The Money Tree

Safely Generating Income in Retirement

Archive for the ‘Troy’s New Picks!’ Category

This category contains blog entries that discuss trades Troy has made in his “Money Tree” portfolio.

New Trade – L Brands (LB)

Posted by mounddweller on August 9, 2018

Fellow Investors,

Today I initiated a new kind of trade.  It has two parts, one consists of being long the stock and the other is being short puts.  The strategy involves identifying and taking advantage of repeatable patterns of seasonality in the movement of a particular stock’s price.  Not all stocks exhibit this type of seasonality but those that do can be traded for short-term profits.

The stock I chose for my first attempt at this type of trade is LB, L Brands.  LB is one of those currently out of favor retailers.  It has two major chains, Victoria’s Secret and Bath & Body Works.  It also operates two smaller chains, Pink and Henri Bendel.  It also has an international segment for its Victoria’s Secret and Bath & Body Works stores located outside the U.S.

I chose LB as my first try for this type of trade for two reasons, (1) it is currently trading at a very depressed price, and (2) it exhibits a particularly strong period of seasonality.

First, let’s talk about the reasons for the very depressed price.  Currently, sales at domestic Victoria’s Secret locations are faltering.  Same store sales comps are declining.  Victoria’s Secret generated more than half of L Brands yearly revenue, 58.5% in 2017.  Thus, Mr. Market is worried.  However, I think Mr. Market has overreacted.  Since peaking at $62.95 at the close on December 26, 2017 LB has fallen 50%.  It closed today at $31.51.  However, the other 41.5% of L Brands business is doing just fine.  Sales at Bath & Body Works are doing particularly well.  International operations are also doing well, including those of Victoria’s Secret.  The result is that the company remains solidly profitable.  In Mr. Market’s defense there are a couple of other risks that are being priced in, (1) LB has doubled its long-term debt over the past 8 years, and (2) it pays a quarterly dividend of $0.60 which is currently just barely being covered by free cash flow.

Below you’ll find a couple of charts showing key financial information.  In looking them over I think you’ll reach the same conclusion I did, the situation isn’t nearly as dire as Mr. Market would have you believe.

Earlier today L Brands announced its July sales.  The news continues to be bad for Victoria’s Secret but overall it was a positive report.

  • It reported overall sales increased 10.7% Y/Y to $849.7M in July.
  • Comparable sales were flat for the month. Comparable sales fell 2% if only the chain’s stores are tallied up.
  • Bath & Body Works saw a 10% increase in comparable sales, while Victoria’s Secret turned a -4% comp.
  • The company says it expects to report Q2 EPS toward the high end of its previous guidance range of $0.30 to $0.35 per share.

These results further strengthened my belief that results will overall continue to be favorable in the upcoming all important 3rd and 4th quarters of 2018.  This bodes well for a strong performance in its seasonally favorable period which generally runs from August through December.

Over the past 10 years the stock price of L Brands has done very well in the last 5 months of the year.  Initiating a trade on the first trading day in August and closing it on the last trading day of the year in December yielded the following results.

As you can see this trade over the past 10 years has been successful 80% of the time.  We all know what was happening in 2008 so it shouldn’t be a surprise to see that initiating this trade that year would have resulted in a large loss.  A far smaller loss would have been recorded in 2016.  In 2012 the result would have been a very small gain had it not been for the payment of a $3.00 special dividend.

Now, let’s discuss the specifics of the trades I placed earlier today.  As I mentioned in the opening paragraph it has two parts.  First, I purchased 100 shares of LB at a price of $32.20.  The stock faltered later in the day.  Had I been a bit more patient I could have gotten in a bit lower.  It closed today at $31.51.  The second part of the trade consisted of selling to open (STO) two JAN 2019 put at a strike price of $30.  The premium on each was $2.40.

I think it is reasonable to expect that LB will perform similarly to last year in this seasonally favorable period.  Thus, my target price by year-end for LB is $40.  Should LB get to $40 my ROIC (inclusive of the two $0.60 dividends to be paid in September and December) would be 27.95%.  Annualized my return would be 71.3%.

