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Covered Call Trades of the Month

Investors have been bracing for anything that could reverse at the last minute the market’s year-long rally, which saw the Dow and S&P 500 hit record highs again this week. The S&P 500 is up 26 percent this year and registered a sixth week of gains on Friday.  However, income investors seeking to trade covered call investments have been performing well too.

Below are two successful trades from the past month listed in the Monthly Income Plan at getrichinvestments.com .  Each month, income investors are creating income streams from selling covered call options against high quality stocks.  Here are some winning trades from the current newsletter:

Covered Call on USG Corp (USG)

STRATEGY: Look at the Nov 27 covered call. For each 100 shares of USG stock you buy, sell one Nov 27 covered call option for a $25.50 ($26.65 – $1.15) debit or better.

Actions: USG is currently trading at $27.66 at the close on 11/15 so the 27 call we sold is ITM.  These shares and call options will be called away.

This is a 5.88% return for one month and an estimated 70% annualized return.

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Covered Call on Flour Corp (FLR)

 

STRATEGY: Look at the November 2013 77.5 covered call. For each 100 shares of FLR stock you buy, sell one Nov 2013 77.5 covered call option for a $74.89 (77.19 – 2.30) debit or better.  That’s potentially a 3.49% assigned return.

Actions: FLR is currently trading at $79.36 so the 77.5 call we sold is ITM.  These shares and call options will be called away on Friday (11/15).

This is a 3.49% return for one month and an estimated 42% annualized return.

Ameriprise offers a Total Yield Stock Play with a Growing Dividend

While income investors constantly seek out stocks with growing dividend yields, they can also benefit from share buybacks.  The share buybacks present an opportunity for investors to get capital gains in addition to current income.  Currently, 80% of S&P 500 companies are buying back shares. Combine this with dividend yield and you can get a total yield of greater than 10% in 2014.  We are presenting a series of stocks worth a look.

Ameriprise Financial (NYSE: AMP) has a projected share buyback yield of 14% and a current dividend yield of 1.95%.  This provides investor a potential for a total yield of 15.95%.  The stock has an equity summary score of 7.9 out of 10 for a BULLISH outlook.  The stock has a 12 month price target of $104.

Ameriprise has a one-year dividend growth of 48%.  The dividend has grown from $0.35 in Q3 2012 to the current $0.52 in Q3 2013.  The 5-year average annual dividend growth rate is 25%.  AMP has a current dividend payout ratio of 36%.

Second-quarter 2013 net operating revenues were up 9%, year to year, on a 14% increase in management and advice fees and a 4% decline in net investment income.  Assets under management and administration of $703 billion were up 7% from a year earlier, helped by market appreciation.  We expect at least modest single digit annual revenue growth in 2013 and 2014, on a sustained pickup in asset inflows.  We think the Annuities segment will continue to be under pressure from the low interest rate environment in the near term, and that Annuities and Protection segment revenues will be relatively stable over the next two years, holding back the company’s overall revenue growth rate.

Balancing fund underperformance and outflows, particularly in International equities, slower-than-expected margin improvement, and AMP’s commitment to return capital to shareholders, we believe the shares are appropriately valued. We have a positive view of AMP’s focus on the growing market of affluent households.  We believe AMP is well positioned for long-term growth due to its shift toward the less capital-intensive and higher growth potential businesses of retirement planning advice and asset management, as well as a more international focus. Also, further economies of scale should be realized as integration of Columbia Management was nearly completed in 2012.

Covered Call of Month – October Expiration

For subscribers to the Get Rich Monthly Income Plan, the monthly covered call trades all provided positive income from the selling of call option.  One of the better trades was FedEx (FDR) as the setup is shown below.  The covered call trade used a strike price of 120 as the stock closed well above this price on 10/18.  The trade provided a one month gain of 3.9% for covered call traders.

 

Covered Call on FedEx (FDX)

STRATEGY: Look at the Oct 120 covered call. For each 100 shares of FDX stock you buy, sell one Oct 120 covered call option for a $114.53 (116.83 – 1.30) debit or better. That’s potentially a 3.87% assigned return.

TREND:   The technicals for FDX are bullish with a strong upward trend. The stock has support at $107 and is above resistance. The company reported earnings today, Wednesday, September 18. S&P rates this stock 4 STARS (out of five) – buy.

BLANKET PUT: As a protective option to the covered call, you can buy the Jan 2013 110 Put for $3.20 to limit your stock downside to $110.00 per share. This put is not required for the covered call trade but serves as additional protection for those seeking to limit downside. You should sell the put when you exit the covered call position.

