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Watch List – Q4 Update (Members Only)

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Who says I don't know how to be bullish?

Winners, winners and even more winners dominate the Thanksgiving Watch List despite the fact that the market itself has pretty much treaded water since I wrote it.  There are still plenty of good entry opportunities on our original picks and, of course, I've found a few new stocks I like, even in this dangerous market.  One big negative is the VIX fell apart on us so not as many buy/writes as we had last time…  

Our last Watch List did very well but that was BECAUSE we took well-hedged positions and scaled in slowly!  Keep in mind it's a watch list and not a Buy List.  Buy Lists are for clear bottoms where we need to load up on things, we haven't had one of those since July 11th.  A Watch List is for things we feel are good values so we keep our eye on them or, as I said in the previous post, a good place to start scaling in SLOWLY to new positions, so we can take full advantage of additional weakness. 

All of these stocks are ones I like and they are good for any virtual portfolio.  Anytime you see one falling though, that's the time we want to take a closer look to see if we have an opportunity to jump on something we like while it's on sale!

AET (12/21 – $34.04) Although they have jumped 40% off their October lows and up 100% from our spring Buy List, AET is still cheap with a good cash postion and a p/e around 11.  All the insurers are being held down on fears of profit caps and other nastiness from the new Health-Care Bill but so what?  They end up being utilities and utilities are good investments.   The uncertainty is reflected in the contract pricing but the low VIX gives us good pricing on the Leaps so the 2011 $25s at $11, selling the Apr $34s for $3 and the Apr $30 puts for $1.50 is net $6.50 on the $10 spread.  I also like the 2012 $30/40 bull call spread for $4.50, selling the Feb $37 calls for $1.  If you get away with 5 of those sales in 2 years, it's a free $10 spread!

AGNC (11/24 – $26.20, 12/21 – $27.91) 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 $27.91 pays a QUARTERLY $1.40 DIVIDEND!  The next dividend is on Jan 26th for holders as of Dec 31st and we can buy the stock here and sell the June $25 puts and calls for $5.20, which puts us in for net $22.71/23.85.

ATVI (11/24 – $11.40, 12/21 – $10.98) is a good one if we are going to have a good retail season.  They own WarCraft, which is the 2nd biggest monthly revenue producer behind SNE's Everquest.  Having a monthly subscription base sees them through rough times and they have had their growth halted in China as they switch distributors, which should be finished by the fall.  I like selling the 2011 $10 puts for $1.20 and buying the 2011 $7.50/10 bull call spread at net $1.75 so the stock is put to you at net $10.55 if it falls more than 10% or pays 454% if they hold $10.  Say you were considering buying 100 shares for $1,098 and you are willing to risk a $200 loss.  You could instead buy 2 of those spreads for net $110 + $1,000 in margin (assuming 50%) and your upside is $390 at $10 (down 10%) wheras, with the stock, you would need the stock to go to $14.88 (up 36%) to make the same $390.  If 200 shares are put to you, you lose $200 at $9.55, down 13% from here but your delta is just .33 on the leap so it would take a 30% drop in the stock for you to lose $200 and the stock won't be put to you if you kill the leap.   

AYE (12/22 – $24.04) Pays a 2.5% divdend and are trading at less than 1/2 their old levels.  The climate bill has kept energy utilities low and now that that has failed miserably it's safe to get back in the water on these plays.  These are very dull, low return affairs and doing a buy/write with the July $22.50 puts and calls at $4.10 nets $19.94/21.22 so a 12% reuturn plus the dividends over 7 months, roughly a 25% annual run rate.

CEPH (12/21 – $59.75) Gets no respect considering all the great stuff they come up with.  A forward p/e of 9.62 and trading 25% off their highs despite 50% higher earnings makes them a nice long-term play.  The 2012 $50/70 bull call spread at $9.50 paired with the sale of the 2012 $50 puts at $6 is net $3.50 on the $20 spread that's already $9.94 in the money. 

CPLP (11/24 – 7.54, 12/21 – $8.80) is an all double-hull tanker company that pays a nice dividend (21%).  They are a crazy moving stock and the spreads on the options are very wide so be careful.  Since we want to collect the dividend, the play is to buy the stock for $8.80 and sell the June $7.50 puts and calls for $2.20 for a net $6.6/7.05 entry

CUZ (11/24 – 7.06, 12/21 – $7.77) 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 $7.77 again.  Last time I said that I think I might be willing to ride these guys out at $6.50 and we just tested that line in November with a good bounce.  I like the buy/write with the  July $7.50 puts and calls at $2.40 for net $5.37/6.34.  They cut their dividend to .36 for the year but that’s over 5% of $6.34 if it holds but consider this one a gamble for sure.