Now let’s look at the potential returns of my two short puts.  Should they expire out of the money (OOM) on January 18, 2019 my ROIC will be 8%.  Annualized my return would be 17.9%.

Now let’s look at the downside potential of this trade.  If the stock doesn’t perform as expected what does my downside look like?  I can’t see it falling significantly below $30 but let’s assume I have the stock put to me at $30 in January and that I continue to hold the original 100 shares purchased at $32.20.  My net cost on the assigned 200 shares will be $27.60 ($30 – 2.40).  My net cost basis on the 300 shares will be $29.13.  The stock currently pays $2.40 in dividends ($0.60 per quarter).  Thus, the dividend yield on my 300 shares would be 8.2%.  I can then either choose to continue to hold the stock and collect the substantial dividend or I can begin selling $30 covered call options until I get called away.

Only time will tell how my initial foray into trading seasonality turns out.

Best Regards,

Troy

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New Investment – KMI

Posted by mounddweller on March 30, 2018

Fellow Investors,

Over the past few weeks I have been looking to make one or two opportunistic additions to my long-term investment portfolio.  In a previous post I mentioned an interest in IBM and OKE.  I still have both of these on my radar screen.  However, my interest in OKE and the fact that mid-stream O&G companies in general have fallen out of favor on Wall Street led me to expand my research.  In addition to OKE, I also began to keep an eye on ENB and KMI.

All 3 companies are leaders in the mid-stream space of the O&G industry.  While I really like OKE, I decided to do more due diligence on ENB and KMI because, in my opinion, they represented a better value.  Then, after comparing ENB and KMI, I decided I liked KMI just a bit better than ENB for the following reasons:

(1) ENB pays dividends in Canadian dollars, thus there is a currency risk,

(2) KMI is further along in strengthening its balance sheet.

Thus, last week when it appeared pessimism was at a peak I made two trades.  First, I bought 200 shares of KMI at $14.84 per share.  Second, I STO 2 KMI SEP 15 puts at $1.30.  KMI currently pays a $0.50 dividend.  Thus, my initial dividend yield is 3.37%.  Nothing to get too excited about, right?  However, if you’ve followed KMI in the past you know that they have had a few rough years.  They grew too fast and incurred too much debt.  As recently as 2014 KMI had paid quarterly dividends at an annual rate of $2.00 per share.  In order to restructure their balance sheet and get back in the good graces of the analysts on Wall Street, they cut their dividend by 75% and used the savings to pay down debt and become self-funding.  By that I mean their plan going forward is to fund all of their future growth out of existing cash flow without having to access the debt or equity markets.  Having done that for the past couple of years KMI is now positioned to again begin growing its dividend.  For 2018, they have announced plans to increase the dividend from $0.50 to $0.80.  Barring unforeseen events the plan calls for further increases to $1.00 in 2019 and $1.25 in 2020.  If these plans come to fruition my yield on cost in 2020 will be a very impressive 8.42%.

Now, let’s take a look at the puts I sold.  As referenced above, I STO 2 KMI SEP 15 puts at $1.30.  I decided to sell these puts for a couple different reasons:

(1) I wanted to leg into a full position in KMI over time, and

(2) the relatively high VIX gave me an opportunity to make a higher ROIC than if I had just bought another 200 shares of stock.

Since these are cash secured puts my ROIC is 8.67% (1.3/15).  That is significantly higher than 5.39% (0.8/14.84) return I would have gotten had I just purchased the shares outright.  Better yet, my annualized return on the puts is 17.57%, since my maximum holding period is only 180 days.

If I have KMI shares put to me in SEP at $15, my cost basis will only be $13.70.  This will give me a yield on cost of 5.84% in 2018, 7.30% in 2019, and 9.12% in 2020.

