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Tom Armistead
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I'm a well-informed retail investor and post on SA in order to expose my thought process to critical examination and comment from readers. It makes me a better investor. I'm particularly proud of bullish macro articles posted in 2009 and later, in which I presented ideas that encouraged me to... More
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  • Chubb: Quantifying Lowball Guidance

    Chubb (NYSE:CB) reported fine earnings for 2014, but guidance for 2015 was characterized as "light" by the press, and the shares have been giving up some of their recent gains.

    The company has a history of lowballing guidance, strong enough to be worth tracking and quantifying. Here's a table:

    Over the period tracked, the company has beaten guidance by an average 18.61%, and missed only once.

    Based on this analysis, I'm looking for EPS of $8.90 for 2015. The earnings will be deployed to benefit shareholders, some to the dividend, the bulk of it to buybacks. With that in mind, I'm not too concerned about the share price. The lower the price, the more profitable the buybacks will be.

    Tags: CB
    Feb 03 12:15 PM | Link | 2 Comments
  • Continuing The Harmonic Trade

    A little over a year ago, I did a diagonal call spread on Harmonic (NASDAQ:HLIT) long July 2014 5 calls and short April 2014 7.5 calls. This trade has worked well for years, given the company has relatively high volatility combined with a strong balances sheet. So it's possible to earn premium by selling covered calls, without worrying unduly about the downside of the long position.

    I've been rolling this along all year, and I'm now long the April 2015 5 calls and short the April 7.5 calls. The stock has gone from $7.60 when I opened the trade to $7.69 when I sold the latest set of calls.

    If shares are above $7.50 at expiration in April, the IRR will be 42%.

    I've been doing this thing on and off since April 2009, and so far I've always made money. Basically I just keep selling calls at 7.50 and buying the next strike down to cover the short position. From time to time I roll the thing forward another 90 or 180 days. IRR has been between 20% and 1,000%, and probably averages about 40%.

    This is like a penny slot machine that is somehow rigged in the gambler's favor. Just sitting in a quiet corner of the almost totally deserted Green Room, put in a $20 dollar bill and sooner or later you get tired of pushing the buttons and close out with $35 or $40. At this point, I don't really care how it ends: it's more of an experiment, how long can this go on?

    Feb 02 11:53 AM | Link | 1 Comment
  • Buying Caterpillar

    I had an empty slot in the Synthetic Dividend portfolio and ran a portfolio analysis at Morningstar. They draw my attention to the fact that I don't have very much industrial. 3M (NYSE:MMM) would be a natural, but it is priced for perfection right now.

    I've owned Caterpillar (NYSE:CAT) in the past, with good results, and I'm familiar with the company. I ran a PE5 valuation, and it's under a multiple of 15, which is where I like to buy cyclicals.

    Basically this is a buy low sell high idea. I bought the Jan 2016 70 LEAPS, and sold May 2015 97.5 calls against them, to earn a little time premium.

    Tags: CAT
    Jan 08 11:38 AM | Link | 4 Comments
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