What I want to write is, I'm pretty happy with the results with some of my picks and I also have been looking at some large companies which are at prices I have not seen before (please consider that I started around December last year). On Wednesday, when the market was down 1% or so, 6 of my 7 picks had dropped less than 1% except one- Tractor Supply (TSCO). Yesterday, when the Dow dropped 0.2%, 5 of 7 rose instead, this list includes Walt Disney (DIS), AT & T (T), Kimberly-Clark (KMB), Ross Stores (ROST) and McDonalds (MCD).
Some stocks worth taking a look are: ExxonMobil (XOM), now at around $77 and Chevron (CVX), now around $95. These are just some established companies trading at quite a good price.
Now, moving on to options, this week was a not so good week for the simulator portfolio. Oh yes, I forgot to post that the ASNA trade have been cancelled as it did not even move for one of the quarters. This is exactly what happened with Lion's Gate (LGF), revenue was below expectations but sales was up (because of the movies The Hunger Games and Twilight). These mixed results caused the shares to NOT MOVE AT ALL yesterday. Yes, it stayed around the breakeven point (compared to Wednesday's closing) yesterday. That caused a devastating 52% loss on the position. On the other hand, Joy Global missed expectations, shedding up to 8% yesterday. I earned 27% on those options.
So you have seen those scary losses in options. Monster gains, monster losses. Therefore, here is a piece of advice, only trade what you can afford to lose. Anyway, here are the option trades for this week:
Trade 1: Straddle
Oracle Corp (ORCL) reports earnings on Friday 8th June
Currently trading at around $26.10, here is what I plan to do:
Buy a June 2012 ATM Call Options ($26)
Buy a June 2012 ATM Put Options ($26)
Its IV is at a fabulous 30-35%, good for a trade.
Trade 2: Straddle
Cooper Companies (COO) reports earnings on Thursday 7th June after market closes.
Currently trading at around $84.20, here is what I plan to do,
Buy a June 2012 ATM Call Options ($85)
Buy a June 2012 ATM Put Options ($85)
Its IV is at 40%, good for a trade.
Trade 3: Straddle
Altera Corp. (ALTR) reports earnings on Thursday 7th June.
Currently trading at around $32.80, here is what I plan to do,
Buy a June 2012 ATM Call Options ($33)
Buy a June 2012 ATM Put Options ($33)
Its IV is in the 38-40% range, good for a trade.
Trade 4: Straddle
Men's Wearhouse (MW) reports earnings on Wednesday 6th June
Currently trading at around $35.25, here is what I plan to do:
Buy a June 2012 ATM Call Options ($35)
Buy a June 2012 ATM Put Options ($35)
Its IV is in the 50-60% range, this trade will be under consideration, as its spread is at 20c (options at 1.50). So you do the analysis (if you're even gonna trade)
This Week’s Analysed Stock : Starbucks (SBUX)
Its June, and I am going to start writing what I call the
extensive research report. Starbucks will be the first. I don’t know how long I’m
going to take, but I’m just going to try this. I am following the checklist
from the book Creating A Portfolio Like
Warren Buffett by Jeeva Ramaswamy, a book I just bought. It seems very
useful, so I want to thank the author for providing beginners like me with easy
to understand language and information I can make sense out of. Without further
ado, here is the summarized checklist report:
1. Business
Starbucks roasts coffee, then make them into packets for selling and then sells them (retail). It is very simple. In outlets, they also sell pastries, prepared breakfast and lunch sandwiches, oatmeal, salads, as well as juices and bottled water other than just coffee. Its business is easy to understand. The industry Starbucks operates in is a "slower" industry unlike the "fast paced" industries like technology. This is good because it is easy for beginners to understand what they are doing. The "slow paced" industry is also good as its coffee will not become obsolete in one or two years unlike products in companies like Apple (AAPL) and Samsung (SSNLF) Result: PASS
2. Security
Starbucks is a recognized brand name throughout the world, having more than 17,000 stores in 55 countries around the globe. Its size is also huge, with a cap of 40B and with 149,000 employees around the globe. It is the obvious winner in its industry Specialty Eateries. Compared with other restaurants, it is ranked third by market cap, after McDonalds (MCD) and Yum! Brands (YUM). Starbucks customers are also loyal to it. Most love the food and will always be coming back for more. Its innovation in creating new products will also continuously attract customers. Result: PASS
3. Success In Business
Starbucks has been successful in several locations in the USA before expanding overseas. It has outlets in North America, Europe and is currently expanding further to countries in Asia. There are already outlets here in Singapore. It is also planning to open its first outlet in India this year. Result: PASS
4. Earnings Growth
2002: $0.28
2003: $0.34
2004: $0.49
2005: $0.64
2006: $0.75
2007: $0.91
2008: $0.43
2009: $0.53
2010: $1.27
2011: $1.68
This is 19.5% earnings growth over the past 10 years. Over the two recessions in the past, it has only posted decreased earnings in 2008. Since then, growth has accelerated. This is still a great business earning great profits.