At these prices and rates of return I am very happy to have added KMI to my long-term portfolio.  I am continuing to keep an eye on OKE and hope to make an equally attractive entry in it later this year.  I’d like to own OKE at $45 or less.  Thus, it will take a bit more volatility in the market before I can hope to achieve this price target.

Best Regards,

Troy

 

 

 

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Building a “Dividend House”

Posted by mounddweller on February 26, 2018

Fellow Investors,

I am a frequent reader of articles on Seeking Alpha (www.seekingalpha.com).  There are several superb analysts who write regularly on the site.  There are also an innumerable number of hacks.  It doesn’t take long to tell which is which.  There are also many individuals, like myself, who just like doing their own analysis and publishing the results.  One such individual goes by the non de plume, “Dividend House.”

“Dividend House” is a person nearing retirement age who decided to take the bull by the horns, divest her and her husband’s portfolios of mutual funds and start investing in dividend growth stocks (DGI).  In order to make sense of her portfolio she devised a wonderful analogy of the stocks in her portfolio as being sections of a house, i.e. foundation, walls, roof, etc.  If you’re so inclined you can read about her Dividend House model here: https://seekingalpha.com/article/3791466-build-dividend-house-stocks-go.

Recently, Dividend House, posted another article discussing the possible need to replace one of the stocks in the foundation portion of her portfolio.  The stock she was considering replacing was Owens & Minor (OMI).  OMI is a healthcare company with an excellent record of growing dividends.  However, in recent years, the turmoil in the healthcare industry has wreaked havoc on its business model and forced it to adapt or die.  For this reason Dividend House was considering removing it as a foundational stock.

After reviewing Dividend House’s criteria for foundational stocks and the overall methodology for building her portfolio, I made the following observations:

  • With over 60 stocks, she had too many stocks in her portfolio, and
  • Stocks that form the foundation of a portfolio should very rarely need to be sold.

I told her if it were my dividend house I would simplify the criteria for foundational stocks to only include those which met the following:

  • Stock must be a Dividend King (50+ years of annual dividend increases)
  • Dividend growth must have exceeded and have a reasonable expectation for continuing to exceed the annual rate of inflation.

My rationale was simple as well. The overall goal of the portfolio is to provide a safe and growing stream of income in retirement. She also want to sleep well at night (SWAN). A dividend king stock has proven to be resilient in all kinds of markets and economic conditions. As long as you can reasonably expect its business model to continue to be successful and its growth to exceed the rate of inflation nothing else should really matter.

I would also have fewer stocks in my foundation. Foundational stocks should be big, ‘cornerstone’ size investments. I would have more, smaller positions in my wall stocks and even more and smaller positions in my roof stocks.

After writing these comments, I decided I would spend some time coming up with what I thought would be a good foundation for a DGI portfolio.  However, before doing that I had to come up with a methodology for how I would build my own dividend house.

First, the foundation.  I previously referenced my simple criteria for selecting foundational stocks.  I also decided that foundational stocks would constitute 50% of my total stock portfolio and that each position would be less than 5% of the total stock portfolio.  Thus, my foundation would consist of no more than 10 stocks.

Next, are the walls.  The criteria for wall stocks is similar to those of the foundation.  The only difference being that the stock must be a Dividend Aristocrat, having increased its dividend annually for at least 25 years.  The walls would constitute 25% of my overall portfolio.

The criteria for stocks in the roof of my dividend house would consist of equities that have raised their dividends annually for at least 10 years.  In aggregate, they would constitute no more than 15% of my DGI portfolio.

Finally, I would also have a garden section of my dividend house.  This would consist of ‘up and comers’ in the world of DGI stocks.  They might not have any record of annual dividend increases but have the potential for rapid revenue growth and eventually might become consistent dividend growers as well.  The garden would constitute no more than 10% of my total DGI portfolio.

After building this framework I then spent some time determining what stocks should be placed in the foundation of my dividend house.  Using David Fish’s latest DGI spreadsheet which you can find here: http://www.dripinvesting.org/tools/tools.asp, I found that there are currently 27 companies that qualify as Dividend Kings, i.e. having raised their dividend annually for 50+ years.

