Markets

Monday Market Mayhem – Earnings Season Heats Up

April 24, 2023

745

140 (28%) of the S&P 500 Report this week.

Another 98 the first week of May and all downhill from there with the rest dribbling in (and about 100 have already reported). So this is it – put on your analysts hats and pay attention as we’re going to have to determine where we’ll be putting our money for the second half of 2023 (already).

Above is a map of how companies have performed since their recent earnings reports and generally the answer is “badly.” That’s what we call a “trend” and it’s one of the reasons we decided to move to the sidelines this week. We’re certainly not missing anything – look at all the stuff that’s going on sale… We bought JPM, C and ISRG before they popped and we certainly didn’t miss anything exciting – nor do we find the large number of stocks that are on sale particularly exciting – so we wait – patiently.

This week we have all kinds of great companies we’d love to own at lower prices – as long as we don’t feel we agree with why others may be selling them off – which happens so often we have an entire Member’s Portfolio dedicated to it:

You know how a picture is worth 1,000 words? Well here’s why Coke (KO) is a great stock to own in troubled times:

What else do you generally expect to have at your fingertips ANYWHERE on the planet Earth? That’s because KO doesn’t sell snacks or even merchandise – they sell drinks and they sell them everywhere to everyone. I interviewed KO’s ex-CEO Muhtar Kent back in 2010 and I don’t know James Quincey but not too much has changed in a dozen years.

The company has divested a lot of its bottling operations to concentrate more on the core concentrate production and brand-building. They’ve acquired all or part of Costa Coffee, Honest Tea, ZICO Coconut Water, Fairlife Milk, Topo Chico Hard Seltzer, and BodyArmor and launched Coca-Cola Energy, Coca-Cola Plus Coffee, Powerade Ultra and Powerade Power Water.

As you can see, the stock is up over 100% from $30 (there was a split in 2012) when I did that interview and in 2035 it will very likely be at $130 but the nice thing is it will be Despacito (slowly) and that makes it a fantastic stock for our Income Portfolio, which seeks to generate a 2% quarterly income from our holdings while still growing the principle.

KO pays a $1.84 dividend, which is about 3% of $64 but we can do better by NOT buying the stock and taking the following spread:

- Sell 5 KO 2025 $60 puts for $3.75 ($1,875)
- Buy 15 KO 2025 $60 calls for $9 ($13,500)
- Sell 10 KO 2025 $72.50 calls for $2.80 ($2,800)
- Sell 10 KO July $65 calls for $1.45 ($1,450)

That net $7,375 on the $18,750 spread that’s $6,000 in the money to start. The upside potential is $11,375 (154%) at $72.50 or higher and, if KO doesn’t leap higher (not likely) then we can collect $1,450 per quarter for 6 quarters while we wait and that’s $8,700 – more than we paid for the spread!

More importantly, it’s 19.66% back on our $7,375, which is miles over our 2% goal in a very conservative trade with a low chance of failure. The 5 short puts obligate us to buy 500 shares of KO at $60 ($30,000) but that only uses $3,746.43 of Portfolio Margin – so not worth worrying about. In an IRA account, simply don’t sell the short puts and pay $1,875 more for the spread – it still works out great.

Those are the kinds of trades we’ll be adding to our Income Portfolio. While we will have Portfolio Margin in that account we’ll still consider a trade like that to be using a $15,000 allocation, roughly 10% of our $150,000 total. So let’s say we have 10 of those positions and we’re netting $7,000 per quarter from our various activities. That’s going to be almost 20% per year in options sales alone. If, 2 years from now, KO is up 20% at $77, we will have doubled our money AND our quarterly returns should double as well.

You can see how quickly these things build up….

