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. . . A little stingy with the "likes'? Yeah, me too. . . . Wonky (adj.): askew, awry, unsteady, off-kilter. Like gadgets or stock markets. Techwonk (me): someone who likes wonky stuff. . . disclosure: some posts may include input from other, uncredited sources (hi, uncle Fred) .
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  • What To Buy Now - Semi-Regular Update

    June 2014

    Growth at a reasonable price

    We find that most of our stock picks are swing trades, but most of our followers are longer-term investors. So when blogging, we try to emphasize stocks of interest to readers, not necessarily those we are trading.

    However two companies we have traded repeatedly are attractively priced at the moment. Readers looking for quality tech stocks might consider these: $ NDAQ and $ DTLK.

    We would be comfortable holding NDAQ several years. DTLK is a contractor and earnings are highly variable, so that one should be re-evaluated more often. Neither pays a dividend. Both are liquid and easy to trade, with narrow spreads.

    We are recommending that because the near-term effects of Obamacare are unknown, investors should be cautious in Quarter 4 with stocks that may be vulnerable to discretionary cash shortages. These include $ RCII, $ CRMT, $ MNST, and $ NKE. Email us if you have questions.

    We will add to this lists periodically.

    -----------------------

    May 2013

    Stocks you didn't know pay a dividend

    The old reliable consumer staples stocks are headed toward multiples that look like tech stocks. SJM at 22x earnings? really? for a company that makes grape jelly?

    A 2% dividend is great, don't get me wrong, but not at the risk of a 10% cut in share value. I admire the blue-chip dividend reinvestors, but it's not the strategy for me.

    Now, let me say just in passing that I'm a trader; I look at lots and lots of stocks every day. Most of them I don't buy or I'll hold only short-term.

    But if you're not a trader, and you're puzzled about where to find a good yield, I hear you.

    So I'm starting a little post for stocks I've found that might interest you.

    Please be sure you do your research on these. I'll screen to weed out the obvious problems -- overvaluation, high payout ratio, lack of a marketable product -- but you'll still have to do your analysis on financial strength, forward growth prospects and management team.

    -------------

    Unless otherwise noted, these are showing a 2% forward dividend (market average), p/e below 18, and forward growth rate is at least 8%. Metrics are subject to change so please recheck them when you research the financial info.

    STT - State Street. Investment banking firm that offers the SPDRs etfs based on Standard and Poors indexes like the S&P 500 and S&P sectors.

    HMN - Horace Mann. Insurer than specializes in coverage for teachers.

    SWK - Stanley Tools. Sells power tools to both construction and retail markets; also produces consumer appliances. Excellent dividend history.

    HMC - Honda Motors. Japanese auto manufacturer. Dividend was cancelled 2008 but recently resumed.

    Previously mentioned in my StockTalks but trading above 18 P/E at present: WDFC, BLK, MLHR. The insurers ACE and AFL have solid dividend histories and P/Es below 12 but growth is expected to be flat; therefore these also might be considered better buys on market pullbacks.

    ------------------------

    More things to look for:

    Dividend history: Be sure to check the payout ratio (under 50% is good, under 30% is better), as well as number of years of dividend payment, consistency of dividend amount, rate of dividend increases, whether dividend ceases during bear markets, etc.

    SA Member "Dividend Yield" has lists of Dividend Achievers on his personal website. These are companies with better than average consistency in dividend payment.

    SA Member "Chowder" has a Dividend Growth Investing portfolio on his personal website. If you plan to dividend-reinvest, it is worth loooking at. This is not a model portfolio, he is tracking actual investments.

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

    Tags: DIA
    May 07 5:12 PM | Link | Comment!
  • Options Timing - Trading With The Market

    You've heard the saying, "you can't time the markets." Whether you believe the saying is true or not, there is one area in which we must be aware of timing. That's when we're using options to manage a portfolio.

    As investors and traders, we already know to "buy low" and "sell high" whenever possible. As we begin to explore options, they provide us with opportunities to "buy lower" and "sell higher."

    The process used to trade options profitably depends on whether we are trading with the market direction, or against the market direction.

    Today let's look at how to do two kinds of simple trades in the same direction as the market is moving.

    ........

    I'm going to assume you've talked options over with your professional investment advisor, and checked on details like wash sale rules, and read the CBOE brochure (you can get a copy from their website or from your broker) and that you've looked up the brokerage fees that apply to option trades, assignments, and exercises.

    If not, you'll want to add those 4 steps to your to-do list and get them done before you trade.

    You'll also want to be sure your stock position is in "round lots" or multiples of 100, because this is how options are bought and sold. Divide the number of shares by 100 and you should have no shares left over. You don't have to sell options for all your shares in one trade, but you'll almost always buy or sell one option for each 100 shares.

    ........

    Let's start with a trade that uses a covered call to sell stock.