As you might expect many of the names in this list are well known large cap stocks.  However, I also found several smaller, lesser known stocks which have very enviable dividend growth records.  To determine which 10 of the 27 stocks would best fit in the foundation of a DGI portfolio I decided to use the following criteria:

  • 10-year annualized growth rate of dividends
  • 10-year yield on cost (YoC), assuming investor had purchased stock 10 years ago at the 52-wk low.
  • 5-year YoC, assuming investor had purchased stock 5 years ago at the 52-wk low.
  • Free cash flow (FCF) payout ratio using the most recently available data. In most cases this was the fiscal year 2017 data, but in some cases was the trailing 12 months, and in a couple of cases was the 2016 fiscal year data.

7 of the 10 stocks selected were in the top 10 of the 10-year average growth rate of the dividend,
8 of 10 were in the top 10 of the 10-year highest yield on cost, 7 of 10 stocks selected were in the top 10 of the 5-year highest yield on cost, 4 of 10 were in the top 10 of the FCF payout ratio, and 3 of 10 were in the top 10 of all four criteria.  The results of my analysis are contained in the below table.

The 10 stocks I selected for the foundation of my dividend house, listed in alphabetical order are as follows:

  • Minnesota, Mining & Manufacturing (MMM), now more commonly known as 3M, is a large cap conglomerate which has increased its dividend annually for 60 years. I selected MMM because of its enviable ability, despite its size, to grow its dividend at a double digit rate.  It also has a very high 10-year YoC.
  • Colgate Palmolive (CL) is a well-known manufacturer of personal care products. It too, is a large cap stock.  It has increased its dividend every year for the past 54 years.  I selected it because of its high single digit growth rate in dividends as well as its leading position in a recession resistant industry.  People are never going to stop buying shampoo and toothpaste.
  • Genuine Parts Co. (GPC) is a lesser known but well respected manufacturer and retailer of replacement auto parts. It has increased its dividend annually for 61 years.  GPC is one of those companies that you rarely see mentioned on CNBC or on the lips of your friends as a stock tip at a cocktail party.  I selected it because it too is in a recession resistant industry and despite not being in the top 10 of 10-year average dividend increases, its annual dividend increases have handily outpaced inflation.  It also was in the top 10 for both 10-year and 5-year high YoC.
  • Hormel Foods (HRL) is a well-known name in the food manufacturing industry. It has raised its dividend for 52 years.  I selected it for its recession resistant business model and the fact that it was in the top 10 of all four of my selection criteria.
  • Johnson & Johnson (JNJ) is one of the most well-known and respected companies on the planet. It is a large cap stock that is diversified across the healthcare and pharmaceutical industries.  It has raised its dividend annually for 55 years.  I selected it for its consistent growth.  In my opinion, no DGI portfolio would be complete without it.
  • Lancaster Colony (LANC) is an amazing hidden gem. Like HRL, it operates in the food manufacturing industry.  It has zero debt and has raised its dividend for 55 years.  I selected LANC for its conservative balance sheet and its focus on returning capital to its shareholders.  Not only does this company pay out a growing annual dividend, it also pays out a special dividend every few years.  The past couple of times the special dividend alone has equaled 5%!
  • Lowe’s (LOW) is the well-known home improvement retailer. This large cap stock has also increased its dividend for 55 years.  I selected it because it was one of only three stocks that were in the top 10 of all my criteria.
  • Nordson Corp. (NDSN) is another one of those hidden gems I found. Prior to doing this research I had never before heard of it.  It is a manufacturer of packaging machinery.  It has increased its dividend every year for 54 years.  Despite it having a very low initial yield, it has one of the highest 10-year YoC.
  • Target (TGT), like JNJ and LOW, is another one of those household name stocks. It operates as a big box retailer.  It has increased its dividend for 50 years.  I selected it because despite its well published hiccups of the past several years (data security and amazon competition) it has managed to continue to rapidly grow its dividend.  It was also one of the 3 stocks which were in the top 10 of all of my criteria.
  • Vectren (VVC) is a lesser known utility stock. It operates both regulated gas and electric utilities in the Midwest.  It has increased its dividend annually for an amazing 58 years.  I selected it as the one utility in my foundational portfolio and also because of its conservative, slow growth, operations.