DF (12/21 – $17.68)  Whatever the economy, people tend to eat and DF supplies the basics.  They haven't been lower than $11, even in the Nov crash and by March they held steady at $18 so a nice, mellow buy/write, selling the 2011 $17.50 puts and calls for $4.70 nets $12.98/15.24, which is a happy 35% if called away.  You can also get more aggressive and do it arificially with the 2011 $12.50s at $6, with the same sale, which is net $1.30 on the $5 spread for a 285% upside if called away.

ENP (11/24 – $18.02, 12/21 – 19.70) is a nice little E&P operation that we first entered at $16.50 and they just went ex-dividend on 11/5 at $19 and were back to $17.50.  They are a tough buy at $19.70 but selling the naked Feb $20 puts for $1.35 is a nice entry, probably have to roll down to the June $17.50s, which would be right back to where we want them or you can just be paitent and see if they pull back. 

ERTS (12/21 – $16.96)  Trading at less than 1/3 its 2007-2008 levels with 25% more sales (but they don't make money) makes them a nice takeover candidate if nothing else.   I consider the 2011 $12.50/17.50 bull call spread at $2.90 to be a cheap way to look at the stock ($4.50 in the money) through earnings with a 66% upside.  A more aggressive play is the March $17 calls at $1.30 because they will probably pop big if they do pop on upside Christmas sales and figure on a downturn (the March low was $14.24) you can sell naked puts to make up for the loss on the calls

EXC (12/22 – $49.10) This one is a real watch item as we'd like to see them test the 50 dma at $48 first and then likely an entry by selling the Feb $50 puts for $3.50 or better.  The lack of climate agreement will disappoint a lot of speculators so let them exit and then we are left with an energy utility that pays a 4.2% dividend.

FLY (11/24 – $9.10, 12/21 – $9.17) 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.  That is the exact same comment as I made on 10/8 and the lowest they got was $8, very briefly, so I'm now willing to scale in at $8.   

FTR (11/24 – $7.83, 12/21 $7.56) is a CT-based phone carrier that pays a REALLY nice 13.4% dividend.  The stock is $7.56 but the contract prices are very lame, with the May $7.50 puts and calls just $1.15 but we don't mind owning them long term at net $6.41/6.96 as long as they are paying that $1 annual dividend.

GENZ (12/21 – $47.95)

GLW (11/24 – $16.53, 12/21 – $18.98)  has kind of gotten away but, as I said in November: "All the things that are selling:  Laptops, phones and TVs have one thing in common – glass!  That's half their business and the reason they were a favorite of ours last fall.  Now they have more than doubled but the other half of their business is fiber so I think they have room to double again. " 2011 $15 calls are $5.10 and you can sell Feb $19 calls for $1 and Feb $18 puts for .60 for net $3.50 on the $4 spread, which makes for a nice, flexible entry

GME (12/21 – $22.62)

GOOG (11/24 – $583, 12/21 – $598) is in a funny spot where they may go up or down $100, depending on the broader market.  One trade I'm looking at for them (NOT for the $100KP) is buying 4 June $570 calls for $60 ($24,000) and selling 5 June $600 calls for $43 ($21,500).  That's net $2,500 on a 4x $30 spread ($12,000) so a $9,500 profit before we owe that extra caller any money, which means this trade is profitable from $576 to $695.  Of course, if GOOG breaks $600, you can add one more $570 caller and stop it out if they fall below the line to take away the upside loss potential.   

GOOG (11/24) for those of you not inclined to watch so closely, 2012 $700s are $60.50 and you can sell 2011 $660s for $44.50, which is net $16.  Since the 2011 $700s are $31, this is a good trade if GOOG stays over $550 and should be rollable if GOOG heads higher.  You can risk more to the upside by selling 4 for every 5 longs or buying the 2012s and setting a "sell-stop" on the 2011s at $37.50, which would still leave you with a good spread

GPW (11/24 – $25, 12/21 – $25.16) 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.

Notice that many of our virtual portfolio trades are REITs and energy companies.  While I feel that REITs are in big trouble and commodities are overpriced, they make good offsets to our more speculative downside plays on SRS, OIH or ERY.  This is a very important part of virtual portfolio balancing, selecting a mix of stocks to offset your bearish ETF betting or vs. vs. so you are not likely to be ALL wrong when the sector moves one way or the other.  In general, since I am pretty bearish on the economy, I like stocks that benefit from me being wrong on my macro view.  These are, of course, also stocks I don't mind being "stuck with" long-term, just in case my macro view turns out to be right. 

INTC (11/24 – $19.39, 12/21 $20.09) is a strange one because I was sure they got away from us as a new entry but they didn't.  The SOX are up 100% since March and that would be $23.50 for INTC so you have to like them at $20.09.  Feb $20 puts and calls can be sold against them for $1.85, giving us a net $18.24/19.12 entry, which is kind of a long way to go to save a buck.  I think I'd rather buy the 2012 $15s at $6.10 and sell Feb $20 calls for .95 and Apr $19 puts for $.90 for a net $4.25 entry on the $5 spread with 2 years to roll.

