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Bershire Hathaway Portfolio Update

As of 12/31/2011, Berkshire Hathaway (BRK.B) owns 34 stocks with a total value of $66.2 billion.  The classic value investor Warren Buffett made a number of stock moves during the 4th quarter of 2011.  These are the details of the buys and sells.

Added: CVS Caremark Corp. (CVS)

Warren Buffett added to his holdings in CVS Caremark Corp. by 25.53%. His purchase prices were between $32.97 and $41.16, with an estimated average price of $37.2. The impact to his portfolio due to this purchase was 0.09%. His holdings were 7,106,500 shares as of 12/31/2011.

Added: Intel Corp. (INTC)

Warren Buffett added to his holdings in Intel Corp. by 23.17%. His purchase prices were between $20.62 and $25.66, with an estimated average price of $23.87. The impact to his portfolio due to this purchase was 0.08%. His holdings were 11,495,000 shares as of 12/31/2011.

New Purchase: Davita Inc. (DVA)

Warren Buffett initiated holdings in Davita Inc. (DVA). His purchase prices were between $60.64 and $76.81, with an estimated average price of $71.05. The
impact to his portfolio due to this purchase was 0.31%. His holdings were 2,684,500 shares as of 12/31/2011.

New Purchase: Liberty Media Corp. Liberty Cap (LMCA)

Warren Buffett initiated holdings in Liberty Media Corp. Liberty Cap. His purchase prices were between $61.11 and $79.67, with an estimated average price of
$46.2. The impact to his portfolio due to this purchase was 0.2%. His holdings were 1,701,400 shares as of 12/31/2011.

Added: International Business Machines Corp (IBM)

Warren Buffett added to his holdings in International Business Machines Corp by 11.43%. His purchase prices were between $173.29 and $194.56, with an estimated average price of $184.45. The impact to his portfolio due to this purchase was 1.83%. His holdings were 63,905,931 shares as of 12/31/2011.

Added: The Directv Group Inc. (DTV)

Warren Buffett added to his holdings in The Directv Group Inc. by 378.85%. His purchase prices were between $40.6 and $47.87, with an estimated average price of $45.35. The impact to his portfolio due to this purchase was 1.03%. His holdings were 20,348,400 shares as of 12/31/2011.

Added: Wells Fargo & Company (WFC)

Warren Buffett added to his holdings in Wells Fargo & Company by 6.18%. His purchase prices were between $23.18 and $27.785, with an estimated average
price of $25.68. The impact to his portfolio due to this purchase was 0.93%. His holdings were 383,703,628 shares as of 12/31/2011.

Added: Visa Inc (V)

Warren Buffett added to his holdings in Visa Inc by 25.02%. His purchase prices were between $84.26 and $103.15, with an estimated average price of $93.81. The impact to his portfolio due to this purchase was 0.09%. His holdings were 2,865,008 shares as of 12/31/2011.

Added: General Dynamics Corp. (GD)

Warren Buffett added to his holdings in General Dynamics Corp. by 26.52%. His purchase prices were between $55.67 and $66.92, with an estimated average price of $63.53. The impact to his portfolio due to this purchase was 0.08%. His holdings were 3,877,122 shares as of 12/31/2011.

Added: Verisk Analytics Inc. (VRSK)

Warren Buffett added to his holdings in Verisk Analytics Inc. by 63.96%. His purchase prices were between $33.06 and $40.13, with an estimated average price of $36.75. The impact to his portfolio due to this purchase was 0.08%. His holdings were 3,445,029 shares as of 12/31/2011.

Reduced: Johnson & Johnson (JNJ)

Warren Buffett reduced to his holdings in Johnson & Johnson by 22.51%. His sale prices were between $61.27 and $66.02, with an estimated average price of
$63.97. The impact to his portfolio due to this sale was -0.91%. Warren Buffett still held 29,018,127 shares as of 12/31/2011.

Sold Out: Exxon Mobil Corp. (XOM)

Warren Buffett sold out his holdings in Exxon Mobil Corp.. His sale prices were between $71.15 and $85.28, with an estimated average price of $78.88.

The Best Dividend Stocks for 2012 – Information Technology

S&P recommends overweighting the S&P Information Technology sector. Year to date through November 18, the S&P Information Technology Index, which represented 19.6% of the S&P 500 Index, was up 0.7%, compared to a 3.3% decline for the 500. In 2010, this sector index rose 9.1%, versus a 12.8% advance for the 500. There are 15 sub-industry indices in this sector, with Computer Hardware being the largest at 19.8% of the sector’s market value.