Before wrapping up this post I want to briefly comment on two prominent Dividend Kings that are conspicuously missing from my pick of foundational stocks.  They are Coca Cola (KO) and Procter & Gamble (PG).  Both of these companies, while continuing their streak of annual dividend increases, 55 and 61 years respectively, have faltered in the past several years.  Neither company was in the top 10 of any of my selection criteria.  I own KO in my current portfolio and as a result of this analysis I am considering replacing it.

Best Regards,

Troy

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New Trade – TROW

Posted by mounddweller on February 2, 2015

Fellow Traders,

I have a new trade to tell you about.  I know, I know two in one month what am I thinking (ha ha).  However, this is not my typical naked put or covered call trade.  This is a straight, go long, buy stock trade in T. Rowe Price Group (TROW).  For those of you who follow Teddi at http://www.fullyinformed.com you’ll recognize this as what she calls a Bollinger Bands trade.

Below is a 3 month chart for TROW.

BLOG - TROW 3-mnth 020215

The blue lines are the Bollinger Bands (BB).  The BBs provide a range of expected price action for a stock.  Wide BBs are a function of high volatility while narrow BBs indicate low volatility.  Stocks generally stay within their BBs.  Movement outside the BBs indicate extreme enthusiasm or pessimism by traders in a stock.  Stocks trading above or below their BBs will usually act like a coiled spring and move rapidly up or down back into the BB envelope.

The strategy behind a BB trade is to buy the stock after it reverses course and moves back up and away from the lower BB and then sell it once momentum begins to wane or begins to fall.

Today I bought TROW at $79.10.  In looking at the chart you can see TROW (like most stocks) fell most of last week.  On Wednesday, January 28 it closed down touching the lower BB.  Thursday, it traded significantly above and below the lower BB but ended up closing right on it.  Friday, was another big down day but TROW managed to eke out a gain and again closed on the lower BB.  Today, TROW opened higher making this a good set-up for a BB trade.

My target for this trade is to sell TROW at $81 or better.  Because the market is kind of shaky right now I’m going to set a tight stop-loss on this trade.  If at any point TROW dips to $78 I’ll sell.  I’ll also sell if TROW begins to lose momentum and closes below the opening price of the prior trading day.

If you’re a member of Teddi’s site and would like to learn more about the BB strategy you can read about it here: http://www.fullyinformed.com/members/the-bollinger-bands-strategy-for-big-profits/.

Regards,

Troy

 

 

 

 

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New Trade – FDO

Posted by mounddweller on March 8, 2014

Fellow Traders,
I STO  2 FDO MAR $60 puts at $0.65 right before the close on Friday.  Reasoning is as follows…
(1) Good ROI, >1% with 2 weeks to expiration.
(2) 5% downside protection
(3) Stock is very oversold, has fallen for 7 straight trading days
(4) support at $60
Likely will close position early on any bounce higher.  With only 2 weeks to expiration the premium should erode rapidly especially with a bounce.
Here’s the 1-yr price chart:
BLOG - FDO 1 yr chart
Regards,
Troy

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2014 – First Trade

Posted by mounddweller on January 2, 2014

Fellow Traders,

I executed my first trade of the year on the first trading day of the year.  I think that is a first for me.  Yet another first is that the trade was in Clorox (CLX), a stock I had not previously traded.  OK, that’s enough ‘firsts’ for one post.

Here’s the trade I executed: STO 1 FEB CLX $87.50 put at $1.50.

This trade idea came courtesy of my investing friend and mentor Teddi at www.fullyinformed.com.

