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Buy List – Time for a Fresh Batch? (Members Only)

I am one reluctant bull!

I am still trying to be bullish, I am trying to get enthusiastic about this rally and it's been 3 weeks since I went to mainly cash rather than leave the majority of our Buy List on the table.  The Dow was at 10,850 that day and I didn't think we'd see the top of 11,000 for more than a day but now we've been up here for 2 weeks and yesterday we had strong(ish) volume on a strong up day and I'm still having trouble believing it BUT – believe it we must as long as our upside levels hold.  

Those levels are now: Dow 11,000, S&P 1,200, Nas 2,500, NYSE 7,700 and Russell 720.

We had a nice, relaxing holiday but now we have hard work ahead as I think the investing environment is littered with land mines – ready to blow up in our face if we take any mis-steps.  This bull has horns and we were gored by daring to go bearish in our $100K Virtual Portfolio but our Buy List is all bull and, hopefully, no crap as we try to make safe plays out of the finest companies.  

Ideally, our Buy List plays are about finding bargains.  We may love AAPL, but they are not on sale.  Earning season will hopefully be a great time to do some bargain hunting so this list will be a work in progress but for today we're just going to review our remaining open plays from the last list and also I would like Members to please use the comment section on this post to suggest companies we should be looking at.  Who do you think is trading way too cheaply?  We especially love dividend payers, of course and I'll be looking for companies that service the top 10%, not the bottom 90% – who still look pretty screwed to me and, from yesterday's news, it seems like the top 10% is down to the top 8% but it doesn't seem to bother the markets so we won't dwell on the implications until we're below 5% and, of course, our goal is to be in the top 5% when it all hits the fan…

After having really good timing on our Feb 8th entries, March 18th seemed like a good time to take the money and run and we shut down 2/3 of our Buy List postions.  Let's do a quick review of the survivors, ones that were "so good" that I couldn't bear to cash them out and see how they worked out:

AET (12/21 – $34.04, 1/9 – $32.70, 1/31 – $29.97, 3/18 – $33.24, 4/14 – $31.89) Boy did we call this one right at the top and my idea to cover the 2012 vertical by selling the July $34 calls was BRILLIANT!  We already knocked $1 off the basis on the spread (20%), which makes it much easier to hang onto and maybe even roll lower if AET heads lower.  Of course, we raked it in on the other AET plays already so this is just gravy on gravy at this point. 

  • 2012 $25/35 bull call spread at $5, now $5.20 – up 4%
  • July $34 sold to cover at $2.35, now $1.35 – up 42%

AGNC (11/24 – $26.20, 12/21 – $27.91, 1/9 – $26.50, 1/31 – $26.69, 3/17 – $28.01, 4/14 – $26.29) 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."  They pay a QUARTERLY $1.40 DIVIDEND (21%)!  We got our expected pullback on ex-dividend (3/29) and I think the best way to do a new entry is to sell the Jan $25 put at $1.75 as that's net $400 in margin (according to TOS) so collecting $175 if they expire is 43%, which is better than the dividend anyway and, of course, a nice net $23.25 entry if put to you.      

CPLP (11/24 – $7.54, 12/21 – $8.80, 1/9 – $9.82, 1/31 – $8.93, 3/17 – $8.76, 4/14 – $8.79) is an all double-hull tanker company that pays a nice dividend (21%).  They are up 17% from our November entry and last time I said we’ll have to hope for a pulback from $10 and we got it but if you didn’t get in on the dip down to $8.18 last month, they are less sexy here. 

June $10 puts sold for $2.60, now $1.90 – up 27%; Worth keeping since we'd love an entry at net $7.40.

