RA448's  Instablog

By any measure, Apple stock is still undervalued. The manic pace of sales during new product launches provides a momentum for the stock that is almost unheard of. Add to this the dividend declared by the company, which means more money managers will now have to buy the stock. But for the everyday-Joe on the street, how can you have your Apple cake and eat it too?

AAPL-a company many love to love and love even more if they own shares. Many individuals own a small position-we'll say 100 shares. They bought late last year when the price was just below $400.00, so we'll say $395.00. At $600.00, the closing price for the just finished first calendar quarter of 2012, this represents a paper profit of more than 50%. Here's how to stay in the stock and reap some small profits at the same time, thereby having your cake and eating it too. (Calculations do not include trading fees, which average about $8.00 each or $16.00 per round trip. A round trip is one EACH buy and sell order for the same security.)

First, set some widely spaced buy and sell targets. Analyst price targets over the next 12 months range from $670.00 to $1001.00. However, you can also expect the price to correct, or go down, at least 3-4 times during the same 12 months by about 4% to 10%. The upside gives you the opportunity to sell, while the corrections the opportunity to buy.

Start off by selling 10 shares when the price reaches $625.00. You now have a real profit of $2,300.00. Your next 3 sell signals:
$660.00, $775.00 and $925.00 for 10 shares each. Using the First-In-First-Out method employed by most trading software, these 3 trades give you real profits, respectively, of $2,650.00, $3,800.00 and $5,300.00, based on your original price of $395.00 per share.

Since we know the stock will correct, we'll set 3 reasonable buy signals based on prices in the previous paragraph. The first will be $600.00, the second $690.00 and the third $825.00. This is just a starting point and you can change the figures any way to suit yourself. Since Apple now pays $2.65/quarter in dividends, you could try to time your transactions to be eligible for this payment. Keep in mind that even if you still have all 100 shares, this amounts to only $265.00 per quarter. If you can do it, fine but keep focused on the bigger picture of those capital gains from the sale of stock. If you continue down this path, you will recoup your entire $39,500.00 investment before all your shares are sold and, don't forget, keep the shares for a year or more and you get favorable capital gains tax treatment on your profits and your dividends, unless the law changes.

Disclosure: I am long AAPL.

Additional disclosure: I am currently using the strategy outlined in this article.

Today I want to examine Kronos Worldwide ("Kronos (KRO)". KRO is a global producer and marketer of titanium dioxide pigments, also known as TiO2. This compound is used in more things than you can throw a stick at. Things such as coatings, plastics, paper, inks, food and cosmetics. The company specifies its main product in their web site URL: kronostio2.com.

Though this is well known, what is not so well known is that NL Industries ("NL Ind. (NL)"), owns a significant but non-controlling stake in KRO.

KRO has products that no one on earth can live without-literally. Ever wonder how your toothpaste looks so white? TiO2. How about that gloss white paint you just bought for your home improvement project? TiO2. TiO2 has been called the perfect white and the whitest of white. KRO produces several variations of this pigment for different uses. It's not alone in this space. E.I. du Pont de Nemours ("DUPONT (DD)") is the big boy in this space and one of the largest chemical companies in the world.

But KRO need not worry about DUPONT and other smaller players in the TiO2 space-at least for now. Demand for this specialty chemical keeps rising, as does production. All of the producers of this chemical recently announced price increases and they're expected to stick, as they have done in the past. This is partly due to plant closures and decreased production over the last few years, creating a supply imbalance favoring producers. Even though this one product represents about 90% of their sales, KRO should continue to profitably compete in this space.

KRO is a well run company. The stock currently trades at a 9 P/E and sports a dividend yield of 2.5%. The company has a history of raising dividends, as it did in June 2011 from 13 CPS to the current 15 CPS.

My only concern is paying too much for the stock. It's trading at about $22. to $24., well off the 52 week high of $34.50. You could purchase KRO on a dip and pay $19. to $21. per share, a range already seen this calendar year. Buy the stock for $20.00, hold onto it, collect the (now 3%) dividend and the price could easily rise to $30.00 within the next 12 months, giving you a total return on your investment of about 53%.

Barriers to entry in this space are high, as the product must first be mined and separated from mined material, then refined through a complex chemical process. However, a price war could hurt KRO and the other players.

There is currently no viable substitute for TiO2. I believe that those who short the stock will be disappointed. Though reports of a slowdown in Europe point to decreased demand, selling a product that goes into things that everyone needs should provide support. This makes the risk/reward ratio about 2-to-1 in favor of KRO. I'm speculating here but the risk/reward is tilted even more in favor of the company when you throw in the possibility of a takeover, an offer that could easily be $40.00 or higher.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in KRO over the next 72 hours.

Trading stocks is not for the faint of heart. Those who cannot take the losses as well as the gains should stay out. This method involves risk, including potential loss of principle but, done properly and with firm resolve, can result is nice gains.

My method started during an extended period of unemployment. I have been intrigued by the stock market for years and had a brokerage account during 1998-2000. I started watching CNBC and noticed that some stock tickers would appear quite often and at very different prices. I started adding the symbols, like KO for Coca Cola, to the stock app on my iPhone and that way I could watch them in real time. Over the course of 2 months, I discovered that many of these traded in a range, ofter no more than two or three dollars, over the course of a few days. It became obvious that this gyration was not that unusual. For example, a move of 1% a day for a week, whether up or down, is a total range of just 5%. Some may argue with my figures but they are accurate, none the less. If I could capture some of this range and profit by it, I could make some money. I could also lose money, something I was prepared to do.

I converted my 401K funds to a brokerage rollover IRA and kept watching CNBC. It would be about 2 weeks before I made my first trade, and boy did I have butterflies. Since I had limited funds and didn't want to bet the farm, I started relatively small.

I bought 300 shares of a company whose stock price fluctuated wildly between $13.00 and $16.00. Four days later I sold the position and made a modest $303.14, about one dollar a share. My first thought was "Whew, I'm sure glad that's over" as I was wiping the sweat off my brow. My second thought was "If only I had bought 1,000 shares, I could have made $1,000.00 instead of $300.00."

There was born my strategy, which anyone can use to their benefit.
1. Spend at least 2-3 hours a day, for at least a month, identifying the trading range of the stocks you're interested in BEFORE you start trading.
2. Know what you're buying. Do some research. Find out about the companies you are about to buy. Start with what you know. I.E., if you're in the automotive business, start with automotive related companies like Johnson Controls, Ford, Cummins, etc. Information is power and key to your success.
3. Pick stocks that have a price range that YOU are comfortable with. It might be low priced stocks, like $10. to $15. or higher priced ones, like $100. to $200. That is for you to decide.
4. Pick a trading range for each stock, i.e. at what price do you want to buy and sell the stock? For instance, The Green Widget Company stock has been trading in the range of $15.00 to $18.00 for the past 2 months. If you buy 500 shares @ $15.35 and sell them at $17.15, you will make a trading profit of $900.00, less trading commissions.
5. Add and remove stocks from your list of candidates and keep your list at somewhere between 30 and 60 names(more if you wish.) Any more than this gets too difficult to follow. There's only so much time to do this on a daily basis.
6. Don't be afraid to dump losers and take some losses. These should be dumped before they inflict damage on your portfolio.

Anyone can use this method. I used it once before and am using it now. Both times I have made money. You can too.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Investing in individual stocks involves risks, including loss of principle.