With the 30-Year treasury bond below 2.8%, investors are trying to find income any way they can. An interesting company based out of Akron, Ohio that is paying over a 6% dividend yield may be the answer. Looking for more potential appreciation in the future? FirstMerit (FMER) rallied to over $30.00/share during the financial crisis in September of 2008. With a Price to Book ratio of .73 and a forward P/E of 8, this bank looks very interesting to say the least. FirstMerit was known for having a very conservative book during the crisis of 2008 and 2009, leaving it as a real regional competitor in Cleveland, Ohio and now Chicago, Ill after its recent purchase. Did I mention FirstMerit's Debt to Equity ratio of .21 vs. its competitors', which is very competitive?
The last time FirstMerit traded under $11.00 was in 1995, with half the earnings and size. During the worst of the financial crisis in 2009, FirstMerit traded at $12.45, before rallying up to over $20.00 in less than three months.
How to trade this gets even better.
Buy and Protect for Less
I have an investor who wants to purchase $250,000.00 at $10.00. The investor buys 250 March 17th 2012 at $3.30, leaving him with a cost basis of $13.30, right?
FirstMerit doesn't do anything those days and trades just below $10.00. Since we bought an in the money Put Option, we can put back the stock at $12.50, while we only bought it for $10.00. Here's what it really costs you.
- Buy Stock at $10.00
- Buy Put at $3.30
- Basis at $13.30
- Minus $2.50 for being in the money
- Minus .30 in dividend collected
Leaving you really only on the hook for .50/share. Buy and protect for less with FirstMerit.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FMER over the next 72 hours.