Total retained EPS is $7.32 for the past 10 years
Stock price change over past 10 years is: $46.01- $19.11=$26.90
Calculation: $26.90/$7.32= 3.67
Each dollar retained by Starbucks generated $3.67 in market price. This is a fabulous number. There is also no short term catalyst in bringing up the EPS. This is great. Result: PASS
5. Momentum
Its momentum slowed during the 2008 recession. 2009 EPS growth was also slowed compared to the long term growth rate. Result: FAIL
6. Cash Flow
Its Price/Free Cash Flow is at a bad number of 89.91 Result: FAIL
7. Debt And Other Ratios
It has a Debt/Equity ratio of 11%, therefore it has manageable long term (and short term) debt. Its current ratio (assets/liabilities) is at 2.21, which is a good number. This means there is no doubt the company can pay for the liabilities it has. It also has no preferred stock, which is good because this is a type of very costly debt for the companies, but this time, paid to the shareholders. It is something like paying a dividend of 10% to the shareholder. Result: PASS
8. Client Concentration
Starbucks has so many customers around the world. Nobody buys 10% or 20% of Starbucks' food and become a prime customer. Result: PASS
9. Management
Its ROE (Return On Equity) is at 28.1%, which is good. This number has also been quite consistent over the years. Its profit margin is 10.6% (profit/revenue), which is acceptable. Its ROA (Return On Assets) is at 17.7%, which is excellent for such a big company. Its ROIC (Return On Invested Capital) is at 23%, which is a very good number too. Its payout ratio is 36%, which means it has money for rainy days. On acquisitions, Starbucks recently acquired Evolution Fresh to "introduce a unique, high quality product to redefine and grow the super-premium juice market". Starbucks expanded into this industry, premium juice to tap on its $1.6B market and more importantly, to tap on the $50B health and wellness industry. All these actions are related to their business. Results: PASS
10. Transactions
No Insider have been purchasing Starbucks stock over the pass half year, although there have been some institutional purchases. Result: FAIL
11.Hidden Assets
There are some hidden assets for Starbucks.
Firstly, it has a brand name in the food industry, as one of the most famous specialty eateries.
Secondly, some outlets used land that was bought using old dollars. Property prices have been rising steadily and I believe that, in the coming years, they will rise even more with the population of the world creeping up steadily.
Result: PASS
12. Outstanding Shares
2007: 730M
2008: 733M
2009: 740M
2010: 741M
2011: 745M
This number have been increasing over the years. This is not good, the company is not making significant efforts to buy back shares for the shareholders to obtain maximum profits. Result: FAIL
13. Conclusion
Overall, Starbucks is established, people know about it and it is profitable. It is quite huge a company at $ 40B but it has still space for growth. (Imagine Facebook FB with now a $ 60-70B cap, little space for growth). Its price is around $53 as of this writing. I will rate it as a buy.
These are just analysis of a company using a checklist. There are more, obviously, in the book, but today I will only be listing out these few. It is not easy to sieve out all these information, trust me, I spent two hours writing the above article (finally I can call it an article). :)
For a Profitable Week!
Disclosure: I am long DIS, T, KMB, MCD, ROST, SBUX, WMT and may initiate a position in XOM, CVX, PG in the coming week.
Disclosure: I am long DIS, T, KMB, MCD, ROST, SBUX, WMT and may initiate a position in XOM, CVX, PG in the coming week.
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