As long as the economy isn’t terrible, Blue-Chip stock investing is the way to go in these uncertain times. We’re still waiting to hear what the Fed has to say at their next meeting (May 3rd) and for now we’re watching the daily calendar, this week featuring the following Economic Data:

- ⊗April 25: Consumer confidence and new home sales are high-impact indicators that can reflect the strength or weakness of the economy and the housing market. Higher-than-expected readings can boost the market sentiment and vice versa. The FHFA and S&P home price indexes are low-impact indicators that can show the trends in home values across different regions. According to the data I have, consumer confidence is expected to decline slightly from 104.2 to 103.8, while new home sales are expected to increase from 640K to 645K. The FHFA home price index is expected to be unchanged at 0.2%, while the S&P home price index is expected to decline from 2.5% to -0.2%. These mixed signals may create some uncertainty and volatility in the market, especially for housing-related stocks.
- April 26: Durable goods orders are a low-impact indicator that can measure the demand for long-lasting goods such as machinery, vehicles, and appliances. A higher-than-expected reading can signal increased business investment and consumer spending. The advanced trade balance, retail inventories, and wholesale inventories are also low-impact indicators that can provide some insights into the trade activity and inventory levels in March. The EIA crude oil inventories are a high-impact indicator that can affect the oil prices and energy stocks. A lower-than-expected reading can indicate higher demand or lower supply of oil and vice versa. According to the data I have, durable goods orders are expected to rebound from -1.0% to 0.5%, while durable goods excluding transportation are expected to decline from 0.0% to -0.3%. The advanced trade balance, retail inventories, and wholesale inventories are not available yet. The EIA crude oil inventories are expected to decline by 4.58 million barrels. These indicators may suggest some improvement in the manufacturing sector and the energy market, but they may not have a significant impact on the overall market direction.
- April 27: GDP-Adv. and Chain Deflator-Adv. are high-impact indicators that can show the overall performance and inflation of the economy in the first quarter of 2021. Higher-than-expected readings for GDP can indicate faster recovery and growth and vice versa. Higher-than-expected readings for Chain Deflator can indicate higher inflation and vice versa. According to the data I have, GDP is expected to slow down from 2.6% to 2.3%, while Chain Deflator is expected to decline from 3.9% to 3.8%. These indicators may suggest some moderation in the economic activity and inflationary pressures, but they may not have a significant impact on the market direction. Initial Claims and Continuing Claims are high-impact indicators that can show the state of the labor market and the pace of layoffs. Lower-than-expected readings can indicate improved employment conditions and vice versa. According to the data I have, Initial Claims are expected to decline from 245K to 242K, while Continuing Claims are not available yet. These indicators may suggest some improvement in the labor market, but they may not be enough to offset the impact of the pandemic on the employment situation. Pending Home Sales are a medium-impact indicator that can show the number of homes under contract but not yet closed. A higher-than-expected reading can indicate increased demand for housing and vice versa. According to the data I have, Pending Home Sales are expected to increase from 0.8% to 1.5%. This indicator may suggest some strength in the housing market, but it may not have a significant impact on the overall market direction.
- April 28: Employment Cost Index is a high-impact indicator that can measure the changes in wages and benefits for workers. A higher-than-expected reading can indicate increased labor costs and inflationary pressures and vice versa. According to the data I have, Employment Cost Index is expected to be unchanged at 1.0%. This indicator may suggest some stability in the labor costs, but it may not have a significant impact on the market direction. Personal Income, Personal Spending, PCE Prices, and PCE Prices – Core are high-impact indicators that can show the changes in income, spending, and inflation for consumers. Higher-than-expected readings for income and spending can indicate stronger consumer confidence and demand and vice versa. Higher-than-expected readings for PCE Prices and PCE Prices – Core can indicate higher inflation and vice versa. According to the data I have, Personal Income is expected to increase from 0.3% to 0.4%, while Personal Spending is expected to decline from 0.2% to -0.3%. PCE Prices are expected to decline from 0.3% to 0.1%, while PCE Prices – Core are expected to be unchanged at 0.3%. These indicators may suggest some mixed signals for the consumer sector and inflation, which may create some uncertainty and volatility in the market, especially for consumer-related stocks. Chicago PMI is a low-impact indicator that can show the level of business activity in Chicago. A higher-than-expected reading can indicate expansion and growth and vice versa. According to the data I have, Chicago PMI is expected to increase from 43.8 to 44.1. This indicator may suggest some improvement in the manufacturing sector, but it may not have a significant impact on the overall market direction. Univ. of Michigan Consumer Sentiment – Final is a low-impact indicator that can measure the level of optimism or pessimism among consumers. A higher-than-expected reading can indicate increased consumer confidence and spending and vice versa. According to the data I have, Univ. of Michigan Consumer Sentiment – Final is expected to decline slightly from 63.5 to 63.3. This indicator may suggest some deterioration in the consumer sentiment, but it may not have a significant impact on the overall market direction.

