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The Return of the Watch List!

 

We have finally gotten to a level where we must put some bullish cash to work for fear of missing the rally, even though we don’t believe in the rally in the first place.  As I said in member chat today, I’m not fully on board with this market move until we see the September highs held at close (Dow 9,829, S&P 1,071, Nas 2,146,  NYSE 7,047 and RUT 620) but that doesn’t mean we can’t start looking at some positions on stocks we’re willing to scale into on a dip anyway

The following stocks are from a list of stocks I feel are STILL undervalued and generally have not run up too much in the past year.  These are not the popular names, mainly they are stocks that are under the radar and many are thinly traded so this is a members only list - keep in mind our own buying can move these stocks so chasing is not advised.  Fortunately, with the buy/write strategy, we just need to get the right NET entry to initiate a position.

Even as great as these picks are, let’s be cautious as nothing will survive a huge market sell-off intact and that’s still a very real possibility.  My top concern remains that Christmas will be a disaster for Retailers and that will begin a cascading failure that hits the REITs and the banks but, since that’s not going to happen for another 75 days – why not party with the market for now?

Our last watch list was back on Sept 6th and our picks at the time were:

  • GE, then $13.87, now $16.16.  They went up so much we shorted them at $16 (and that was a bad idea).
  • MHP, then $28 and we targeted Oct $25 puts for .70, now .55 but we’ve taken more bullish plays since.
  • TASR, then $4.50, still $4.50.  The entry was combined with elling the naked Oct $5 puts for .50 and they are still .50 so I still like this play but now we can get .65 for the Nov $5 puts (still not selling calls).
  • UNG, then $9.67, now $12.  My comment at the time was: "UNG has gotten so freakishly low it’s now worth a risk."  Now they are a bit too high. 

So it was a reasonably successful set and here we are a month later and back at it.  As it’s Thursday morning I’m just going to sketch out some plays for now and, over the weekend, we’ll expand this list depending on what the market actually does today (as we still may be doing nothing more than confirming a double top as the last time we had a run-up on low volume like this we peaked out on Monday the 29th and then plunged 5% over the next 4 days (and now, 4 days later, we’re right back where we started).  That’s why I want to be very clear that we are NOT diving into these other than establishing early scales until we get our breakouts.

AGNC (10/8) is (gasp!) a REIT.  But it’s a strange one that (according to them) "Invests in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a U.S. Government agency or a U.S. Government sponsored entity.  The company funds its investments primarily through short-term borrowings structured as repurchase agreements."  This $27.61 stock just took a dip last week as they paid their QUARTERLY $1.40 DIVIDEND!  Now THAT’s a stock we can get behind!  Next dividend is in late December and we can buy the stock here and sell the March $25 puts and calls for $6, which puts us in for net $21.61/23.30.

CPLP (10/8) is an all double-hull tanker company that paid a $1 bonus dividend in February, on top of the $1.64 that this $9.57 stock usually pays out annually.  They are a crazy moving stock and the spreads on the options are very wide so be careful.  The way I would want to enter this one is to first sell the March $10 calls for $1, no less.  We’re also happy to sell the March $7.50 puts for $1, even naked.  Once we sell the March $10 calls, THEN we buy the stock IF it breaks over $10 and, otherwise, we are in no hurry at the next dividend isn’t until November. 

CUZ (10/10) is the little train that might.  They are a REIT that took some write downs and is raising capital and that took them from $10.95 in Aug down to $7.50 later in Aug, now $8.29 again.  I think I might be willing to ride these guys out at $6.50 so selling the Apr $7.50 puts naked for $1 is appealing.  They cut their dividend to .60 for the year but that’s almost 10% of $6.50 if it holds but consider that one a gamble for sure.

ENP (10/8) is a nice little E&P operation but they zoomed up on me, probably for good reason.  Even at $17.43, they pay a $2.05 dividend (11.7%) and you can sell the March $17.50s for $1 and sell the March $15 puts for .90 for net $15.53/16.51, which brings us back to the 50 dma so a nice small, scale-in position here.  As with many energy partnerships, the dividend fluctuates a lot but right now is a low point for most.

FLY (10/8) has no options and I was hoping to see them retest $7 so I’m not very excited about buying them at $9 but let’s keep an eye on them as they have a great business leasing aircraft and their competitors have a lot of troubles, which should help them long-term. 

GPW (10/10) is a nice little (and I emphasize little) power company that pays a 5.75% dividend on $25 shares (no options).  The kicker for them is they MAY qualify for state aid in building their new plants as they continue to expand and that could give them a boost as would an acquirer paying just a fraction over the $250M market cap. 