This trade has the potential to generate a return of 1.63% with a holding period of 51 days.  That equates to an annualized return of 11.66%.  That is just under my target return of 12%.  However, CLX is a lower risk trade so I feel comfortable accepting the slightly lower return.

Here is my trade plan:

BLOG - CLX Trade Plan

If the market sell-off continues for the next couple of days I’m sure more trades will begin to pop up on my radar screen.

Regards,

Troy

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New Trades!

Posted by mounddweller on December 9, 2013

Fellow Traders,

OK you can pick yourselves up off the floor now.  I know it must be quite a shock to see that I’ve posted something two days in a row.

I executed three trades today so I thought I’d post them in near real time as opposed to just mentioning them in my month-end results.

Two of the 3 trades were suggestions from my good friend Teddi at www.fullyinformed.com.  The 3rd is TEVA which most readers will know I’ve been trading regularly since late April.

BLOG - New Trades 12092013

Regards,

Troy

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New Trade – POT

Posted by mounddweller on July 30, 2013

Fellow Traders,

 

My trade today in POT was a first for Troy’s Money Tree.  Why is that, you ask?  Well, because I ended up mimicking a day-trader.  By that I mean that I was in and out of the trade in just a few short hours.

 

I have been keeping an eye on POT for the past several days.  As a matter of fact I had actually tried to place a trade in it yesterday but thankfully never got filled.  Specifically, I had placed an order to STO AUG $36 puts at $0.51 when it was down around its lows of the day.

This morning before the market opened I noticed the news about Russia’s Uralkali Group, the world’s largest fertilizer producer, pulling out of a cartel and vowing to ramp up production.  I then checked pre-market prices for all of the major fertilizer producers.  As expected all, including POT, were going to open significantly lower.

After the market opened I looked at various expiration months.  The market was moving so fast there were no options available for AUG expiration at POT’s opening price.  I then decided to look at the JAN14 expiration.  By keeping an eye on the fast stochastics and the William’s R technical indicators I was able time my entry at close to the daily low for POT.  With POT trading at $29.15 I sold the JAN14 $28 puts for $2.58.

My plan upon entering the trade was to watch for the subsequent bounce and close the trade when I could buy back the puts at $1.29 or better (50% of the entry price).  I had anticipated this could take a month or two to achieve.

I checked in on POT’s price periodically throughout the day (unfortunately, I still have a day job).  I wanted to be ready to bail out quickly if I had mistimed my entry and the stock continued to fall.  After a late lunch I noticed that POT was back over $30 and moving steadily higher.  I started paying closer attention to it and shortly after 2 pm CT I decided it might make sense to alter my original trading plan.  With the JAN $28 put trading at just under $2.00 I realized I could buy to close my position and achieve a 2% ROIC in about 5 hours of elapsed time.

I continued to closely watch the trade.  Like in the morning when I opened the trade I was watching the fast stochastics and William’s R to time my exit.  When the stock began to pull away from the upper Bollinger Band that’s when I made my move.  With POT trading at $31.65 I bought to close my JAN14 $28 puts at $1.71.

My ROIC on this trade, net of commissions, was 2.95%!  The unrealistic annualized return is an astronomical 1075%.

My plan now is to continue to watch POT and the other fertilizer manufacturers like MOS, IPI, and AGU to see if I can detect a floor in the pricing.  At that point I’ll look to sell another round of puts for either the AUG or SEP expiration depending on how many days remain to expiration.

I’ll be back later this week with a summary of my July results.  It’s been a good month.

Regards,

Troy

 

 

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New Trade – CAT

Posted by mounddweller on June 15, 2013

Fellow Traders,

I executed a new trade today.  As I mentioned in my earlier post on CHRW, I’ve had my eye on CAT for some time now.   In just a moment I’ll explain my line of reasoning for this trade.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide.  It was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. The company was founded in 1925 and is headquartered in Peoria, Illinois.  (courtesy of Yahoo Finance)

Here are the specifics for my trade:

STO 2 JUL $80 puts at $1.00

This is not my first rodeo with CAT.  I’ve successfully traded it twice earlier this year.  I learned about the potential for trading puts in CAT from my investing friend and hero Teddi over at www.fullyinformed.com.  I’ve kept it on my watch list ever since.