    As stock owners, we have a long position. We want to sell the stock, but we'd like to get a little more for it than the market's price today. If it is a "hot stock" that is very expensive and popular, we might do this by selling an option that is "at the money" with a high "premium", or seller's fee. We'd also have the choice of selling an option that is a little "out of the money". The premium on the OOTM call will be lower than the ATM call, but the selling price for the stock will be higher.

    We want to sell the call on a day when the market is trending up and the stock is trading up. We'll get a better price for the call when demand is high, and there will be more buyers. Once we sell the call, we've committed to selling the stock - unless we decide to buy the call back - so we need to be sure to consider carefully in advance whether this is the best way to sell the stock.

    ........

    Step-by-step, the trade looks like this: you own the stock. You choose a sell price for your stock, the "strike". You enter your trade order at the option's "ask" price, and hopefully get filled on the trade without having to bargain your option price down. Once you sell one or more call options at that strike, you'll receive asome money from the sale - this money is the premium. Your broker deducts a fee for processing the option trade. Later, when expiration day arrives and the option is "exercised" by the buyer, the broker will assess a second fee to close the stock trade. The stock will be removed from your accoun, and you'll receive the settlement value - the strike priice times the number of shares.

    ........

    Next, let's look at what happens if we want to purchase shares of stock using a put.

    Once again, we want to stay in line with the direction of the market.

    We'll want to use a "put-to-acquire" technique on a down-trending market day when the stock we wish to buy is also trending down.

    You know the saying "buy when others are fearful?" We want to sell puts when people are fearful and most willing to let go of their stock. The puts will be more valuable then, and option sales volume will be higher.

    Once again, the option represents a commitment - it is a contract. When we sell a put, we agree to buy the shares if the stock reaches the strike price by expiration day. The brokerage will freeze some of the funds in the trading account - enough to complete the sale - until the day when the option is exercised or the option expires unused. We must be sure we have the funds to complete the sale before we trade the put.

    .........

    Step-by-step, the trade looks like this: You chose a price at which you'd like to buy stock. You enter a trade order and sell a put, thus saying you agree to buy stock at the "strike" or settlement price. You'll try to receive the "ask" value rather than the "bid" value for selling the option. Once the transaction has closed you'll receive a premium payment, from which the broker will have subtracted the option transaction fee.

    The total cost of the stock purchase -- the strike price times the number of shares -- will be frozen in your account. Part of those funds will be the premium you received, and that will reduce your out-of-pocket costs on the total purchase. When the option expiration day arrives, the funds are debited, the stock is delivered to you, and the broker takes a second fee for closing the sale and "assigning" the stock to you.

    ........

    In contrast to this, the third kind of simple option that is frequently traded, a "protective put," requires us to trade against the market direction to get the best price.

    I won't go into detail on trading against the market in this post. But keep in mind that we want to buy low. Think about it: when will we get the best price while buying a put to use as a "hedge", or insurance for stock prices? When we don't need one, because the stock and the market are trending up!

    .........

    The best way to get used to this process is to practice trading options using a virtual trading program. This will give you a sense of how prices are changed by option spreads, volume, time value decay, and volatility. With virtual trading, you won't have to commit real money while learning.

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

    Apr 21 10:31 AM | Link | Comment!
  • A Word Of Advice For Beginners

    SA members who know me know that I'm definitely opinionated. I like to talk about stocks, and I don't mind a good argument now and then. It's good mental exercise to have your opinions challenged.

    But I don't get into posting a lot of buy-and-sell signals regarding specific stocks, for three reasons.

    First, the market often proves me wrong -- even when the fundamentals say I'm right. Stocks trade up and down for lots of reasons besides the intrinsic worth of companies.

    Second, companies often prove me wrong. Competitive climates can change as fast as the weather. Today's good long trade may be tomorrow's best short.

    So should you throw away your calculator and only trade momentum? I think not. I don't ignore momentum -- it has its place in analysis -- but I don't rely on it exclusively either.

    With that said, I have to add that some stocks are more momentum-driven than others.

    I like to say that there are trader's stocks and investor's stocks, just as there are traders and investors. The beginner often has trouble telling one kind of stock from another. This is especially true at market extremes, when all stocks seem to be trending together, either up or down.

    The best comment I ever heard on this subject was from an options trader who said, "if you're dating a girl with allergies, please don't send flowers." If your stock is highly volatile, whose problem is it if you go long on momentum and then the price falls back? Yours.

    Today more information than ever is available to beginners, even if transparency is not yet 100%. My hope for beginners is that they will use many sources of information in their decision making.

    Most stocks that have been exchange listed for a number of years have a track record. Get to know the company -- but also get to know the stock. How does it trade? What are the investment risks -- but also, what are the trading risks?

    Whether you hope to invest successfully or trade successfully, you need to be able to think like both an investor and a trader. If you can do this, the market will surprise you less often.

    The third reason I don't often give trading tips is that I'm here to learn. I hope we can learn together. Let me know what has worked for you and how you learned from it.

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

    Apr 10 5:39 PM | Link | Comment!
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