Seeking Alpha
, Joe Springer (422 clicks)
Long/short equity
Profile| Send Message|
( followers)  

On May 25 we created the $33,000 American Portfolio saying:

The purpose of the $33,000 American Portfolio is to be a learning tool for seeking home-run potential with acceptable risk.

Time For an Update:

The $33,000 American Portfolio

The market has been good for all kinds of excitement lately. There are sales everywhere and undoubtedly some of these are major bargains that should be scooped up right now. Just as undoubtedly, though, some of these are traps.

We sold an Arch Coal put in the American 33 Portfolio and it expires on July 21st. As we prepare to put those funds to work in a few weeks here are some of the things we are watching and thinking about.

Oil

Good oil and gas majors are rarely on sale and even though they can still get pole-axed from here it is getting to be time to buy. Picking one here has challenges though. The US dollar is strong so re-repatriated profits suffer mightily for the US integrated companies like Exxon (NYSE:XOM) and Chevron (NYSE:CVX). It would be nice to get an oil producer that is outside the US and sells in to those US dollars. Europe is a mess and we are more bearish there than many so Total (NYSE:TOT), juicy yield and all, is not for us.

Suncor (NYSE:SU) has really been catching our eye. The diversified Canadian oil sands producer is outside the dollar and looking in. It seems as immune to Europe as any other oil. The sands come with environmental risks but represent growth without exploration.

And then there is this: Suncor is buying back shares. But they are not buying back shares like any other company - they sold puts! That's right, in a very unorthodox move they embraced the strategy they we love so much! Instead of buying shares they sold the right to buy shares. Just like us. We LOVE Suncor. We'll do more homework on the company but unless we find something we do not like or they run too much in the next few weeks we will welcome Suncor to the American 33 family. The premiums on their puts are nothing to right home about so we are thinking about Jan 2014 LEAPS calls (LEAPS are Long Term Equity AnticiPation Securities, just regular call options with longer expirations).

Insurance

Financials have gotten slammed along with energy and David Merkel makes a good point

valuations are depressed across the insurance industry. Part of that may stem from ETFs. Insurers as a whole are smaller than the banks, but not as much smaller as they used to be. Now, if you are a hedge fund, and you want to short banks, you probably have the best liquidity shorting a basket of financials, which shorts insurers as well

Many insurance companies are not any worse off but got slammed anyway. A word about insurance.

Insurance is the best business in the world. Owning an insurance company is like owning a casino. The house wins. Always. What if the house ever does lose? Uncle Sam bails them out.

The insurance companies getting flattened here is just too good to pass up. Their options premiums, like in oil, are low on the puts so LEAPS might be the play here except that some of our favorite names are small players. We listened to the Assured Guaranty's (NYSE:AGO) conference call on Tim Travis' tip and we liked the story if it gets hit on a ratings agency downgrade. We're considering American Equity (NYSE:AEL), Aetna (NYSE:AET), and AIG (NYSE:AIG) also but the one that we like most right here is FBL (NYSE:FFG). FBL does annuities and life insurance and as someone who sold both of those things I know the margins don't get any better than those two sure profit-makers. The CEO is moving on after righting the ship and the stock has been hammered for no good reason. With all the other financials getting slammed on Monday FBL lost less than 1% and looks ready to rise in a neutral market.

The Portfolio

After one month let's do the math. Click the "update" link toward the top of the page to see how we are calculating the puts we sold, it is a conservative method considering we plan to hold the positions.

JG Boswell (PINK:OTCPK:BWEL)

The Boz does not trade with Europe and eked up even as the broad market was throttled.

$4,380 / +$78

Waterfurnace Renewable (PINK:OTC:WFIFF):

Trying to find its way higher amidst dreary economic data.

$3,100 / +$44

Alliance Grain Traders (PINK:OTCPK:AGXXF)

A real long term play but if it wants to run now go ahead little fella!

$1,861.50 / +$244.50

Solazyme (NASDAQ:SZYM):

The Soul has just screamed higher from day 1. We are holding the position until expiry on Sept 22 and not going to close unless business changes.

+$1,925

Arch Coal (NYSE:ACI):

Arch = Ouch. We like it more than ever, come July 21 we'll re-up a least partly on Arch.

Calls: -$736

Puts: -$1,222

Amazon (NASDAQ:AMZN):

This position along with Salesforce, if they are wildly successful, will not look good until they look great.

-$295

Salesforce.com (NYSE:CRM):

-$45

Conclusion

We'll continue to monitor the portfolio and the market. July 21 we will re-deploy some cash and right now we like foreign oil and domestic insurance.

Total: $32,993.50

Source: $33,000 American Portfolio: Bargain Hunting

Additional disclosure: I am also short CRM via puts