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Posts Tagged ‘WAG’

New Trade – WAG

Posted by mounddweller on September 30, 2012

Fellow Traders,

As I mentioned in my earlier post, I made two trades this week.  The first was a naked put trade in WM.  The second was a covered call trade in Walgreens (WAG).  I have been following WAG for pretty much all of 2012.  Back in February and again in July I had sold puts at the $30 strike price.  Both expired out of the money (OTM).

Walgreens has had a difficult year.  Their business took a substantial hit when they were not able to mutually agree on terms of their contract with Express Scripts.  However, a few months apart has since convinced both companies that they are better off working together.  Consequently a new contract has been signed and went into effect earlier this month.

WAG closed Friday at $36.44, very near it’s 52-wk high of $36.90.  It’s 52-wk low is $28.53.  Normally I do not like to buy or trade stocks that are trading near their 52-wk highs.  I’m cheap and thus am almost always looking for a bargain.  However, in this case, I believe WAG is a bargain despite trading near yearly highs.  Why?  Well because of the difficulties I referenced earlier.    The stock has been beaten down all year and now that investors have a more favorable outlook its price has begun to recover.  Despite this recovery it remains well below its multi-year high of $45.  It also is reasonably priced at 12.5x trailing and 10.5x expected earnings.  The 5-yr price chart is below.

There are a couple of reasons that I decided to go ahead and enter a covered call trade in WAG.  First, its another stock that I want to own in my long-term portfolio.  Amazingly, it has increased its dividend almost 200% in the past five years, from 9.5c to 27.5c per quarter.  It currently yields 3.1%.  With the baby-boomers (of which I’m one) beginning to retire in droves, I believe the substantial dividend increases are sustainable .  Second, I liked the recent price action in the stock.  It has formed a classic ‘cup with handle’ formation that generally results in an upward break-out in price.

Here’s the trade I made and my intermediate term plan for this stock.  I bought 300 shares of WAG at $35.86 and simultaneously (buy/write) sold 3 OCT $37 calls at $0.46.  This gives me a net cost of $35.42.  If assigned at expiration, I’ll have a 4.46% ROIC with a holding period of less than 30 days.  If WAG remains under $37, I’ll be in a position to capture the upcoming dividend when it goes ex-dividend around November 9.   After OCT expiration I may sell another OTM round of calls.  If WAG begins to fall, I’ll look to add to my position by selling puts at the $32 strike price.

Regards,

Troy

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Trade Update – WAG

Posted by mounddweller on July 26, 2012

Fellow Traders,

I’ve been lax lately in posting all of my trades.  Over the next several days I hope to catch you up on what I’ve been doing lately.  As volatility has picked up so has my trading.

First, I’d like to tell you about my recent trade in Walgreens (WAG).  Some readers may recall I executed a trade in WAG earlier this year.  You can read more about WAG and that trade here: https://troysmoneytree.wordpress.com/2012/01/14/new-trade-wag/.

My most recent trade in WAG was similar to my earlier one.  Specifically, on June 19th I sold to open (STO) 3 JUL $30 puts at $0.68, netting $194.25 after commissions.  At the time WAG was trading at $30.09, pretty much ATM.  For some time it appeared I might have to roll the puts or have the stock put to me at $30.  However, a few days prior to expiration Walgreens and Express Scripts announced they had inked a new multi-year agreement.  WAG jumped over 10% on the announcement.  At expiration on July 21st it was trading at $34.60.

Having netted $194.25, my cash secured puts generated a 32-day ROIC of 1.62%.  Annualized, this equates to 18.46%.

In the months ahead, if we get another sell-off, I’ll be looking to enter another trade in WAG at the $30 strike.

Regards,

Troy

 

 

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Dividend Superstars – Potential New Trade – WAG

Posted by mounddweller on February 6, 2012

Fellow Traders,

Yesterday I set out to write a post on four possible trades from my dividend supertars list.  Unfortunately, I ran out of time and didn’t get anything posted.  So, this evening I’m taking a slightly different approach.  I’m going to attempt to finish a post on one of them.  If I get it finished then I’ll start another post with my next selection.

As you can see from the title my potential trade involves Walgreens (WAG).  This is a stock I’ve been following for a couple months now.  As a matter of fact I already have an open trade in WAG.  Specifically, I’m short 4 FEB $30 puts.

This new trade is a bit different than any others I have written about previously.  It is different in that in addition to doing a rather ordinary buy/write trade I am also going to buy a protective put.   A protective put allows me to buy insurance for a decline in the price of WAG.