Not that Monday’s matter but the Dollar is low (101.6) so we SHOULD get a boost in the indexes this morning. What matters is what sticks this week once we’re 2/3 through Earnings Season.

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1020

Member

April 24, 2023 9:39 am

Good Morning.

phil

Author

April 24, 2023 10:10 am

Good morning!

Not a lot going on. KO did beat, but that was expected. PHG with a big beat and BOH missed and we’re a lot more concerned with Banks than Soft Drinks, right?

Tonight and tomorrow things get interesting – today you can take off.

phil

Author

April 24, 2023 10:13 am

LOL, Nasdaq already reversed – what a joke. We’ll see what happens to the rest.

phil

Author

April 24, 2023 10:37 am

• What Beat the S&P 500 Over the Past Three Decades? Doing Nothing: A strategy of buying a basket of stocks and leaving them untouched outperformed the index, not to mention scores of active managers. (Morningstar)

• AI Can Write a Song, but It Can’t Beat the Market: Quants have tried for decades with limited success at their biggest challenge (Wall Street Journal)

• When did mass layoffs become so normal? A brief history of engineered job insecurity in America. (Vox)

• The Repo Man Returns as More Americans Fall Behind on Car Payments: Pandemic relief measures shielded many people from repossession, but that’s changing as interest rates and auto prices soar. (Businessweek)

• A House Divided: How a Band of Speculators Seized Deeds of Black-Owned Brooklyn Brownstones: A quartet of investors say they’re only helping the dispossessed get what’s due. But their actions have exploited family divisions — and relatives on both sides of the deals say they’ve been ripped off. (The City)

• How to Sell a Power Generator No One Has Heard Of: Mainspring Energy’s device is a new way to create clean electricity, and it can run on hydrogen. (Bloomberg)

• How a Brazen Plot to Rig Oil Auctions Cost Venezuela Billions: America’s best-known lawyer, a couple of fraudsters and a pariah government joined forces to sue the world’s largest commodities trading firms. The evidence is explosive, but the bungled lawsuit has so far come to nothing. (Businessweek)

• Apocalypse Sow: Can Anything Stop the Feral Hog Invasion? They’ve overrun nearly the entire state, causing hundreds of millions of dollars in damage annually in spite of widespread attempts at eradication—including traps, contraceptives, and a heavily armed Ted Nugent. (Texas Monthly)

• The Vietnamnese Climate Trap: As rising seas ruin crops, Mekong Delta farmers are moving to big cities, straining their finances and families. Climate change is displacing a million farmers in Vietnam’s Mekong Delta – but for most, migration is not an option. Their stories challenge conventional wisdom on what ‘climate refugees’ look like and where they go. (Globe and Mail)

• Worthless Degrees Are Creating an Unemployable Generation in India: Students around the globe are increasingly questioning the returns on education. Nowhere is the problem more complex than India. (Bloomberg)

• Rupert Wins Again: For the media mogul, the massive Dominion settlement fee is just the cost of doing business. (Politico)

• ‘Fair share’ deficits at nonprofit hospitals reached $14.2B in 2020. KFF found that half of hospitals spend 1.4% or less of their operating expenses on charity care, and reports have pointed out lax oversight over hospitals practices. Many hospitals did, however, expand eligibility for charity care during the COVID-19 pandemic, though policies were vague, according to a report in JAMA. (Health Care Dive)

The Tide of Price over Volume : 🤖 The article highlights the persistent trend of companies focusing on raising prices over increasing sales volumes. The author argues that this trend will likely continue as companies seek to find the elasticity of demand and use external factors to justify raising prices.