DF (12/21 – $17.68, 1/9 – $18.23, 1/31 – $17.63, 3/17 – $15.74, 4/14 – $16.89) 

  • Buy/write with Jan $12.50 puts and calls netted $10.73/14.12 – on target   
  • Jan $17.50 puts sold for $2, now $2.10 – down 5% (pair trade)   

ERTS (12/21 – $16.96, 1/9 – $18.40, 1/31 – $16.28, 3/17 – $18.50, 4/14 – $19.74) 

  • Buy/write selling June $16 calls and June $15 puts for net $13.53/14.27 – on target 

FLY (11/24 – $9.10, 12/21 – $9.17, 1/9 – $10.58, 1/31 – $9.61, 3/17 – $10.02, 4/14 – $12.17)  Boy am I glad we stuck with them!  They took off like a rocket this month but, sadly, they don't have options and 33% is a lot to make on a stock so I think a stop at $12 is in order (.50 trailing if we head higher).        

FTR (11/24 – $7.83, 12/21 $7.56, 1/9 – $7.68, 1/31 – $7.61, 3/17 – $7.51, 4/14 – $7.77) We are in this one for the dividend (13.4%) and they are a fine long-term hold. 

  • Buy/write with Aug $7.50 puts and calls netted $6.36/6.93 – on target  

GME (12/21 – $22.62, 1/9 – $20.29, 1/31 – $19.77, 3/17 – $21.16, 4/14 – $23.95) 

  • Jan $17.50/25 bull call spread for $3, now $4.70 – up 56%
  • 2011 $15 puts sold for $1.20, now .40 – up 66% (pair trade) 

GPW (11/24 – $25, 12/21 – $25.16. 1/9 – 25.03, 1/31 – $25.02, 3/18 – 25.35, 4/14 – $24.99) 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 main 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 after all.  

MBI (12/21 – $3.64, 1/9 – $5.32, 2/2 – $5.19, 3/18 – $6.04, 4/14 – $7.94)

  • Buy/write with Aug $5 calls and Aug $4 puts netting $3.39/3.70, now $3.64 – on target
  • 2012 $2.50/7.50 bull call spread at $1.75, now $2.90 – up 65%
  • $5 puts sold for $1.95, now $1.10 – up 43% (pair trade)

MON (12/21 – $80.97, 1/9 – $86.65, 2/2 – $77.31, 3/18 – $72.03, 4/14 – $65.73)  Last time I said: "They were wisely a no play last time when I said: "I’m close to dropping them but I would buy them back in the mid $60s so they’ll stay on here.  Very wise last time to say out of them but, long-term, this is a nice company to own."  They finally hit our goal Wednesday and we pulled the trigger:

  • Jan $65/75 bull call spread at $3.60, now $3.70 – up 4%
  • Jan $65 puts sold for $6.10, still $6.10 – even

NLY (1/9 – $17.53, 2/2 – $17.45, 3/17 – $18.50, 4/14 – $17.43) 

  • Buy/write with the Jan $17.50 puts and calls for net $13.45/15.48 – on target

ORCL (11/24 – $22.14, 12/21 – $24.43, 1/9 – $24.68, 2/5 – $23.11, 3/18 – $25.38, 4/14 – $26.38)

  • Jan $20s at $4.40, now $6.80 – up 55%
  • June $24 puts and calls sold for $2.80, now $2.90 – down 4% (pair trade)

PCS (12/21 -  $7.55, 1/9 – $7.10, 2/5 – $5.81, 3/18 – $6.94, 7/14 – $7.56) 

  • Buy/write with Jan $5 puts and calls netted $3.41/4.21 – on target.

PDS (11/24 – $6.80, 12/21 – $7.18, 1/9 – $8.72, 2/5 – $7.79, 3/18 – $7.80, 4/14 – $7.70)

  • Buy/write with Sept $7.50 puts and calls netted $5.29/6.40 – on target.

PGH (11/24 – $9.70, 12/21 – $9.64, 1/9 – $10.38, 2/5 – $10.42, 3/18 – $11.25, 4/14 – $11.57)  They are a Canadian trust that pays a MONTHLY .07 dividend.

  • Buy/write with July $10 puts and calls netted $8.77/9.39 on target.

