in Austin, Texas, best known for its Java-based services and software. Oracle has four main business segments: cloud and license, hardware and services (which sells cloud-engineering services), and systems and database management systems. One of the most profitable investments you should look into is semiconductor stocks.
In 2022, Oracle reported $10.4 billion in sales in the second quarter alone, a six percent increase from the previous period. Cloud services and license support sales enjoyed a 6% increase, while cloud licensing and on-premise license revenues had a 13% rise. Non-GAAP earnings per share had a $14 to $1.21. The company's infrastructure and applications cloud business grew by 22%, which resulted in these sizable results.
This company has a market capitalization of 75.97 billion dollars. Oracle's company stock is currently trading at $75.97. As per CNN Money, analysts think that its 12-month price range from $126 to $83, while the consensus target price is $105.
If you're considering a bond investment at this company, you should research if investing in equities or bonds is a good idea.
Pfizer Inc (NYSE: PFZR)
Pfizer is a multinational pharmaceutical and biotechnical company based in Manhattan, New York. This firm discovers, has development services, manufactures, markets sells, and distributes biopharmaceutical products. This company's global range includes vaccines and pharmaceuticals available worldwide.
The fourth quarter earnings report of the company in 2021 showed excellent financial results. The company had a total income of $23.8 billion, a 106% increase from the previous year. The profit per share was adjusted by $1.08.
The pharmaceutical stock market has tremendously increased over the past few years. As per a patient view global poll, Pfizer ranks as number two among large biopharma businesses worldwide. It is number 4 on Fortune's list of the world's most admired corporations. In 2021, the company reached 1.4 billion patients through its vaccines and medications.
Pfizer is expected to have a record revenue of $102 billion in 2022, while earnings per share are targeted at $6.35 and $6.55. In addition, the company has a solid balance sheet and predicted near-term incremental free cash flow, allowing it to maintain dividend growth while pursuing new company development.
Pfizer has an estimated market value of around $264 billion. For now, the company's stock is trading at $46.94. According to CNN Money, this company has a 12-month price objective of $76 with a $49 minimum and $57 median target price.
Advanced Micro Devices (NASDAQ: AMD)
Commonly known as AMD, Advanced Micro Devices is a high-performance computing, graphics, and visualization company. This corportation's business comprises desktop and laptop processors, data center and professional graphic processing units (GPUs), discrete and integrated GPUs, and development services.
Under their Enterprise, Embedded, and Semi-Custom categories, there are products such as server and embedded processors, semi-custom SoC devices, development services, and game console technologies. According to the corporation's annual 2021 report, it had recorded record revenue of $16.4 billion, which is a 68 percent increase from the year before and a 48% gross margin. In addition, the company recorded a tremendous increase in profitability, with a $3.2 billion net income and $2.57 earnings per share.
Furthermore, AMD's operating cash flow had a 229% year-over-year increase, amounting to $3.5 billion. The company announced a record $3.2 billion in free cash flow, a 314% increase from the previous year.
AMD anticipates a total revenue rise of 31% and a gross margin of 51% in 2022. Advanced Micro Devices has an estimated market capitalization of $200 billion. The company's stocks are currently trading at $124, which is expected to increase to a target price of $246, as per CNN Money.
Ford Motor Company (NYSE: F)
Ford Motor Company is a multinational automobile company headquartered in Dearborn, Michigan. This automaker specializes in producing, marketing, and servicing various Ford cars, SUVs, trucks, and Lincoln luxury vehicles. The company has three segments:
- Automotive - This division is tasked with developing, manufacturing, distributing, and providing services for Ford and Lincoln vehicles, including their components and accessories.
- Mobility - This division consists of Ford's autonomous car development and related businesses.
- Ford Credit - This division of Ford Credit operations consists of vehicle-related financing and leasing activities.
According to the corporation's fourth-quarter results, its total revenue increased by 5% from the previous year, amounting to $37.7 billion. This is due to an increased net price and an improved mix. Meanwhile, earnings per share came in at $0.26, and long-term investment stocks received plenty of attention.
Ford Motor Company has over $70 billion worth of market value. The corporation stock currently trades at $17.56 per share. As per CNN Money, analysts think it will have a 12-month target price of $30, a $13 minimum, and a $22.5 median target price.
ConocoPhillips (NYSE: COP)
ConocoPhillips is Alaska's largest crude oil producer and exploration leases owner. This company explores, produces, markets, and transports crude oil, bitumen, natural gas, liquefied national gas, and natural gas liquids.
Per the company's 2021 fourth-quarter report, the company achieved excellent operational results. ConocoPhillips earned exceptional results on capital and completed two impressive, high-accretive acquisitions for its stockholders. The company had an adjusted profit of $8 billion and a profit per share of $2.27. It also distributed $2.4 billion in cash dividends to its stockholders. It generates an income of $10.4 in free cash flow, with a 14 percent return on Capital Employed.
The company was expected to invest $7.2 billion for capital expenditures in 2022, while it produces 1.8 million barrels of oil equivalent daily. The company recently purchased Shell's investment in the Permian Basin for $9.5 billion in cash.
