Seeking Alpha
Portfolio strategy, dividend investing, mega-cap, large-cap
Profile| Send Message| ()  

In a week when the biggest story was the signature of the man selected by President Obama to succeed Timothy Geithner as Treasury Secretary, it's not too surprising that not much happened in the markets.

After more than a 4% gain the prior week, a breather was welcome, as shares assigned from my portfolio must have felt as if they had outstayed their welcome.

They hadn't, but sometimes it's just time to leave.

The week was a busy one in Executive Office politics as it was the time honored tradition of appointed cabinet officials knowing that it was time to leave. The week demonstrated a strategy to fill cabinet positions that many are finding to be uncomfortable. Some people like the security that comes with known names and entities, while others relish in the unknown and "out of the box" thinkers.

Professional sports is like the former. How else can you explain the consistent recycling of proven losers, while promising new leaders go languishing as they await an opportunity to strut their stuff and lead their teams to victory?

As opposed to the process of assembling a Presidential cabinet under George W. Bush when every face was a very hackneyed and familiar one, this week's events were quite the opposite, as the choices ranged from the unknown to the disliked. Norv Turner may have qualified for an appointment in the Bush Administration, but not here and not now.

What could confidently be said about Jack Lew, the Treasury Secretary designee, is that his signature suggests that he would be comfortable working together with Federal Reserve Chairman Bernanke and add a few extra "zeroes" to the money supply. After all, why stop at just a Trillion Dollar Coin? It's like 5 minute Abs.

President Obama's cabinet during his first term was noted for its infrequent turnover and familiar names. That's how my portfolios used to be and I can't necessarily complain about its performance. The portfolio was always comprised of well known names, never any speculative issues and they all stayed a long time, through good and bad performance, then good performance and then bad performance, again and again.

As Secretary of Labor Hilda Solis announced her departure, ostensibly lured by an irresistible Herbalife (HLF) ethnocentric marketing campaign, Raymond LaHood is one of the few leftovers and he should stay just for the humorous name.

That's not a good enough criterion for stocks, though. These days, I like rapid turnover, but still only have comfort with familiar names. I too may have chosen Donald Rumsfeld, but likely would have been a little distressed if he had not departed within 40 days, or so. I like a portfolio that is more of a sleep-over than a relationship.

After veering significantly from last week's script in an effort to find lots of replacements for assigned shares, I'm again faced with needing lots of replacements, but at least this past week, the overall market wasn't terribly difficult to top. Think of it as having to find a replacement for Treasury Secretary John Snow. Henry Paulson was pretty good in his own right, but by comparison he really shined.

Still, the challenge of finding potential candidates that aren't at or near 52 week highs is difficult. Normally, my list is comprised of the same old and reliable names, but this week there are some newcomers that hopefully will get a chance to strut their stuff and then be gone before outwearing their welcome. That's especially on my mind this week as a number offer only monthly option contracts. I tend to be more willing to consider those stocks in the final week of a monthly cycle, but if they're not assigned that starts preparing the way to push the 40 day envelope.

As usual, stocks are categorized as either being Traditional, Momentum, Double Dip Dividend or PEE (see details). As earnings season goes into full gear this week, there were actually a large number of candidates to consider for earnings related trades, but often the best opportunities come with some of the lesser known or higher flying names than with the button down early reporters.

I'm not certain that I know anyone that would admit to having, much less using a Discover credit card. I still spend a good portion of my time trying to find a place that will allow me to decide between my Diners Club or Discover. Yet, Discover Financial (DFS) is a reasonable alternative to Visa (V) and MasterCard (MA). Although Discover has outperformed its more respected cousins in the past year, it has greatly under-performed in the past month.

DuPont (DD) used to be one of my favorites. That was back in the days when there were no weekly options, it had an artificially high dividend and great option premiums. These days, I'm not quite as enthused, as the years have taken their toll. But during the last week of an option cycle? Why not? Besides, with all of the portfolio new comers, it's good to have a familiar face or two to keep things grounded.

Speaking of grounds, Starbucks (SBUX), although higher than the last time I owned it, just a few months ago, appears to be running on all cylinders. I'm not certain that anyone knows and understands his company as well as Howard Schultz understands Starbucks. Even in the face of a negative earnings report two quarters ago, Schultz effused so much confidence in responding to the market's reflexive response to "bad" news, that you had to be inspired about the company's prospects.

These days, I'm not certain that I should still categorize AIG (AIG) along with my other "Momentum" stocks. Its option premiums are less and less like those of others in that category. AIG is a stock that I often wish I had read my own weekly words and bought much more frequently than I had done. Along the lines of inspiration, every time I see its CEO Robert BenMosche on air, I think that he is truly a hero of American business and finance. Instead of remembering the villains, we should laud the heroes.

U.S. Steel (X) could be one of my newcomer stocks this week. I don't have any particular thesis. I simply like the premium, but am respectful of the risk. U.S. Steel does report earnings on January 29, 201 and am not certain that I would want to be holding shares going into earnings. Since it does trade a weekly option, there would be at least two escape opportunities prior to earnings.

Yahoo! (YHOO) is another stock that I haven't owned in a while, having waited for its return to $16. Following its drop this past week, I feel a bit more comfortable considering a purchase after its resurrection.

Footlocker (FL) is another one of the new comers that doesn't necessarily inspire me on the basis of any underlying theme. Like U.S. Steel it has a nice option premium, but only trades a monthly option. The upcoming dividend may tip the scales for me as the stock hasn't had the same kind of run-up that its products should equip the owner for.

Lowe's (LOW), for all of its commendable performance, is a stock that I only look toward as it approaches its ex-dividend date. It too offers only a monthly option, but like Foot Locker, going ex-dividend in the final week of the monthly option cycle makes ownership more palatable.

eBay (EBAY) is another stock that I own too infrequently. That may change as it's come over to the weekly options family. It reports earnings this week and will likely be as good as its PayPal division allows it to be. It's no longer the highly volatile stock of yesterday, but still offers a reasonable risk-reward ratio in the same 5% range on strike price.

Having missed the entire move in the entire housing sector doesn't preclude entry, it just includes risk. Lennar (LEN) will report earnings this coming week and I expect a break in its upward trajectory. In the past its shares have not over-responded to earnings news, so the risk reward may be present at the 5% level, rather than the 10% level that I often find comfort in. If prices hold up prior to earnings release and I can obtain a 1% premium for selling a put at a strike 5% below the current price or selling an in the money call at a similar strike, this may be a good candidate for a short term dalliance.

Traditional Stocks: Discover Financial, DuPont, Starbucks

Momentum Stocks: AIG, U.S. Steel, Yahoo!

Double Dip Dividend: Foot Locker (ex-div 1/16), Lowe's (ex-div 1/18)

Premiums Enhanced by Earnings: eBay (1/16 PM), Lennar (1/15 AM)

Remember, these are just guidelines for the coming week. Some of the above selections may be sent to Option to Profit subscribers as actionable Trading Alerts, most often coupling a share purchase with call option sales. Alerts are sent in adjustment to and consideration of market movements, in an attempt to create a healthy income stream for the week with reduction of trading risk.

Source: Your Portfolio Is Your Presidential Cabinet

Additional disclosure: I may initiate positions (or sell puts) in DD, DFS, LEN, EBAY, LOW, X, FL, YHOO