• My High-Flying Life as a Corporate Spy Who Lied His Way to the Top: I was just looking to make rent when I stumbled into a part-time gig stealing secrets from Wall Street elite. I made millions once I realized how desperate we humans are for someone who will actually listen. (Narratively)

• America Fails the Civilization Test: The average American my age is roughly six times more likely to die in the coming year than his counterpart in Switzerland. (The Atlantic)

• Fire and Ice: The planet’s ice is fundamentally tethered to weather patterns that stretch across the globe. Scientists are finding that as the climate changes, that connection could be helping fuel disasters. More than 25 million acres have burned in the Western U.S. since 2018. Some fires have been so extreme, they’ve seemed impossible to contain. Weather has been the deciding factor in many of those fires. When hot, arid conditions settle on the Western U.S., the fire danger skyrockets. Far to the north, the season of ice is changing. The Arctic Ocean is normally covered in a vast, frozen blanket for most of the year. But sea ice is shrinking. It’s breaking up earlier in the spring and forming later in the fall. As the climate gets hotter, the Arctic is spending more days as open ocean. These extremes of fire and ice are more than 3,000 miles apart. But now, connections are emerging. (NPR)

phil

Author

April 24, 2023 11:11 am

Here’s how April has been going:

phil

Author

Reply to phil

April 24, 2023 11:26 am

We topped out at 4,200 in Feb as well. We spiked up to it in Dec, for one day and before that the Aug high was 4,300 and we fell from there to 3,500 in Oct as the run-up on July earnings had made no sense anyway.

https://finviz.com/futures_charts.ashx?t=ES&p=d

“Those who forget the past are condemned to reheat it” – Leftovers, Chapter 1.

Aug 16th: “PhilStockWorld August Portfolio Reviews“
We’re halfway through the 3rd Quarter and halfway through August so it must be time to see how we’re doing – which is great! Too great, really as the risks of staying in the market are beginning to outweigh the rewards that are left – based on our performance expectations for the rest of the year.
As we predicted, the S&P 500 has made it back to 4,300 just in time to catch the 200-Day Moving Average before it crosses below that line but, also as we predicted, it’s happening at the exhaustion point for the very bullish MACD trend that we expected to give the index a technical lift BUT look at the declining volume as we’ve gone higher – that’s a loss of faith/interest in paying these higher prices as we’ve gone back up.

ALSO, it’s been a 17.5% run from the 3,680 bottom and we’re going to get rejected at 20% (4,416) either way and the retraces of that 736-point run would be 147 points (20% of the gain), back to 4,269 (weak retrace) or 4,122 (strong retrace) and we haven’t had enough changes in the macro data or earnings to change our minds that this (4,320) is likely to be the top of our range for the rest of the year.

http://www.philstockworld.com/wp-content/uploads/2022/08/SPX2-Aug-16-2022.jpg

As you can see on the hourly chart, we have the classic Spitting Cobra pattern forming and those usually strike lower, not higher and, keep in mind, we just make these things up because TA is just BS and the 5% Rule™ is not TA – it’s just math! The same pattern-recognizing part of our brain that makes us want TA to be real also wants the 5% Rule™ to be TA – but it is not.

The 5% Rule™ doesn’t tell us what the market will do – it tells us where the lines of resistance and support are likely to form and then FUNDAMENTAL MICRO AND MACRO ANALYSIS tells us what is likely to happen at those resistance points and THAT is how you can predict the future – one without the other does not work.

Those Fundamentals led us to get aggressive on July 13th, when the S&P Chart looked like this:

http://www.philstockworld.com/wp-content/uploads/2022/08/SPX2-July-13-2022.jpg

That was the day we did our Money Talk Portfolio Review in preparation for my appearance on the show that evening. The MSM was all “doom and gloom” at the time and I went on the show as a contrarian, with a list of a dozen stocks I thought were good buys at the time and we officially added two of them to our Money Talk Portfolio, which was at $194,331 (up 94.3%) at the time – holding up well despite the pullback.
We made adjustments to GOLD, INTC, MO, PARA and WBA and we added JPM and LOGI – it’s the most moves we’ve ever done in a quarter (we only touch the portfolio once each quarter, when we’re on the show) and it left us with just $78,984 in CASH!!! but the upside potential of our $125,800 in positions was potentially $299,583 (154%).
Now, here’s the problem. We did such a good job that the portfolio is already up to $307,376 (up 207.4%) – up $113,045 (58%) in a month! As we only planned on making 154% over the next 18 months – this is wildly ahead of schedule. It’s not that we don’t still love our positions, it’s just that now we have $307,376 we could cash out (well, we can’t, I’m not on the show) and the upside is now “only” $186,538 (60%) over the next 17 months – and we can do that with low-risk dividend stocks so the Reward is no longer worth the Risk – especially since the very silly $113,045 gain could just as easily reverse itself if the market turns back down.
So, if were up to me today, I would cash out and start from scratch and that’s the decision you should be making with every single position you have when there’s a rally because look how drastically our risk/reward ratios can change. We went from having 154% upside potential to just 60% yet the risk is the same – so it’s very simply no longer worth it – no matter how much we love our positions.
Aug 17th: “Wednesday Weakness – Rejected at S&P 4,300“
Right on the button!
There is nothing wrong with a healthy pullback once you have achieved your goal – that’s called consolidation! However, that “goal” was the top of our range and we do expect to retest the 4,000 line at some point. That will, to some extent, depend on the reading of the Fed minutes this afternoon (2pm) and HOPEFULLY (not a valid trading strategy), we won’t get anymore nastiness like we got from Target (TGT) this morning.
A lot of it was spillover from last Qs inventory reductions – they are still taking a hit on that on their books. Shipping costs are hurting a lot and rising labor costs are pressuring margins as well. TGT is falling 5% pre-market but we came in at $140 and these are short-term issues so it won’t affect our position in the Long-Term Portfolio:

Notice how good the chart looked at the time. The Titanic was running great – until it hit the iceberg – then it didn’t matter what stock you had in your portfolio… The job of a good captain is to look ahead for the dangers and try to keep the ship afloat – if you do that, you’ll get your investors to their goals – even if it’s not as fast as they wanted.

phil

Author

April 24, 2023 11:44 am

Tucker Carlson just got fired!

1020

Member

Reply to phil

April 24, 2023 12:22 pm

Suddenly, the Faux Network looks a bit more ‘fair and balanced’….. 🙂

phil

Author

April 24, 2023 1:32 pm

phil

Author

April 24, 2023 3:25 pm

Dollar 101.33 keeping everything else up.

T is back to $17.37.

https://www.wsj.com/articles/levi-strauss-cfo-on-navigating-excess-inventory-his-expanded-role-and-slower-hiring-8ada0aca?mod=hp_minor_pos7
 🤖 Levi Strauss & Co., the San Francisco-based jeans maker, is rolling out an enterprise-resource-planning (ERP) system in the US to gain better visibility into where inventory is located and how well its stores are stocked. The company has also launched a new system giving better visibility into store performance, which finance chief Harmit Singh said was part of the company’s move to expand its direct-to-consumer operation. The new system helped boost Levi Strauss’s net revenue for the quarter ended 26 February to $1.69bn, up 6% from the prior-year period. Singh also explained that his role as CFO was expanded to include the responsibilities of corporate strategy and global retail real estate. The company aims to generate $9bn to $10bn in annual revenue by 2027.

phil

Author

Reply to phil

April 24, 2023 4:17 pm

I still feel LEVI is undervalued so I’ve had Warren do an analysis:

🤖 Based on the provided financial statements of Levi Strauss & Co. through February 26, 2023, the company had total assets of $5,873.9 million and total liabilities of $3,906.4 million. The company’s current assets of $2,648.9 million were primarily composed of inventories and trade receivables, which are key indicators of the company’s operational efficiency. On the other hand, the company’s current liabilities of $1,774.2 million were mainly composed of accounts payable and accrued liabilities.

The company’s gross profit for the three months ended February 26, 2023, was $942.3 million, and its operating income was $157.4 million. However, the company’s net income was $114.7 million, which was lower than the same period last year. The decrease in net income could be due to higher selling, general, and administrative expenses and lower other income, net, compared to the same period last year.