Let’s look at the specifics of the trade I’d like to execute.

As I mentioned above this trade involves a buy/write.  Specifically, I would like to buy 400 shares of WAG at today’s closing price of $34.28 and at the same time sell to open (STO) 4 MAR $34 Calls at $1.17.  Then, I would like to buy to open (BTO) 4 MAR $31 puts at $0.21.

This trade has many possible outcomes, two of which I’ve included in my spreadsheet above.  First, if the calls are assigned at $34 at expiration on March 16 I will have earned $250.30 or 1.82% ROIC.  Second, if the calls expire OTM and worthless I will have earned $379.20 or 2.76% ROIC.  Both of these scenarios give me a return greater than my desired minimum of 12-15% per annum.

My net cost (or break-even point) in this trade is $33.35.  Having purchased the put at the $31 strike price means my theoretical maximum loss is $2.35/share or $940.  This equates to 6.85% of my invested capital.

My plan if WAG declines by March 16 would be to sell to close (STC) the puts prior to expiration and and use the proceeds to lower my cost basis.  Then, I would sell another round of covered calls.  The decision to purchase additional put protection would be dependent on how the overall market was acting.

If you would like more information about Walgreens, I have written about it before.  You can read it here: https://troysmoneytree.wordpress.com/2012/01/14/new-trade-wag/.

As I mentioned at the beginning of my post I have a few other trades I am considering.  These also involve executing buy/writes with a protective put.  Stocks I’m interested in are AVP, BBY, and CHRW.

Regards,

Troy

 

 

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New Trade – WAG

Posted by mounddweller on January 14, 2012

Fellow Traders,

On Friday, I executed a new NP trade in one of my ‘dividend superstars’, Walgreen’s (WAG).   Walgreen Co., together with its subsidiaries, operates a chain of drugstores in the United States. It sells prescription and non-prescription drugs; and general merchandise, which include household products, convenience and fresh foods, personal care, beauty care, candy, photofinishing products, and seasonal items, as well as home medical equipment, contact lens, vitamins and supplements, and other health and wellness solutions. The company offers its products through drugstores, mail, telephone, and online. It also provides specialty pharmacy services; customers infusion therapy services consisting of administration of intravenous medications for cancer treatments, chronic pain, heart failure, and other infections and disorders; and clinical services, such as laboratory monitoring, medication profile review, nutritional assessments, and patient and caregiver education. In addition, it operates Take Care Clinics to treat patients, give prescriptions, and administer immunizations and other vaccines. As of January 4, 2012, Walgreen Co. operated 7,811 drugstores in 50 states, the District of Columbia, and Puerto Rico. The company was founded in 1901 and is based in Deerfield, Illinois.  It currently pays a quarterly dividend of $0.225 ($0.90 per annum).  At Friday’s closing price of $32.63, it currently yields 2.7%.  Walgreen’s has increased its dividend for 36 consectutive years.

Below you’ll find a plethora of financial information about Walgreen’s.

I want to call attention to several pieces of the information.  First, sales have increased every year for the past 10 years.  Net margin, not untypical in retail operations is thin.  However, it is consistently in the 3.5 – 3.8% range.  It dipped slightly during the recession in 2008/9.  Debt/Equity is very manageable and the P/E ratio is well below its 10 year average.  For traders wanting to accumulate a long-term holding in WAG it is important to point out that its dividend payout ratio is a low 27%.  There is ample room for continued growth in the dividend, even if revenue and net income growth were to stagnate for an extended period of time.

Now let’s take a look at the price chart.  I have chosen to show you the 3 year chart so that you can see what happened to the stock during the financial crisis and thus see what might transpire should the sovereign debt situation in Europe blow-up and send the market into a tail-spin.

During the last crisis, on March 9, WAG bottomed out at $21.39.  More recently, on November 23, it hit a 52-wk low of $30.34.  Its 52-wk high occured last March 15 when it hit $47.11.

So, I’m sure inquiring minds want to know why the stock has sold off in the past several months.  The short answer is two words, Express Scripts.  Express Scripts is a pharmacy benefit manager.  Walgreens previously filled a lot of prescriptions for Express Scripts customers.  However, the two companies were unable to agree on new contract terms before the old contract expired at the end of 2011.  Mr. Market fears Walgreen’s will lose a substantial amount of business in its pharmacy department if they lose Express Script’s customers.  I’m of the opinion they may see a temporary decline but that they will eventually figure out a way to continue growing without the benefit of Express Script’s business.  Walgreen has been in business for over 110 years.  During this time there have been many, many BIG changes in the medical industry.  Walgreen’s has adapted and will adapt again.  This confidence in Walgreen’s long-term viability led me to place the following trade:

STO 4 WAG FEB $30 puts at $0.38.

