Looking for Cash Flow, Not AI Hype? Here’s the Trade for You.

The AI infrastructure buildout continues to be the primary driver of the markets and the U.S. economy. In the recently revised Q2 GDP estimate, investment tied to AI and construction accounted for 1.2% of the 1.5% projected growth for the quarter.  The rest of the economy contributed 0.3% net, even as consumer spending was solid. 

Inflation remains elevated, the housing market continues to be moribund, and the July BLS jobs report had a negative print with downward revisions for prior months. Despite this, corporate profits hit an all-time high in Q2, running at 18% of GDP, or $4.8 trillion on an annual basis. Labor’s share of that largess has hit an all-time low, of note.

My trade idea centers on a company that is a rarity in this market, outside the chipmakers. It involves one that has impressive free cash flow. And it is a company whose service I utilized frequently when I was traveling on a monthly basis prior to the pandemic, as I found it a timesaving service. And the older I get, the more I find standing in long lines close to being toxic.

The name is Clear Secure, Inc. (YOU).  The company provides a combination of biometric, document, and device-based technologies to verify user identities. This platform speeds the traveler through the check-in procedures at approximately 60 major U.S. airports. Its subscription service now has nearly 45 million members.

Clear Secure has a market capitalization of just south of $6 billion, and the stock currently trades around $43.50. The company posted its Q2 numbers on August 5, delivering GAAP earnings of $0.49 per share, $0.10 above expectations. Revenues rose more than 26% on a year-over-year basis to nearly $278 million, $8 million north of the consensus.

Some of the other data points within the quarterly report were more impressive — especially free cash flow, which rose 60% from the same period a year ago to $189 million. The company pushed through a $10 hike to its basic annual service to $219, starting July 1. 

Management raised sales guidance for both Q3 and 2026 nicely. Leadership also boosted full-year free cash flow guidance to at least $480 million. This represents 40% growth over the prior year.

Did I mention the company holds $7 a share of cash on its balance sheet? I do worry about the impact of higher jet fuel prices on airline profits, which is why I am avoiding airline stocks. Higher ticket prices could also eventually curb demand on the margins. However, Clear Secure’s service is targeting the upper end of the K-shaped economy, which is still holding up fine. 

The company has plenty of market to expand into over time and more than solid growth prospects.  Profits are expected to be up better than 35% this year. 

The stock trades at just over 20 times forward earnings estimates. It appears much cheaper considering the net cash on the balance sheet. It is cheaper still based on free cash flow, with a FCF yield in the high single-digits. The company’s dividend yield is 1.8%. 

Here is how I am playing this trade. 

Option Strategy

Here is how one can initiate a position in YOU utilizing a covered call strategy. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.

Selecting the March $40 call strikes, fashion a covered call order with a net debit in the $34.00 to $34.50 a share range (net stock price – option premium).

Liquidity is solid with the options against this equity. This strategy provides downside protection of 22% over the trade’s duration, which includes three quarterly dividend payouts of $0.15 a share.

This strategy also provides return potential of nearly 18%, including the dividends, even if the stock trades down 8% over its option duration.

Note: Clear Secure has been issuing a special annual dividend payout slightly higher than the quarterly dividend for years. The last two have had ex-dividend dates of March 10. I am not assuming a potential special dividend in my return calculations.

At the time of publication, Jensen was long YOU.