Here’s why I like this trade right now…

(1) It is trading well down in the range its established over the past year ($80 – $90).  It did rally at the beginning of the year to $100 but has since fallen back into the trading range.

(2) Earlier this week it bounced off its lower Bollinger Band at around $83 and now appears to be trending back up.

(3) The slight uptick in volatility has increased option prices such that I could go for a lower strike price and still receive a decent premium

Here’s a 3-month price chart which shows the bounce off of the lower Bollinger Band.

BLOG - CAT 3M v2

So, why didn’t I sell the $82.50 puts?  Well, despite the bounce off the lower Bollinger Band being a good signal for a price reversal, with the current uncertainty in the overall market I decided I wanted a little less risk in this trade.  That coupled with the fact that CAT has strong support at $80.

Here’s a three year chart which shows the strong support at $80.

BLOG - CAT 3 Yr Chart

That’s it for this one.  I’m still keeping an eye on the NUE JUL $42 puts.  However it didn’t fade as much on Friday so I’ve elected to wait a bit longer before I pull the trigger on that one.

Regards,

Troy

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New Trade – CHRW

Posted by mounddweller on June 13, 2013

Fellow Traders,

I executed a new trade today.  I’ve had my eye on this one for some time now.   I sold puts on C. H. Robinson Worldwide (CHRW).

C.H. Robinson Worldwide, Inc., a third-party logistics company, provides freight transportation services and logistics solutions to companies in various industries worldwide. It offers transportation and logistics services, such as truckload, less than truckload, intermodal, ocean, and air freight transportation, as well as other logistics services, including transportation management, customs brokerage, and warehousing. The company has contractual relationships with approximately 56,000 transportation companies, including motor carriers, railroads, air freight, and ocean carriers. It also engages in buying, selling, and marketing fresh produce. It offers its fresh produce to grocery retailers, restaurants, produce wholesalers, and foodservice distributors through a network of independent produce growers and suppliers. The company operates through a network of 276 branch offices in North America, Europe, Asia, South America, and Australia. C.H. Robinson Worldwide, Inc. was founded in 1905 and is headquartered in Eden Prairie, Minnesota.  (courtesy of Yahoo Finance)

Here are the specifics for my trade:

STO 2 JUL $55 puts at $1.10

You’ll notice I didn’t go hog-wild with this one.  By that I mean I intentionally kept this a small trade.  I did so because I’ve never traded CHRW before and thus don’t have any experience in how volatile it is or an understanding of how it reacts to market and company specific news.

However, as I mentioned above I have had my eye on it for some time.  Here’s why…

(1) It is on my Dividend Superstars list

(a)  It has increased its dividend annually for the past 16 years

(b)  It’s dividend growth rate for the past 5 years is 12.9%

(c) It’s payout ratio is relatively low, only 38%, thus it has plenty of room to continue growing the dividend

(2) It is trading at multi-year lows

(3) It is trading at a significant level of support

(4) The first three reasons mean I wouldn’t mind owning it at this price and am interested in possibly establishing a longer-term position in it.

(5) Given the low level of volatility in the market, I liked the potential 2% ROIC if the puts expire worthless.

Here’s a one-year price chart which shows the strong support at $56.

BLOG - CHRW 1yr Chart

Here’s the three year chart which show just how far back the support at $56 extends.

BLOG - CHRW 3yr Chart

That’s it for this one.  Other trades I’m currently keeping an eye on include the NUE JUL $42 puts and the CAT JUL $80 puts.  Both ran away from me today but given the recent volatility I expect they’ll come back down and I’ll get another chance to pull the trigger.

Regards,

Troy

 

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