My ROIC, net of commissions, for this trade is 1.18%.  At Friday’s closing price of $32.63 I have down-side protection of 9.22% with 35 days to expiration.  If my puts are ITM at expiration I can choose to either roll them out to either March or April, or I can except assignment.  If I accept assignment I will own 400 shares of WAG with a net cost of $29.62.  My initial dividend yield would then be 3.04%.

Let me know your thoughts or questions by posting a comment below.

Regards,

Troy

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VISIONS Scout Run – 090510

Posted by mounddweller on September 5, 2010

All,

Happy Labor Day weekend!  I hope you all are enjoying the holiday.  I ran a VISIONS Scout screen this evening to see what might look good for the short trading week ahead.  The strong upward move last week produced a bumper crop of stocks meeting Ron’s criteria.   79 stocks have a Gold$ of 80 or better.  16 of these had a perfect Gold$ of 100.  A partial listing of the stocks found in Ron’s Scout Stocks to Buy report is embedded below.  Because of the large number of stocks on the list I had to limit it to the 38 having a Gold$ score of 90 or greater.

There are a number of stocks in the top 10 that caught my eye.  In particular I find XOM and WAG to be of interest.  Both are what I consider top-shelf, blue chip companies.  Both pay a moderate and growing dividend.    I already have a position in XOM.  I own shares, have sold CCs against those shares and also have open NP trades to acquire additional shares.  I am trading XOM using a strategy developed by my good friend Teddi over at www.fullyinformed.com.

I am interested in opening a position in WAG.  As I mentioned in my post from a couple weeks ago it is in recovery mode having fallen to a recent 52-wk low of $26.26.  I think it has great long-term growth prospects with the continued aging of the baby boomers.  It currently trades at less than 2x book value.  It has a dividend yield of 2.47% and a payout ratio of around 26% which means there is plenty of room for future dividend growth.

Other stocks in the top 10 that interest me are AEO, MRVL, and SNDA.  AEO is the retailer American Eagle.  Their target market is kids and young adults from 15-25.  They have an excellent balance sheet but I’m a little fearful of their near-term earnings potential.  Their target market has the highest unemployment rate of all in the US. 

MRVL is a high tech manufacturer of communications gear.  They too have an excellent balance sheet and trade at < 10x forward earnings.  SNDA is another Chinese online game stock.  You’ll recall I mentioned a couple of their competitors in my post two weeks ago. 

SNDA has over half of its market-cap sitting in cash on it’s balance sheet.  Thus, if you remove the cash from the calculation instead of trading at just over 13x forward earnings it is trading for about 6.5x forward earnings!  Dirt cheap! 

6 other stocks outside the top 10 also have Gold$ scores of 100.  They are: ADBE, SF, GPN, JNJ, GILD, and YHOO.  Of these I like JNJ and YHOO.  JNJ because it is the bluest of the blue-chips and is at an attractive price point.  YHOO because after all of the excitement about it being bought last year it has fallen off of everyone’s radar screen and is now plugging along in relative obscurity.

Hope everyone has a great week.  All of the big boys will be back on Wall Street after wrapping up their summer vacations in the Hamptons.  It will be interesting to see if they put their muscle behind power ing the market higher of if they decide to pull the plug based on the lousy economic data.

Regards,

Troy

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VISIONS Screen – 8/21

Posted by mounddweller on August 22, 2010

All,

I ran a VISIONS Scout screen this weekend after AUG expiration Friday.  Below are some highlights from what I found for specific stocks that looked particularly interesting to me.  However, before we jump into those I’ll tell you a little bit about the overall results of the scan.

The scan returned 32 stocks that met all of Ron’s “Level 4” criteria.  Of these 11 are what I’d call ‘investment grade’, i.e., they have a Gold$ greater than or equal to 80.  4 of the 11 have a perfect Gold$ score of 100.  The 11 ‘investment grade’ stocks are (Gold$):  PWRD (100), GHL (100), HAR (100), GAME (100), NVDA (82), SNDA (80), AMTD (80), SF(80), ADBE (80), WAG (80), and GPN (80).

