On my way of finding the next equity to invest in for my portfolio, it was very difficult to find any candidates that meet many of my value requirements for a long term investment. But with the screening and initial analysis that I completed, I was able to come across a great small to mid cap company that has excellent free cash flow (FCF).
Bare Escentuals, Inc. (BARE) is a company with a market cap of just over $1 Billion and trades on the Nasdaq. While completing my value scorecard (see below), this company (like many others) has seen a decrease in sales and income due to the recession. What really stands out in this scorecard is the FCF of $79.3MM in the last twelve months, representing a FCF Yield of 12.1%. Adjusting for the recent stock appreciation, the FCF yield is 7.5%, well within the 2 times range of the 10 year T-Bill.
With all of this support, I decided to enter into a short-term covered call trade of BARE. Here are the details of the trade that was executed on Sept 23rd, 2009:
Buy 100 Shares of BARE at $11.96
Sell 1 Oct 12.50 Call Option at $0.45
Commissions of $11.70
Net Cash Investment of $1,162.70
S&P 500 Level at the time of the trade was 1,060.87
If this executes, the strategy will return 6.5% in 23 days, hopefully creating some alpha. I will track this in my real account portfolio.
Disclosure: I hold the covered call position of BARE mentioned above.