A little-known software stock is set up well for the new year. Using options to trade it

Emerging Software Stock Shows Growth Potential for 2024; Options Offer Strategic Entry Points

Investing at the start of a new year is a lot like cleaning out your closet: it feels good to start fresh, but it’s easy to get overwhelmed without a plan. That’s why having a simple, repeatable process is smarter than just hoping to “pick better stocks.”

Why This Matters for Investors

Sticking to a clear investment process can help you avoid emotional decisions, which are one of the biggest reasons people underperform the market. According to a study by Morningstar, investors often earn less than the funds they invest in—just because of bad timing. Using a system can help you stay calm and make better choices for your portfolio.

Building a Smart Investing Process

Think of your investment plan as a three-step filter to help you find strong companies and avoid costly mistakes.

  • Step 1: Find Strong Businesses. Look for companies that have steady sales growth, healthy profits, and lots of cash coming in. Ignore the price for now—focus on the business itself.
  • Step 2: Check the Stock’s Behavior. See if the stock price is moving in the right direction. Is it above important averages? Is it beating its sector? This tells you if other investors are confident, too.
  • Step 3: Watch Out for Crowded Trades. If everyone already loves a stock, it might be too expensive. But if it’s been ignored, you might find a bargain.

Bull Case: Why This Approach Works

  • Evidence-Based: You use real data, not just gut feelings.
  • Reduces Mistakes: Having a plan can keep you from panicking during market swings.
  • Long-Term Focus: Strong companies tend to bounce back over time, even if their stock prices wobble.
  • Flexibility: You can still have a “fun” part of your portfolio for special situations, just like having a cheat day in a healthy diet.

Bear Case: What Could Go Wrong

  • No Plan is Perfect: Even the best companies can stumble, and stock prices don’t always make sense in the short term.
  • Missing Out: Sometimes, strict filters mean you skip big winners that don’t look strong on paper yet.
  • Patience Required: Waiting for the right price or the right setup can be boring, and you might miss out if you’re too cautious.
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Example: ePlus Inc. (PLUS)

Let’s use this process on a real company: ePlus Inc. They help businesses upgrade their technology, boost cybersecurity, and use the cloud. Over the last five years, their sales grew by 7% a year and earnings by 12%. That’s strong, especially since the average inflation rate since 2021 has been about 5%.

Recently, ePlus beat earnings expectations, and the stock jumped 20% this quarter. But since November, it’s been stuck in a tight range. This could mean there’s room for more growth—or that the excitement is cooling off.

Advanced Move: The “Buy-Write” Strategy

If you’re comfortable with options, you might try a “buy-write.” That means buying shares and selling a call option at the same time. For example, with ePlus trading around $90, you could sell a $95 call that expires in February for about $2.70 per share. This earns you extra income, but only if you’re careful with your order prices since the options market for this stock isn’t very deep.

If you bought 100 shares at $90 ($9,000) and sold one call for $2.70 ($270), your net cost drops to $8,730. But remember: options can be tricky, so only try this if you understand the risks.

Investor Takeaway

  • Stick to a simple, repeatable investment process—don’t just chase hot stocks.
  • Focus first on the strength of the business, then check if the stock is behaving well and isn’t too crowded.
  • Use limit orders, especially with less-traded stocks or options, to avoid overpaying or selling too low.
  • Be patient and expect some mistakes. No process is perfect, but discipline pays off over time.
  • If you’re interested in more advanced strategies like buy-writes, make sure you understand how options work before jumping in.

By following a steady plan and learning from each step, you can build a stronger, more resilient portfolio—just like organizing your closet for the year ahead.

For the full original report, see CNBC

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