ConocoPhillips stocks currently trade at $94.86. As per CNN Money, the target is to increase to $128, with a minimum of $77 and a median target price of $106.
Verizon Communication (NYSE: VZ)
Verizon is a multinational telecommunications conglomerate that provides technology and communications services worldwide. It has two categories: the Verizon Business Group and the Verizon Consumer Group. One of the wisest investment options is technology stocks.
Verizon Consumer Group offers individuals cellular and wireline communication services and products, while Verizon Business Group offers wireless and wireline communications services and products. It also provides video and data services, corporate networking solutions, local and long-distance voice services, security and managed work services, and network access. These solutions help deliver various Internet of Things (IoT) products and services.
According to the company's fourth-quarter earnings report, Verizon enjoyed good financial results. The company had total earnings of $34.1 billion, amounting to a 1.8 percent decrease year over year. The company's earnings per share were up $1.31, which is an 8.3 increase from the year before.
The company's infrastructure appears to be progressive and upbeat in 2022. The company predicts a 1 to 1.5 percent increase via service and other revenues, with overall wireless revenue growth at an estimated 9 to 10 percent.
In terms of market value, Verizon has over $225 billion. The corporation's stock currently trades at $53.67. As per CNN Money, there's a 12-month price target of $71, a $52 minimum, and a $58.5 median target price. Among the many investment options available are electric vehicle stocks.
Devon Energy (NYSE: DVN)
Devon Energy is an energy company engaged in hydrocarbon exploration in the United States. It has a diverse portfolio, including world-class acreage in the Delaware Basin. The company's disciplined cash-return business model has focused on safe and sustainable operations. At the same time, it generates income considerably, creates free cash flow, and reinvests the company's resources. As per Devon Energy's CEO, these ideas have aided the company to become a notable and consistent builder of economic value throughout the cycle.
As per the company's fourth-quarter financial and operational reports, the company recorded $2.23 in earnings per share. The company has significant liquidity, with $2.3 billion cash on hand and a unique debt position. The company has been paying dividends for 29 years in a row.
Regarding market capitalization, Devon Energy has $39.55 billion, with stocks currently trading at $59.55. Meanwhile, CNN Money experts predict the stock to reach a 12-month high of $70, with a low of $60 and a median target price of $59.54.
Nvidia (NASDAQ: NVDA)
Nvidia is an American company specializing in making graphics cards and developing graphic processing units (GPUs). This company produces supercomputing and artificial intelligence (AI) graphics, general-purpose GPU (GPGPU) solutions, and rack-mounted AI acceleration units and servers. NVIDIA makes some of the best consumer graphics cards, while NVIDIA GEForce is the biggest gaming platform worldwide, with over 200 million users.
According to NVIDIA's 2022 report, the company records $16.7 billion in revenue, a 53% increase from the previous year. Its net income was $4.3 billion, with earnings per share of $6.9, a 53% increase from the year prior. Because of the company's innovative work in accelerated computing, gaming has become the most popular form of entertainment, while supercomputing has become democratized for all researchers. AI has emerged as the most potent force in technology.
Regarding the stock price, NVIDIA has a worth of $607 billion, with stocks currently trading at $243.85. Analysts predict NVIDIA to have a 12-month price target of $400, a $210 minimum, and a $350 median target price. Cybersecurity stocks have increased in popularity and are gaining investor interest.
Walmart (NYSE: WMT)
Walmart is an American multinational corporation operating retail, wholesale and other units worldwide. It has three segments, namely Walmart U.S., Walmart International, and Sam's Club.
Walmart operates thousands of stores in the U.S. and around the world. The company creates a seamless experience for customers to shop anytime and anywhere in stores and online. It operates approximately 10,500 stores and clubs under 46 banners in 24 nations and e-commerce websites.
The company reported a total revenue of $141.1 billion in its recent quarterly report, a 2.4 increase from last year. Operating income was $5.3 billion, a 23% decline from the previous year.
Walmart has a market capitalization of more than $333.6 billion, and shares are currently trading at $121.6. The stock has been highly volatile in the past two years, though. As per CNN Money, the 12-month price has a maximum target of $180, a $131 minimum price target, and a $157.50 median target.
Acadia Healthcare Corporation (NASDAQ: ACHC)
Acadia is the leading provider of behavioral healthcare services across the United States and Puerto Rico. The company provides behavioral healthcare services to its patients in various settings, including inpatient psychiatric hospitals, residential treatment centers, specialty treatment facilities, and outpatient clinics.
ACHC has a team of over 22,500, serving approximately 70,000 patients daily. Acadia has an operational network of 238 behavioral healthcare facilities and about 10,600 beds in 40 states and Puerto Rico.
As per the company's quarter results, Acadia Healthcare has a total revenue of $616.7 million, an 11.9% increase compared to the previous year. Its net income was $60.8 million, while its earnings per share were $0.67 per diluted. Its revenue for 2022 is estimated at $2.6 billion.
The company has a market capitalization of more than $6.2 billion, with shares priced at $68.23 each. The stock has been on a bullish streak for the past two years. As per CNN, the 12-month price forecasts a maximum price target of $95, a minimum price target of $69, and a median target of $84.