 

RESEARCH NOTES:  S&P maintains buy opinion on shares of Federal Express (FDX). We keep our FY 14 and FY 15 EPS estimates at $7.04 and $8.66. We raise our 12-month target price by $10 to $127, 18X our FY 14 estimate and towards the middle of its 10-year historical range of 9X-34X reported EPS. Q1 EPS of $1.53, vs. $1.45, is $0.02 below our estimate but $0.03 better than the Capital IQ consensus. FDX reaffirms FY 14 guidance of EPS growth of 7%-13%. We expect FDX to benefit from an improving global economy and its ongoing restructuring plan, and anticipate continued investor rotation into logistics stocks on good economic news.

New Covered Call on this Vice Stock

Constellation Brands (STZ), together with its subsidiaries, produces and markets beverage alcohol.  The stock was reiterated with a Buy rating by analysts at Stifel Nicolaus. The firm raised its price target on the stock to $69 from $64.  STZ Thursday posted better-than-expected Q2 results and said for FY 2014 it expects EPS of $2.80 to $3.10 per share. The Street is at $2.83 per share.  STZ is up 2.3% at $61.55, near the stock’s 52-week high of $62.15.

Here is a Covered Call Strategy:

STRATEGY: Look at the January 2014 60 covered call. For each 100 shares of Constellation Brands (STZ

) stock you buy, sell one January 2014 60 covered call option for a $57.38 (61.58 – 4.20) debit or better. That’s potentially a 4.6% assigned return.

COMMENT: The technicals for STZ are bullish with a strong upward trend. The stock has had support recently around 56.50. S&P rates this stock 4 STARS (out of five) – buy.

RISK: The stock has to drop 6.8% to threaten the break even point. This trade rates 3 keys out of 5 – moderate relative risk.

RESEARCH: S&P maintains Buy recommendation on shares of STZ. On revised forward multiple analysis, we lift our target price by $2 to $66 and our FY 14 (Feb.) and FY 15 EPS estimates by $0.12 and $0.07 to $2.90 and $3.55, respectively. Adjusted Aug-Q EPS of $0.96, vs. $0.71 exceeded our estimate of $0.85 on a significantly lower tax rate and expenses than our forecast. Crown depletions rose 7% on a strong summer selling season driven by healthy growth in Corona as well as expanded distribution for Modelo Especial. As production ramps in the Piedras Negras facility, we look for margins to improve in the beer segment.

 

Look for a Tasty Profit from this High Quality Dividend Grower

Investors looking for an A-rated quality company with a growing 3% dividend yield should look at the soup favorite – Campbell Soup Company.  The company just increased its dividend 7.6% but still has room for growth.  Campbell’s is rated a 5-star stock by S&P indicating a strong buy recommendation.  The stock has a 12-month price target of $48, an increase of 15% from its current price.

Campbell Soup Company (CPB) recently announced that the company’s Board of Directors has approved an increase in its quarterly dividend from $0.29 per share to $0.312 per share, an increase of approximately 7.6%.  The quarterly dividend is payable Oct. 28, 2013 to shareholders of record at the close of business Oct. 8, 2013.

“This dividend increase is another step forward as we execute our plans to drive shareholder value by delivering sustainable, profitable net sales growth,” said Denise Morrison, Campbell’s President and Chief Executive Officer. “We are encouraged by the progress we’ve made and are confident in our long-term growth prospects as we strengthen our core business and expand into higher-growth spaces.”

The company has paid dividends since it became public in 1954. The last quarterly dividend increase was to $0.29 per share from $0.275 per share on Nov. 1, 2010.

We look for Campbell’s to focus on new products, expanding its presence in packaged fresh foods, and growing sales in some international markets.  We expect at least near-term challenges in U.S. beverage, North American foodservice, and the Australian businesses.

The company has long term targets for annual sales growth of 3% to 4% and 5% to 7% annual growth in earnings per share. Over time, we expect that growth to be helped by new or enhanced products. Areas of new product focus, in our view, will include expansion of the Goldfish snack brand, development of the dinner sauce category, and introduction of a Homestyle soup line. We see the Bolthouse business aiming to have more of a presence in the snack food area with a ShakeDowns carrot product that includes seasonings.

Investors should look to add Campbell’s to their Monthly Income Plan for both current income and future growth.

Covered Call Trade of the Month

Investors seeking income in this volatile market can still sell covered call trades for both income and downside protection.  In the past month, the S&P 500 produced a return of 0.73%.  However, subscribers to the Get Rich Monthly Income Plan made off with a 4.7% return by trading a covered call on United Rentals (URI).  Here is the trade posted in July:

Covered Call on United Rentals (URI)

STRATEGY: Look at the August 55 covered call. For each 100 shares of United Rentals (URI) stock you buy, sell one August 55 covered call option for a $52.53 (55.63 – 3.10) debit or better.