Furthermore, the company’s earnings per common share for the three months ended February 26, 2023, were $0.29 for both basic and diluted earnings per share. The weighted-average common shares outstanding were 395,956,182 for basic earnings per share and 400,360,529 for diluted earnings per share.

Overall, based on the financial statements provided, Levi’s financial performance seems to be stable but with a slight decline in net income compared to the same period last year. The company’s financial position also appears to be strong with a healthy mix of current and non-current assets and liabilities.
In the Q1 2023 earnings conference call for Levi Strauss & Co, Chip Bergh, President and CEO, reported that the company had grown its revenue 9% in constant currency and 6% on a reported basis to $1.7 billion. The direct-to-consumer business grew 16% in constant currency, and Levi’s international business grew 11% in constant currency, accounting for 56% of the company’s total revenues. The company delivered strong growth globally and exceeded its expectations for EPS, even excluding the planned acceleration of wholesale shipments to support the company’s U.S. ERP implementation.
Bergh said that the company’s performance this quarter clearly demonstrated that its strategies were working, driven by the strength of its brands, the growth of its direct-to-consumer business, and the benefits of a globally diversified business model. The company continued to make progress against its three strategic priorities: leading with its brands, prioritizing its direct-to-consumer business, and diversifying its portfolio.
In the Q1 2023 earnings call, Levi’s reported solid results with sales up 9%, excluding the benefit from accelerated U.S. wholesale shipments primarily related to the ERP transition, which indicates a low single-digit growth in their business. The international business and direct-to-consumer channels drove almost 70% of the growth in the quarter, with net revenues increasing by 9%. The Americas segment had a net revenue growth of 7% driven by DTC.
Levi’s made progress in reducing its inventory, with total inventory dollars and units down meaningfully. The company achieved this in part by taking deliberate actions to clear inventory in the U.S. as well as reducing receipts in H1. Levi’s opened 18 net new stores and completed its ERP implementation in Canada and Mexico, and it is now working on its U.S. implementation. Despite beating its Q1 performance, Levi’s is maintaining its annual revenue and EPS guidance range, reflecting a cautious outlook on the macro environment.
In the Q1 2023 Earnings Call Transcript for LEVI, Chip Bergh, the CEO, and Harmit Singh, the CFO, discuss the company’s inventory levels and gross margins in the Q&A session. Bergh states that the inventory is largely clean, and they have made meaningful progress in reducing inventory both in dollar and unit terms. The inventory improvement is largely driven by the US market, where the inventory levels at the end of Q4 were up 90% year-over-year, and Q1 is down to 35% year-over-year.
Bergh also notes that gross margins miss their expectations due to higher promotional activities and clearing inventory proactively. The company is anticipating promotions to continue through the year, offset by better channel mix, and predicts that gross margins will be about 70 basis points down by the end of the year. In response to another question about the health of the Levi’s brand, Bergh talks about the growth of the denim category, which is up 1% in the most recent quarter on top of a prior year quarter of up 16%.
In the Q1 2023 earnings call transcript, Chip Bergh and Harmit Singh from Levi’s provided insights into the company’s performance. In response to a question from Dana Telsey of Telsey Group, they noted that apparel was up 2% in Q1, slightly ahead of denim. The non-denim business performed well, with some of the best-selling items being chinos and cargoes. Regarding wholesale, the U.S. wholesale business was up around 20-25% in H1, but the expectation for the year is down in the low to mid-single digits, made up by the direct-to-consumer business.
Levi’s is seeing significant softness in its Signature Denizen business, with the value consumer being squeezed. They also noted that there is a bifurcation happening, where the lower-end consumer is making hard choices and either trading down or not buying denim, while the middle-income consumer is doing well and still buying denim, driving the growth of the Levi’s business. When asked about Q3, they didn’t provide specific guidance but stated that the H2 is up higher than mid-single digits, and they expect things to get better as the year progresses. They also mentioned that ocean freight was a headwind, while airfreight was a tailwind, but it netted out as a headwind.
Alex Straton of Morgan Stanley asks two questions. Firstly, he asks about the sequential change in promos compared to the prior quarter and the broader environment. The response from Harmit Singh is that they have been cautious about predicting promotional levels, and they have built in a slightly higher promotion level in the second half of the year into their expectations. The inventory will be clean by Q2 and will be back to sales levels. Secondly, Chris Nardone of Bank of America asks two questions. He asks about Levi’s confidence in maintaining strong DTC momentum in the second half of the year, given a potentially lower promotional environment compared to the last second half, and about Levi’s guidance on Asia.
The response from Harmit Singh is that the Asia business is off to a great start, and most markets in Asia are performing well. The brand is strong, and the DTC business is largely driven by comp sales performance. Levi’s view is that DTC growth will continue. The response also indicates that they have a new Chief Digital Officer who is putting a lot of effort into driving DTC growth.