S (12/21 – $3.77, 1/9 – $3.95, 2/5 – $3.41, 3/18 – $3.80, 4/14 – $4.15) 

  • Aug $3/4  bull call spread for .40, now .65 - up 62%
  • Aug $3 puts sold for .40, now .10 – up 75% (pair trade) 

SB (11/24 – $8.93, 12/21 – $8.27, 1/9 – $8.86, 2/5 – $7.90, 3/18 – $7.36, 4/14 – $8.02).

  • Hit our $7 target entry and someone here bought a tanker-load at that price!  Back to $8 already – up 14%

TNK (11/24 – $8.18, 12/21 – $8.87, 1/9 – $9.37, 2/5 – $9.15, 3/18 – $11.50, 4/14 – $12.53)

  • Aug $7.50/10 bull call spread at $1.20, now $2.50 – up 108%
  • Aug $7.50 puts sold for .50, now .15 – up 70% (pair trade)

Keep in mind that with the artificial buy/writes – we don’t care if we get assigned.  TNK above is put to us at net $8.20 and we WANT to own TNK long-term for $8.20.  If it keeps going up and we don’t get it, then we will sadly take our 157% profit and move on to something else so don’t let the fact that you "miss out" on the dividend bother you on these plays.  If I want to buy 1,000 shares of TNK at $9,370 and I hope to make a $400 in dividends through August.  There is no good protection with the Aug $10s at .40 and the Aug $7.50s at $1.60 (no premium) so you risk $9,370 to make $400.  My proposal is you just buy 10 of the above spread for net $700 and you make a profit of $950 if TNK just holds $9.15!  Do NOT be afraid of these plays – they are fantastic ways to leverage your virtual portfolio WITHOUT taking on additional risks (on a per-position basis, if you take 5 times more positions, rather than keep the cash handy, then don’t fool yourself – you are taking on more risk!).

WHX (11/24 – $16.25, 12/21 – $16.26, 1/9 – $16.93, 2/5 – $16.89, 3/18 – $18.80, 4/14 – $20.06) 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%.  Sadly – no options but up 15% on the stock since we entered as a nice bonus to the dividend! 

So "only" 20 stocks remaining and I think we should put a stop on WHX as this point at $19.50 as that was a nice run ($1 trailing after $20.50).  It's so hard to let go of the good ones and there's no reason to when you have deep in the money buy/writes or bull verticals as it's just a matter of waiting for the premium to expire on the contracts we sold to collect what is coming to us.  We'll be going through earnings and reading the tea leaves to find another 20 or so stocks.  Always keep in mind that these bullish plays should be somewhat hedged with at least some disaster hedges or at least some offsetting bearish positions

 


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  1. Phil
    My two suggestions for the list would be MRK, who Pharm like and pays a 4% dividend, and MFA, which pays a 13% dividend. Cheers!


  2. AGNC/Phil – They only have options till Sep right now. Are you talking about selling the Sep 25 puts?


  3. Phil, do you think copper and gold can sustain their levels? Thanks--awesome buy list—


  4. Pls review PBCT as a dividend play


  5. AGNC should be "Sept 25p" for 1.75


  6. Phil, The price may be getting right for WMT, VZ and KO.


  7.  PHIL : How about WIN . Good dividend.


  8. A hotel REIT that caters to the top 10% (operated under the upper upscale and luxury brands of Fairmont, Four Seasons, Hyatt, InterContinental, Loews, Marriott, Ritz-Carlton and Westin, The Hotel del Coronado) BEE Buy/Write – $5.21 selling the September 2010 $5 Calls and Puts for $2.40 nets 75% in 5 months if the stock holds $5. Worst case is you end up with 2x at $3.92 average cost.


  9. ADP?


  10. VTR


  11.  Phil,
    Can you take a look at ETR as a possibility?


  12. PM, close to the bottom of 1-year range, 5% dividends.  I believe they announced a buyback plan not long ago.


  13. Phil
     
    MCHP – diversified customer base, 5% dividend, decent options, and $1B in cash on the balance sheet.


  14. Phil
     
    Last one – SPH propane, fuel oil, and natural gas. P/E of 11 & pays a yield of 7%.