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Deep OTM NP Strategy – SEP Week 4

Posted by mounddweller on August 21, 2011

Fellow Traders,

Many of you may recall my surprise a couple of weeks ago when I announced that there were 88 selections to choose from that week.  Then again last week there were 78 selections.  Well, we’ve now blown those records clean out of the water.  This week there are 414 selections that met our Week 4 criteria.  That is way too many for me to include in a blog post.  Thus, this week I’m going to depart from my normal process and only list the selections that caught my eye and that I think are worthy of your further due diligence.  If anyone is interested in seeing the complete list just leave a comment to this post and I’ll send you a spreadsheet with all 414 selections.

The first thing you’ll notice is that all but one of the selections that interested me are all large-caps.  This is not an accident.  In this type of market I’m only interested in trading stocks that I have no doubt will be around long after this latest crisis has passed.

First up this week is AFLAC (AFL).  I wrote about AFL last week so to avoid repeating myself and boring you I won’t say much about it.  However, last week I shared with you the 1 year price chart.  This week I want to show you the 5-year price chart so you can get a sense for where the stock might go if we encounter another crisis like we had in 2008.

Next on our list is Applied Materials (AMAT).  AMAT provides manufacturing equipment, services, and software to the semiconductor,
flat panel display, solar photovoltaic (PV), and related industries worldwide.   Applied Materials, Inc. was founded in 1967 and is headquartered in Santa Clara, California.

I like AMAT a lot.  It is the very first stock I ever sold an option on.  I have wanted to circle back to it for a long time but felt it was too expensive.  Now it has appeared on my Deep OTM NP selection screen.  I’m going to give it a strong look.   AMAT has a strong balance sheet with $2.35/share in net cash.  It trades at 9.1x trailing earnings and 8.2x expected earnings and it pays $0.32 annually in dividends.  At the $9 strike price that is a 3.56% dividend yield.  I would be very happy owning it at $9.

Again, I’m going to show you the 5-yr price chart.  In this case you can see AMAT is not too far from it’s 2008 lows.  That doesn’t mean it can’t go lower than that but in my opinion it does make it less risky than some other stocks which remain a great distance from their 2008 lows.

BB&T (BBT) is the next selection that caught my eye.  It caught my eye for a couple of reasons.  First, earlier this week it was a featured selection in an investing newsletter to which I subscribe.  Second, the put option on BBT that we are interested in has 33% DSP and again is very close to lows encountered in the 2008 financial crisis.  The $13 strike price has a 1% ROIC.

BB&T Corporation operates as the financial holding company for Branch Banking and Trust Company that provides banking and trust services to small and mid-size businesses, public agencies, local governments, and individuals in the United States.   As of May 17, 2011, it operated approximately 1,800 financial centers in North Carolina, Virginia, Florida, Georgia, Maryland, South Carolina, Alabama, Kentucky, West Virginia, Tennessee, Texas, Washington D.C., and Indiana. The company was founded in 1906 and is headquartered in Winston-Salem, North
Carolina.

In the interest of time and the length of this post I am going to leave the rest of the list for you to review and do further research on.  However, for those of you interested in Gamestop (GME) I will remind you that I have written about it in my blog before.  Typing GME in the search box will provide you with a list of my prior posts.

Best of luck to everyone in their trades this week.

Regards,

Troy

 

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