———————————–

$14.81 for LEVI is $5.9Bn so call it $6Bn at $15. They made $569M last year and are on track to be around $550M this year and in 2018 they made $283M and $395M in 2019 and in 2020 they lost $127M. They are not just bouncing back, they are growing and the growth was interrupted by Covid and now that their supply chain is coming back on-line they are right-sizing their inventories to reflect new shopping patters – including rolling out new systems to better manage inventory.

It’s exciting to be able to get a stock like this at 11x earnings!

Remember, we don’t need stocks to go up to make a ton of money – we just need them not to go down! $15 is a stupidly low price for LEVI and the dividend is 3.2%, so it’s possible to just buy the stock like this:

Buy 1,000 LEVI for $14.73 ($14,730)
Sell 10 LEVI 2025 $15 calls for $2.80 ($2,800)
Sell 10 LEVI 2025 $17 puts for $4 ($4,000)

That drops the net to $7,930 and yes, that’s $7.93 per share and, if assigned 1,000 more at $17, we’d be in for $24,930 on 2,000 shares and that’s still only $12.465/share, still 15% below the current price on a full allocation block ($150,000 cash is $300,000 in buying power /10 for the blocks).
There’s the 0.12 ($120) quarterly dividends x 7 ($840) to collect, that’s more than 10% and, if we get called away at $15, we get $15,000 back so $15,840 is up $7,910 so call it 100% in 20 months less a bit if we’re under $17 (but we’d roll the puts) is not a bad use of an allocation block (and we’re only using half unless a worst-case anyway).
Again, we go back to 10 allocation blocks and this on is supposed to spit out $7,910 so 10% is $79,000 back on our $150,000 portfolio would be 52%, that’s pretty good.

********************************

Of course there’s always plan B and that’s screw the $840 in dividends and do it this way:

Sell 10 LEVI 2025 $17 puts for $4 ($4,000)
Buy 30 LEVI 2025 $15 calls for $2.80 ($8,400)

That’s it, net $4,400 to now control 3,000 shares at $15. The $20 calls are currently $1.35 and that’s not enough to make me want to sell them and, as I noted, $15 is stupidly low so we’re not going to sell any short calls yet but I’d like to sell $20 of the $20s for $2 or better – so that’s the plan. Once that’s done, our net is $400 and we can relax and sell some short-term calls for income. At $17, this trade pays $6,000 – not much less than the above but we’re using just $17,000 of buying power even if it goes terribly wrong, so it’s half an allocation block and we’re very flexible.

Though I expect LEVI to head back to $20 and we’ll cover, I’d be VERY HAPPY if it hit $12 and we rolled to 50 of the $10 calls (now $5.80, hopefully for $4 or less) and figure that roll costs us $6,000 and 20 new $10 calls for $8,000 is $14,000 + $4,400 we invested and then we sell 30 of the $15s for $2 is $6,000 so net net $12,400 for 50 of the 2025 $10 calls with 30 short $15 calls and that would mean we have 6 quarters to sell 10-20 short calls and the Sept $15s are currently $1.20 so call is $1,800 (15) x 6 is $10,800 and PRESTO – we have most of our money back on 50 2025 $10 calls that are worth $50,000 at $15.
But, for now, we’ll just see how it goes…