Actions: URI is currently trading at $55.01 so the 55 call we sold is ATM.  These shares and call options should be closed on Friday (08/16) for a 4.70% assigned return.

 

Learn more here:

http://getrichinvestments.com/monthly-income-newsletter/

This Takeover Candidate Offers High Yield and High Growth

Investors looking for high yield and high growth stocks should consider NTELOS Holdings Corp (NTLS) as a possible portfolio addition.  For income, the stock boasts a healthy 8.95% dividend yield.   For growth, earnings per share are projected to grow 29%next year compared to the current year.  This is a combination that can create significant upside for the stock price.  In addition, there is considerable speculation that NTELOS may be acquired by a larger telecom provider.

First Call consensus has NTELOS earning $1.32 per share in 2014 which is an increase of 29% from its 2013 EPS.  The EPS growth will better support the current dividend payout ratio.  Investors can wait for a pullback to add new shares since NTLS shares are up 30% in the past three months due to talk of a takeover.

AT&T Inc.’s (T) deal to grab Leap Wireless for$1.2 billion in cash continues the U.S. wireless consolidation race and has Wall Street looking at other possible targets.  NTELOS is a name being mentioned as having attractive spectrum. The company is small, with just 451,000 total subscribers at the end of March and a market value of$360 million. By comparison, Verizon Wireless has more than 90 million contract customers.

Despite its size, NTELOS has connections to bigger players including a wholesale deal to provide Sprint (S) service in West Virginia and western Virginia.  It is also working with Dish Network Corp. (DISH) to co-develop a fixed-mobile broadband-service within its coverage territory.

Once completed, the service is expected to give NTELOS and Dish customers access to high-speed Internet, a service that is especially lacking in some of the rural areas NTELOS covers.  The agreement comes as Dish has been working to plug a significant hole in the services it provides, it can’t offer high-speed Internet competitive with cable providers.

NTELOS Holdings Corp., a leading regional provider of nationwide wireless voice and data communications and home to the “best value in wireless,” recently announced it will be added to the Russell Microcap® Index, effective at the close of the market on June 28, 2013.

NTELOS Holdings Corp., operating through its subsidiaries as “nTelos Wireless,” is headquartered in Waynesboro, VA, and provides high-speed, dependable nationwide voice and data coverage for approximately 451,000 retail subscribers based in Virginia, West Virginia and portions of Maryland, North Carolina, Pennsylvania, Ohio and Kentucky. The Company’s licensed territories have a total population of approximately 7.9 million residents, of which its wireless network covers approximately 6.0 million residents. The Company is also the exclusive wholesale provider of wireless digital PCS services to Sprint Nextel in the Company’s western Virginia and West Virginia service area for all Sprint CDMA wireless customers.

Special Dividend Opportunity – $22 per share with 14% Dividend Yield

TransDigm Group (TDG) announced that its board of directors has authorized and declared a special cash dividend of $22.00 on each outstanding share of common stock and cash dividend equivalent payments under certain of its stock option plans.  The record date for the special dividend is July 15, 2013, and the payment date for the dividend is July 25, 2013.

TDG is trading at $158 per share following the special dividend.  Shares are up 18% in the past year and 7% in the past month.  The stock has a neutral rating according to its equity summary score of 5.9 out of 10.

W. Nicholas Howley, TransDigm Group’s Chairman and Chief Executive Officer, stated, “This special dividend is part of our ongoing efforts to allocate our capital in order to create value for our shareholders.  We believe the market conditions and other factors gave us a unique opportunity to accelerate returns to our shareholders by this special dividend.  The combination of a cash balance anticipated to be over $450 million at September 30, 2013; an available revolver of approximately $300 million; additional capacity under our amended credit agreement; and expected strong quarterly cash generation in fiscal 2013 and fiscal 2014, give us adequate financial capacity to meet our likely range of operating and acquisition needs.”

TransDigm Group Incorporated recently announced that it acquired the assets of GE Aviation’s Electromechanical Actuation Division for approximately $150 million in cash on June 28, 2013.  The business, which will be conducted by TransDigm through a new entity, Whippany Actuation Systems, LLC (Whippany), located in Whippany, New Jersey, manufactures proprietary, highly engineered aerospace electromechanical motion control subsystems for civil and military applications. Product offerings include control electronics, motors, high power mechanical transmissions and actuators.  Whippany’s revenues are estimated to be approximately $80 million.

TransDigm Group, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, NiCad batteries and chargers, engineered latching and locking devices, rods and locking devices, engineered connectors and elastomers, cockpit security components and systems, specialized cockpit displays, aircraft audio systems, specialized lavatory components, seatbelts and safety restraints, engineered interior surfaces and lighting and control technology.