S&P equity analysts have a neutral fundamental outlook on the sector, given concerns related to economic growth, but note very low valuations, reflecting major global concerns, largely centered on Europe and sovereign debt and China and growth. We think strong and flexible balance sheets will be increasingly employed to generate value through internal investment, stock buybacks, dividends and M&A. Lastly, we also see the possibility for activity and momentum for comments and legislation about the repatriation of foreign earnings, which has been mentioned by some presidential candidates and members of Congress. According to Capital IQ, the sector trades at a P/E on consensus estimated 2012 EPS of 11.4X, slightly above the 11.3X for the S&P 500. Its P/E to projected five-year EPS growth rate of 0.9X is below the broader market’s PEG of 1.0X. This sector’s marketweighted S&P STARS average of 3.7 (out of 5.0) is lower than the 3.8 average for the S&P 500.

The S&P GICS Information Technology Index is consolidating after breaking out from a bullish, double-bottom reversal pattern in October. We believe the intermediate-term trend is now bullish. In addition, prices have jumped above the declining trend-line, drawn off the July highs, further confirmation of a bullish trend change, in our view. Prices are holding nicely above both the 17-week and 43-week exponential averages, and the shorter average has crossed back above the longer average, so this moving average crossover system is now on a buy signal. The sector is very close to its bull market highs from February in the 440 region, and a break above this area would be bullish, in our opinion. Relative strength versus the S&P 500 recently broke out of a large base to new recovery highs. Our technical opinion on Information Technology remains bullish.

We believe low valuations, competitive EPS growth and a bullish technical outlook, should fuel alpha.

Intel is the largest chipmaker in the world. It develops and manufactures microprocessors and platform solutions for the global personal computer market. Intel pioneered the x86 architecture for microprocessors.  Intel is in excellent financial shape. At the end of the third quarter of 2011, the firm had $10.9 billion in cash and short-term investments compared with $7.1 billion in debt.  Intel continues to go full throttle and has laid out aggressive plans to introduce new chip architectures every two years, in an effort to widen its lead over AMD in the processor performance race. The firm recently launched its Sandy Bridge chips, which combine both computer and graphics processors onto the same silicon, and has begun to further push the envelope of semiconductor fabrication technologies, as it ramps up manufacturing of cutting-edge, 22-nanometer (circuit size) chips.  INTC has a dividend yield of 3.44% and continues to increase dividends each year.

Seagate Technology’s (STX) fiscal first-quarter results confirmed that demand for the firm’s hard drives is still growing, albeit slowly, and that pricing is holding up well. Seagate shipped 50.8 million hard drives and generated $2.8 billion in revenue during the quarter, which compares favorably with the 49.2 million units and $2.7 billion shipped in the first quarter of last year.  STX has a dividend yield of 4.46%/

Here is a list of information technology companies with a bullish sentiment and high dividend yields.

Click to enlarge

 

The Blanket Put Strategy – Trade with Intel

One of the most important components to investing success is to protect your capital.  One big loss such as a stunning 50% in a single position will require a 100% gain to get your capital back to EVEN!  However, if you limit your risk to 5% or less in a single position then you can easily get your capital back to even on the next trade.  So how do you limit your risk exposure when trading covered calls?

The Blanket Put strategy allows the generation of real profits while limiting the amount of risk to just a few percentage points of the trade debit.  The Blanket Put is simply buying the stock, selling a call and then buying a long-term put.  This strategy is great for markets with high volatility and when there is uncertainty of future market direction.  The major focus here is to buy a CHEAP put so that you do not spend much of your premium on protection.  The Blanket Put is to ensure you get the Return of Your Capital.  We want to do this at the cheapest price possible as we are buying the Blanket Put.

Let’s walk through an example with Intel (INTC).  The table below shows the monthly results for the covered call with Blanket Put.  We buy 100 shares of Intel at $21.50 per share.  We then sell the next month 21 call at $1.25 for a net debit of 20.25 on the covered call.  To setup the Blanket Put, we buy the April 21 2012 put for $2.20.  This brings our total net debit to $22.45.  The Blanket Put has a strike price of 21 so we are guaranteed to be able to sale our INTC shares at this price between now and April 2012 expiration day.

We want to sell a 21 call for the next month until April 2012 expiration.  We have used 1.00 for the call premium each month but this can be higher or lower in the live trade.  After the Dec 2011 expiration we have a net debit of $20.45 for a guaranteed profitable trade.  In total, we will collect $7.25 in total premiums for a total return of 44% in only 7 months or 75% annualized.  This calculation excludes the dividends and trading commissions.

To manage the trade when you get called out on the covered call, you have two options: (1) buy back the stock and keep the put in place or (2) sell the put and start a new trade at the current stock price.  You need to keep in mind that INTC is a dividend payer so you get this payment each quarter.  Also, INTC is known for increasing their dividend so this stock is great for holding long-term in your portfolio.

 

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