NRF (10/13) is a small REIT but a lender, not an operator and they are based in NY dealing with mainly corporate clients so, hopefully, based a little steadier than most.  They are at a bad spot for options right now at $3.51 as they only have $2.50 and $5 strikes but even the 65% reduced dividend of .10 is 11.4%.  The company has $260M in cash and $3.3Bn in properties (never trust those values) with just $1.9Bn in debt.  They do keep selling stock to raise cash and A/P has run up and bears watching so this is a scale-in but they could easily double up if CRE really does recover. 

PDS (10/13) is having a rough time and halted their dividends, which used to be over $1 per year.  They may have expanded too much at the top but they make a nice speculative play, selling Dec $7.50 puts naked for $1.15.  I also like the March $5/$7.50 spread for $1.40 with a 78% gain if they get over $7.50 by then and you can stop out at $1 for a 40% loss to a 78% gain risk/reward profile. 

PGH (10/13) is almost always on these value lists.  They are a Canadian trust that pays a MONTHLY .092 dividend.  At $10.26, the Apr buy/write is attractive, selling the $10 puts and calls for $2.20 for a net $8.06/9.03 but you MUST expect to be assigned at $8 or even less and you’d better want to DD there if oil drops back below $50.  Long-term, these guys are good producers and a nice inflation hedge on the price of oil.  From ’04-’08 dividends were around .20 per month so a nice set and forget in the long-term virtual portfolio. 

PRM (10/13) makes those little free apartment and home for rent/sale guides that you get for free in diners.  Like every publisher in America, they are getting killed and they were all the way down under $1 last time we picked them but $2.65 is still a good price for them as a stock to stick under your pillow and forget about for a couple of years (but a DD or TD (triple down) at $1 of course). 

SB (10/13) is a very boring shipper that pays a very boring 7% dividend and has no options at $8.10.  They have made .58 to .76 a share in Q3 ’08 through Q2 ’09 and little is expected of them.  It’s a good upside play on the overall economy but, if we turn down, there is a serious glut of cargo capacity that will hurt everyone.

TNK (10/8) is another tanker company I like, also with a huge dividend (18.9%) that seems reliable.   The stock is at $8.71 and you can sell the May $7.50 calls for $1.50 (no less or you are likely to get called away) and the May $10 puts for $2.50, which is net $4.71/7.36 so we REALLY want to own this one with that spread.  If you are not so sure, you can sell the May $7.50 puts for $1 and that’s net $6.21/6.86 but you can see why my logic is that, for .50 more, we may as well go for the 59% calll away at $10 rather than the 21% call away at $7.50.

WHX (10/13) is an interesting little REIT.  They are a subsidiary of  WLL that seems to be nothing more than a vehicle to funnel profits off land leases out of the parent company to be distributed out as dividends through WHX.  That makes the income fairly uncertain as it seems tied to oil revenues but they have no debt at all and the dividends work out to over 15% so worth a small position.  Sadly – no options…

IN PROGRESS

 

 


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  1. stockoptions88

    Good morning Phil, do you recommending rolling the FCX calls now?  We should be able to roll to the Nov 75 calls for a small debit (hopefully, as FCX is already up over 2% premarket.

  2. Phil

    FCX/Stock – Yes, we have to hope this is a top and do the roll and hope copper and gold don’t keep going up but, if they do, we’ll just have to sell some puts as well.

  3. jamie

    Phil,
    "CPLP is an all double-hull tanker company that paid a $1 bonus dividend in February, on top of the $1.64 that this $9.57 stock usually pays out annually.  They are a crazy moving stock and the spreads on the options are very wide so be careful.  The way I would want to enter this one is to first sell the March $10 calls for $1, no less.  We’re also happy to sell the March $7.50 puts for $1, even naked.  Once we sell the March $10 calls, THEN we buy the stock IF it breaks over $10 and, otherwise, we are in no hurry at the next dividend isn’t until November. 
    If CPLP pays a bonus dividend again does it effect the option strike price?

  4. Phil

    Dividends/Jamie – I don’t think there is a rule.  I think it depends on the timing and type of dividend whether or not it impacts the option contract but, since we own the stock and the option, we’re not too concerned as it net’s neutral to us if the option is penalized. 

  5. yodi

    Good morning Phil,
    hold PCU call 30 short for 2.32 now trading for 4.40 any advice thanks

  6. dflam

    Phil : You might want to look at FTR, a midwestern phone compmany w /a  13. 5 % dividend and rated strong buy by S&P with  a 1 yr. target price of $9.00 (now $7.50). Has options but low premiums
    dflam

  7. tradansh

    Phil – Will it be possible to mark the top / really good picks on this list in bold? This would really help people who are looking to invest in a few selected names.

  8. chaps

    Phil:
    Looks like you rolled the short AMZN Nov calls into Dec (DD) in the $100K Portfolio. On Friday, we were still holding the short Nov calls in member chat.

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