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John R. Conway
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When I am not trading/investing I enjoy cooking, which is my second passion next to investing. I currently reside in St. Louis, Missouri and I am a graduate of the University of Missouri-St. Louis with a Bachelor of Liberal Studies. I also was in the US Army for eight years in the reserves/in... More
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  • 52 week stock high vs. stock heading toward 52 week high. Which one should you pick?
    Let's say your interested in a particular sector and you notice there are two best of breed plays in that sector. What do you do If you only want to invest in one of the best of breed plays, that way you won't be too weighted in one sector. Two best of breed stocks that I'm looking at in the same sector is Verizon (VZ) and At&t (T). Verizon is currently at a 52 week high and At&t is about 6% from it's 52 week high of around 31.94; it's current price is 30.05 (at the time I write this article.) Sometimes investors have to show caution trying to trade stocks currently at 52 week highs, since you might see a short term pullback. Investors also need to watch the stock technical's to make sure the stock doesn't look like a crowded trade. So, the puzzle that confronts traders is when you have 2 stocks that are best of breed, in the same sector, pay over 5% dividends and have good fundamentals/technical's which one should a investor pick?

    Here a few reasons for deciding:

    1) Both Verizon and At&t's charts show both stocks heading in a upward range.
    Verizon broke out of a bullish channel range and now is at a 52 week high. One will see this take place from August to around the end of November and then a breakout above it's upper channel range in December and now at it's 52 week high


                   


    When looking at At&t's chart below



    While Verizon's chart from August was in a upward channel formation, At&t's was in a parallel formations from August and broke above 29.5, but still has more room to hit 52 week high of around 31.5

    2) Both stocks pay over a 5% dividend

    3) Both At&t and Verizon are market leaders in their respected sectors, have large market capitalization and there is no sign that another player will come in and directly compete.

    4) When looking at At&t's chart it can by hypothesized that the T-mobile deal likely stalled the stock for a period of time since At&t was waiting for regulatory approval (which we now know this deal will not take place.)

    5) Big cap/Big dividend stocks are in favor now. Weather you like Verizon or At&t, I believe both stocks are solid value plays.

    I currently like both At&t and Verizon, but I only want to play one in this field. Now that the T-mobile deal is over I believe At&t can now focus on itself. Note: there was no large sell off as maybe anticipated. In my opinion Verizon was the play to make when At&t was going through the challenge of trying to acquire T-mobile, which possibly lead Verizon to its 52 week high.

    In my opinion I would wait for a small pullback in Verizon before placing a trade now that the T-mobile deal is kaput. However, if you believe that At&t will make a run for it's 52 week high there is still some more room to make this trade. I currently prefer At&t to Verizon on the notion I would want to be in a stock that is heading toward its 52 week high then one that is already at its 52 week high.

    Look for a article to follow and thank you for reading. Comments are appreciated. Thanks....






     
    Dec 28 11:09 AM | Link | Comment!
  • Option play on Altria (MO)
    Smoke them if you got them

    When currently looking at the market going into the final weeks before the new year there is an assortment of stocks that are currently at their 52 week highs and continue to make positive gains. The question that an investor might ask themselves, is it time to sell or will the stock keep making new 52 week highs? One stock that is currently at a 52 week high that is continuing to rise is Richmond, VA based Altria, ticker symbol (MO)

    Altria engages in the manufacture and sale of cigarettes and smokeless production. Altria has a 60.3 Billion market cap, trades at 17.5X earnings and pays a nice 5.59% dividend. Altria trades in the consumer/non-cyclical and provides a product to people that can be addictive. Besides alcohol, in my opinion there are not many big market cap companies that can legally sell products that are addictive and continue to make profits year over year. When looking at the macro moves in the market one trend that I see is stocks that are at 52 week highs that keep making new highs. This can be seen as "stick with the winners and dump the losers" Sometimes waiting to buy options or stock on a company that is trading at a 52 week high can be tough to make, since you will likely want to wait for a pullback. What if you don't get that pullback? (finance.yahoo.com/q)

    While there are bullish and bearish cases for making trades on stocks that are at 52 week highs, I believe the market trend will work in favor of Altria going into the year end and this will continue into the beginning of the new year for the following reasons.

    1)  Smoke them if you got them. While cigarette prices have increased, smoking is one consumer staple that the majority of smokers don't want to give up until the price becomes unaffordable. Even with high prices for cigarettes in states as New York and New Jersey, smoking is a tough habit to kill and the taxes that cigarettes bring in currently help cash strapped states (Michigan and Illinois to name two).

    2) Other companies in the Consumer/non-cyclical such as Coke and Pepsi have to spend millions on advertising and marketing, While cigarette companies Altria and Phillip Morris (just to name two) don't have to worry about aggressive advertising and marketing due to US government regulations. This can be seen as positive due to high barriers to entry for wanting to enter into the sale and manufacturing of cigarettes.

    3)  Weather you enjoy or dislike global events that are happening around the world (Europe crisis for example) Altria is a play on the U.S. since a majority of its revenue and profits happen inside the US. As the U.S. continues to improve and show gains on positive macro economic data, this can benefit Altria's share price in staying at or above it's 52 week high.

    4) Dividend. Looking at yahoo's finance, Altria's last dividend was last distributed  on 13 September of .41 cents and not expected to change. Currently, this can be challenging to find companies with the market cap Altria has and that pays out over a 5% dividend The company has current earnings on 23 January 2012.

    5) Technically when looking at Altria over a 2 year time frame you will see that Altria is in a upward bullish channel. Not bad for a company that is paying you a 5.59% dividend.

    Current One year Chart Showing support at 27 since around October
                                                                                   

                                                        Chart forAltria Group Inc. (<a href='http://seekingalpha.com/symbol/mo' title='Altria Group, Inc.'>MO</a>)

    Currently, when looking at options in Altria investors might want to think about selling a call when options prices continue to rise in price since you will be able to collect the premium up front. However, I believe their is further upside to continue in Altria  and trading the trend (stocks with 52 week highs continuing to gain). On a pullback, I would want to buy calls, specifically I am looking at March 27.  This in the money call lets you make gains as the stock rises, but you are able to do this for less than outright purchase of stock; with the exception you don't get the dividend unless you own the stock. Earnings are coming up soon on January 23, 2012, so you still have time to set yourself up for an earnings play. When looking at a one year chart of yahoo one will notice that the 27 dollar range has been a nice level of support since around October. However, when you look past the 2 year chart you will see in the long term Altria has been a winner on buying on pullbacks. Good Luck!


                                                      


    Disclosure: I am long MO.

    Additional disclosure: I currently own March 27 Calls
    Dec 21 12:38 PM | Link | Comment!
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