Get Paid 9.8% to Buy APH at a 30% Discount – Here’s How
At about $147.06 a share, Amphenol (APH) is trading about 12% below its 52W high.
Do you think APH stock is a good long-term bet at current levels? What about at a 30% discount at about $100 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
9.8% annualized yield at 30% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 1/15/2027, with a strike price of $100
- Collect roughly $550 in premium per contract (each contract represents 100 shares)
- That’s about 5.8% annualized yield on the $10,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 9.8%
- And you give yourself a chance to buy APH stock at deep discounted price of $100
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| APH stays above $100 | You keep the full $550 premium – 5.5% extra income over the next 346 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| APH closes below $100 | You’ll be obligated to buy 100 shares at $100. But thanks to $550 premium, your effective cost basis is just $94.5 per share – a roughly 36% from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell APH Stock or check Amphenol Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.
Why Hold APH Stock Long-Term
Amphenol is a critical supplier into multiple secular megatrends including AI, data center growth, automotive electrification, and IoT. Its deeply embedded products create high switching costs, giving it a wide moat and pricing power. This combination of a strong competitive position and being on the right side of long-term technological shifts makes it an ideal long-term compounder we would be comfortable owning even if the stock experiences a significant downturn.
Competitive Advantage
We classify APH’s economic moat as WIDE, with the primary source being Switching Costs
- Amphenol’s products, such as high-speed connectors and sensors, are highly engineered and designed into mission-critical applications within customer platforms (e.g., data centers, aircraft, automotive systems), creating high switching costs due to the significant engineering and requalification effort required to change suppliers.
- The company is a leader in setting industry standards; for example, its Mini Cool Edge IO (MCIO) solution was selected by the PCI SIG as the standard for internal cable assemblies for future data rates, effectively designing them into the next generation of data center hardware.
- Amphenol’s consistent strong financial performance, including a 9% year-over-year sales increase in Q1 2024 and a record 21.0% adjusted operating margin, indicates an inelastic demand for its products, suggesting customers are willing to pay for quality and reliability rather than switch to lower-cost alternatives.
- The company’s history of innovation, including developing the first fiber optic industry standard connector (the SMA), demonstrates a deep technical expertise that fosters long-term, embedded customer relationships.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 11.0% (Source: MarketsandMarkets)
Secular Trend: Digitalization and Electrification
Key Risks: Supply chain disruptions due to geopolitical tensions and the integration risk associated with large-scale acquisitions are the primary threats to the industry’s stability.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: Amphenol maintains a healthy balance sheet with a pro forma net leverage ratio of approximately 1.8x after the major CCS acquisition, indicating a manageable debt level and low risk of bankruptcy.
Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.
Portfolios Over Individual Stock Picks
Stocks soar and sink – the key is staying invested. A balanced portfolio keeps you in the market, boosts gains and reduces single stock risk
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.