Here is a Nice Dividend Capture for July

For investors looking to book a solid dividend, Himax Technology (NASDAQ: HIMX) is the place to be in July.  Himax Technology has a current dividend yield of 4.78%.  On June 17, 2013 the board of directors approved a dividend of $0.25 per share.  The dividend is payable on July 31, 2013 to shareholders of record on July 19, 2013.

The stock has recently pulled back to $5.22 and presents a nice dividend capture strategy as HIMX pays an annual dividend.  Himax has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.  The stock has a 12-month price target of $8.40.  The stock is up 188% in the past year.

HIMX is growing solidly, and has shown this by beating Q1 earnings estimates, despite the fact that last quarter was the slow quarter for most Asian companies.  Himax also expanded its profit margin by 5%. This stock’s growth should only continue with the massive amount of news catalysts on the horizon.

Himax recently announced the closing of the previously announced underwritten offering by selling shareholder Innolux Corporation (“Innolux”) of 25,399,753 American Depositary Shares (“ADSs”), including 3,313,011 ADSs sold pursuant to the underwriters’ over-allotment option. The underwriters have exercised in full their over-allotment option to purchase the 3,313,011 ADSs. Immediately following the closing, Innolux has ceased to be the Company’s shareholder. The Company did not sell any ADSs in the offering and did not receive any proceeds from the offering. Innolux’s sale of the ADSs will not result in dilution of the Company’s outstanding shares.

Himax Technologies, Inc. (HIMX) is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax’s main products include display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and many other consumer electronics devices.  Additionally, Himax designs and provides controllers for touch sensor displays, LCOS micro-displays used in palm-size projectors and head-mounted displays, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions and silicon IPs. The Company also offers digital camera solutions, including CMOS image sensors and wafer level optics, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security and medical devices. Headquartered in Tainan, Taiwan, the Company has offices in Hsinchu and Taipei, Taiwan and in China, Korea, Japan and the US.

MRO – Look for a 49% Price Gain

David Kostin, Goldman Sachs’ chief U.S. equity strategist, provides us with a list of stocks with the most upside potential in his new Monthly Chartbook.   Kostin notes early May was solid for the S&P 500, but cited month-end drags in telecom services and utilities (-7 and -9 percent, respectively).  Nevertheless, he projects the S&P will end up 7.3% by year end, at 1750.

One stock on the Goldman list to watch is Marathon Oil (MRO).  The stock is up 39% in the past year but Goldman Sachs is projecting an increase of 49% in the stock.  In addition, Marathon offers a 1.96% dividend yield.

Production grew 8% (excluding Libya; 48 thousand barrels of oil equivalent per day; MBOE/d) in 2012, to 388 MBOE/d. MRO expects development at U.S. onshore plays to drive a 7%-10% production boost in 2013 (ex Libya and Alaska), to 405-425 MBOE/d, and a 5%-7% production CAGR (compound annual growth rate) through 2017. MRO believes these assets are 80% liquids. We expect a lower planned 2013 rig count, made possible by drilling efficiencies, to keep cost inflation down. Since the fourth quarter 2012, Eagle Ford and Bakken production are up 22% and 6%, respectively. MRO is ending shale activity in Poland on weak tests.

MRO spun off its downstream business to shareholders in a tax-free transaction in mid-2011. We had been looking for reduced refining contributions over the next five years and believe greater exposure to upstream projects in new international and U.S. onshore basins will drive upstream growth at lower operating costs. MRO’s streamlined asset base (75% oil, based on reserves) is one of the higher-content liquids portfolios among domestic E&P companies. Operations in Libya resumed in late 2011 and MRO is looking to ramp up production there. MRO lowered its onshore U.S. rigs to about 25 as of October 2012, versus 34 rigs earlier in 2012, in response to lower prices.

MRO’s growth assets are where it expects to make significant investment in order to realize oil and gas production and reserve increases. It is focused on U.S. growth by developing liquids-rich shale play positions, a strong position in the core of the Eagle Ford shale. In addition, growth assets include the development of Angola Block 31, discoveries in Iraqi Kurdistan, select Gulf of Mexico blocks and Canadian in-situ assets. Exploration is focused on Poland, Iraqi Kurdistan, Norway and the Gulf of Mexico. MRO had a goal of divesting between $1.5 billion and $3.0 billion of non-core assets between 2011 and 2013. For the two-year period ended December 31, 2012 , it had entered into agreements for approximately $1.3 billion in divestitures, of which $785 million were completed. The remaining $545 million in asset sales were completed by February 22, 2013

We see 2013 and 2014 EPS of $2.76 and $3.35, respectively, versus $2.45 (adjusted) in 2012.

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