KEY (12/21 – $5.72)

LMT (12/21 – $76.27)

MBI (12/21 – $3.64)

MON (12/21 – $80.97)

NDAQ (12/21 – $20.03)

NRF (11/24 – $3.42, 12/21 – $3.27) 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 $3.27 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. 

NSM (12/21 – $15.26)

ORCL (11/24 – $22.14, 12/21 – $24.43) is up "just" 60% off the bottom but MSFT is up 100%.  ORCL has a slightly lower p/e than MSFT and they have yet to realize gains from their buys of PeopleSoft, Siebel and BEAS (who we had played as a bargain before they got snapped up).  They are also buying JAVA which will turn them into a total solution provider so I like them long-term.  The 2011 $20s are $5.60 ($1.20 premium) and you can sell March $25 calls for $1 and March $24 puts for $1.10 for net $3.50 on the $5 spread with 9 months to roll.

PCS (12/21 -  $7.55)

PDS (11/24 – $6.80, 12/21 – $7.18) 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 June $7.50 puts naked for $1.20.  I also like the June $5/$7.50 bull call spread for $1.50 (must be patient for dip) with a 67% gain if they get over $7.50 by then and you can stop out at $1 for a 33% loss to a 78% gain risk/reward profile.  We did this last time with the March spread and that's up .30 so far (21%) with little hassle.

PGH (11/24 – $9.70, 12/21 – $9.64) is almost always our value lists.  They are a Canadian trust that pays a MONTHLY .067 dividend.  At $9.64, the July buy/write is attractive, selling the $10 puts and calls for $2.20 for a net $7.33/8.67 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 (11/24 – $3.20, 12/21 – $3.93) is up 53% from when we picked them on 10/13 but I still like them if they ever come down again (they have some wild spikes so offering $3.40 is a plan).  They make those little free apartment and home for rent/sale guides that you get for free in diners.  Like every publisher in America, were getting killed and they were all the way down under $1 last time we picked them.  A DD at $2.40 after that would be our goal, hopefully on some general publishing news that takes down the sector.  This is generally a stock to stick under your pillow and forget about for a couple of years (but another DD or TD (triple down) at $1 of course).

S (12/21 – $3.77)

SB (11/24 – $8.93, 12/21 – $8.27) is a very boring shipper that pays a very boring 7% dividend and has no options at $8.27.  This is back around our original 10/13 pick and they fell all the way to $6.75 so it's an early scale at this price.  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 (11/24 – $8.18, 12/21 – $8.87) is another tanker company I like who just cut their dividend, reported a loss and had dropped 10% in November - the trifecta of value buying.  Now they got their 10% back so a bit trickier as a new entry.  The reduced dividend is still 7.2% and hopefully it will return to its former glory over time.   At this point, I like simply selling the May $10 puts at $2 for a 10% disount entry.  We REALLY want to own this so we're happy to have it put to us at net $8, where we flip it to a buy/write to save another 10%.

WFR (12/21 – $13.05)

WHX (11/24 – $16.25, 12/21 – $16.26) 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 at $16.  Sadly – no options… 

VERY MUCH IN PROGRESS

 


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  1. BGC – An infrastructure play at easing up the electric grid as well as clean energy.  They have moved from a 2.8 low in Nov08 to 31 in Dec09, so quite a return.  If commodities continue to laguish, they could have a bit of an uptick as their costs go down.  Trading at 12.5 PE.  They have a gap to fill down to 25, but they are watchlist worthy.


  2. FWLT - nice little engineering company that works in a diversified area of pharma, oil, etc.  Low debt, cash rich, and a smaller market cap.  Generate lots of revenue/share, but their Q revenue is down (understandably).    Support at 27.5, high is ~34.5.  If the infrastructure spending picks up next year, these guys might benefit some…..I need to look a bit more at the major contracts, etc. to see where most of their revenue is coming from.


  3. ARCC – 11% Div. BDC – pays not taxes – similar to MLP – but they are prohibited from having too much leverage – some BDCs got into trouble because they went over their leverage levels and had to sell their loan book at below market prices – like getting a margin call
    They make middle market loans – borrow short term and lend longer term -
    Large spread helps them – good insider purchases and ownership.
    They have fairly high quality loans – think dental practices etc. – have had to mark things down
    Buyer be ware – should take a good look at their loan loss provisions and mark downs – I owned pre-crash for div.
    Have not had time to fully investigate their portfolio of loans again – report back if you do – please


  4. How about 3PAR (NYSE: PAR)?  small data storage company written up in 12.28.09 issue of Barrons.  possible takeout play here.  expensive but on p/e basis but more reasonable on EV/Sales basis.  I’m not a tech guru so don’t have any additional insight beyond the article but it looks interesting. 
    NZT.  New Zealand Telecom.  huge dividend (yield is 9.4%) and currency is somewhat tied to gold/commodities via Australia so nice hedge if dollar weakens.  stock is up 3% pre-market today.