Here are some details of the four stocks that have perfect Gold$ scores as well as one or two others that intrique me.

PWRD – Perfect World is a Chinese online gaming company.  They sell and manage several of the largest and most popular online role-playing games in China.  They have a market cap. of $1.25B.  They have no debt and over $250M in cash on their balance sheet (over $5/share).  Their P/E ratio is 8.5!  As one would expect with a software company they earn incredibly high returns on assets and on equity. 

The stock is currently trading near the lower leg of the VISION V.  Like all VISION selections it has fallen, hit bottom, and is now in recovery mode.  It hit a 52-wk high of $49.08 back in November of 2009.  It then fell hitting its 52-wk low of $20.79 in June.  Since then it has recovered, closing Friday at $24.99.  The SEP CCs at the $24, $25, and $26 strike price all look good.  The best choice of course is dependent on your guess as to the future direction of the market and your risk profile.

GHL – Greenhill & Company is an independent investment bank.  It has a market cap. of $2.13B.  They seem a little pricey having a P/E ratio of 33.  However, they have excellent operating margins.  They have around $33M in cash but over $55M in debt.  The stock hit a 52-wk high of $93.90 back in October before falling to around $61 in June.  It closed Friday at $72.20. 

I would pass on this one for a number of reasons.  First, I like to trade stocks that are less than $50.  Second, it has a very high P/E which in this shaky market means it could fall alot further before folks began to see it as a bargain and starting buying.  Third, while the amounts are modest, it does have more debt than cash on its books.  In this market and economy I’d rather stick with stocks that have zero net debt.

HAR – Harmen International Industries is a manufacturer of stereo equipment under various brand names including the famous Mark Levinson brand stereos found in Lexus automobiles.  It has a market cap. of $2.14B and a reasonable P/E of 13.65.  As one might expect in a highly competitive industry Harmen has thin margins and low rates of return on assets and equity.  However, they do have more cash than debt on their balance sheet and generate good free cashflow.

The stock peaked at $52.51 in April.  Its 52-wk low is $27.10 which it hit almost a year ago in August 2009.  It closed Friday at $30.71.   The SEP $30 call looks interesting at $1.75 bid.

GAME – Shanda Games Limited, like Perfect World is another Chinese online gaming company.  It has a market cap. of $2.02B and a P/E of 9.16.  Also like Perfect World, GAME has excellent operating margins and earns high rates of return on both assets and equity.  It has over $420M in cash vs. only around $2M in debt.

I like everything about Shanda except the stock price.  It is less than $10, having closed on Friday at $7.02.  Thus, when trading options you have little room to maneuver.  Worse yet, the Shanda options trade in increments of $2.50.  For these reasons I would pass on trading GAME.

That wraps up my discussion on the four top-rated VISION picks.  However, a couple of others further down the list of 11 caught my eye.  They are ADBE and WAG.

ADBE – Adobe Systems is one of the most recognized names on the planet in computer software.  It makes the ubiquitous Adobe Acrobat and pioneered the PDF document.  It has a market cap. of $14.66B and a relatively high P/E of  39.21.  However, it has a forward P/E of only 13.  It has good but not exceptional margins and about $1.15B in net cash.   It is trading at the lower leg of the VISION V having hit a 52-wk high of $37.86 last December and bottoming out in July at $26.34.  Friday it closed at $27.92.  The SEP $28 call at $0.88 looks interesting to me.  Ron prefers the OCT $28 or $29 strikes.  In this kind of market I prefer to stick with the near month.

WAG – Walgreens is a drugstore retailer.  It has a market cap. of  $27.69B and a reasonable P/E of 13.70.  Like most all retailers it has thin operating margins.  However, it does earn respectable returns on its assets and equity.  Its cash and debt are almost exactly equal and it generates strong cash flow.  The reason I’m interested in Walgreens is because I think it is a blue chip company with a solid dividend.  This is a company I wouldn’t mind owning for a good long time and now is a good time to establish a position.  It pays a small but growing dividend of $0.70/share.

Since hitting a 52-wk high of $39.66 in October it had fallen to a 52-wk low of $26.20 in July.  On Friday it closed at $28.45.  You could enter a position in WAG in several different ways.  You could do a buy/write and sell the JAN $30 or $31 strike.  This would allow you to make some capital gains and collect at least one dividend before facing the possibility of being called away in January.  Or, you could sell near-month put at either $27 or $28 and hope to be assigned on a pull back.

Hope you find all of this information interesting and useful.

Regards,

Troy

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