Thursday 31 May 2012

Trades For The Week Of June 4th to June 8th.

   Gloomy week for the market, including many stocks dropping quite a big deal. I would not say plumetting because I do not think we are in that 2008 recession stage yet. The Dow started its week around 12,530, then peaked at around 12,620 on Tuesday, and now it is in the 12,200 to 12,250 zone as I write this. Some stocks are in a pretty sorry state and I will try to pick out some stocks to buy which have been hammered down quite a great deal.
   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.


    
    




    




Tuesday 29 May 2012

Another Recommendation

Tractor Supply (TSCO) is today's recommendation. TSCO, which operates retail farms and ranch stores in rural areas of USA, does not look like an ideal stock. But with a closer look, you would notice the vast population of people who own lots of land in these areas and the fact that TSCO does not have any direct competitors. TSCO's targets are actually those who farm as hobbies, and not those full time farmers you see in Thailand on the paddy fields. What it actually sells are smaller-sized equipment, convenient for people to transport it back home. Some examples would be things like lawn mowers, chemicals, other equipment for farming and even clothing, not forgetting the pet care products it sells. TSCO has also recently started to let consumers buy goods online. That means less hassle for the consumers. Many consumers, I believe, want those products but would not go there as it is not in the way and they do not want to travel that extra distance. This can increase its sales. Its numbers are great as well. The first thing I like about this company is the fact that it has no debt at all. Furthermore, Its quarterly sales growth rate is at 22% with a quarterly EPS (Earnings Per Share) growth rate of 124%. ROE is at 25%, good management and it pays a dividend of 0.8%, mediocre but acceptable to me. Its P/E of 30 may not be desirable for you but I read that, before companies like Microsoft (MSFT), Cisco (CSCO) and Xerox (XRX) (and others) rocketed, their average P/E was around 30. So, I will not be avoiding stocks with P/E under 40, but there is always a limit. In the technical aspect, as I write this, shares are down 5% ($5) for today, down to the $93-$94 mark. It has been hovering back and forth between $90 and $100 for a period of time already. I read that it is hard for stocks to break this $100 mark, and when it does, it breaks a psychological barrier and the stock will rise quite drastically.(I know that there are some exceptions,in this, there is no 100% thing). So, I will be loading up on TSCO at this level. This could also be a base for the stock, to rocket up after this. There is still space for growth, with a market cap of 7.2B and keeping in mind it rocketed up from $10 in 2008. I believe that TSCO will continue rising in the future.

Sunday 27 May 2012

Another Post: I've Realised Something

   I've realised something... that I cannot go on like this, picking a stock every week. I will soon be having all the stocks in the world on this blog, which I don't want to happen. So, I have come out with a new plan, I am going to recommend a few more stocks, then update their status, then take some stocks out of that list when I think they should go then replace them. All these will be done in the coming weeks since I got quite some time on my hand now. But only for now.
   Here is one more stock I'm recommending:
GNC Holdings (GNC) $39.55
GNC has had quite a steady run since its IPO of  $16 in March 2011, more than doubling in around 15 months. Although this stock is quite a 'newbie' in the market, I like its strong uptrend since its IPO, so here are a few qualities about this one. This company with a market cap of 2B has been a raging bull even in corrections, like Ross (ROST), the stock featured on my previous post. This is what I like, stocks with strong numbers, a strong uptrend, with strong fundamentals that can survive recessions and corrections, without impacting my portfolio much, while other stocks are diving off that 10m diving board elsewhere. Preservation of capital is one of the most important rules to me and one very fundamental rule (I feel), for any portfolio. Now, back to GNC, other than being that raging bull running up a hill, it has been crushing analysts' estimates along the way by a wide margin, an average of 36% over the past 3 earnings.Its quarterly EPS(Earnings Per Share) growth rate is at an incredible 106%, with quarterly sales growth rate at 23%. Its EPS rating is at 99, that means its earnings outperforms 99% of other companies. ROE, on the other hand, is at 22%, which shows that its management is doing its job.It also started dividends this year, with a $0.11 dividend quarterly, which adds up to $0.44 per year, or 1.11%. Although this is only mediocre, it is already a good job for a company which only had its IPO not too long ago and is just revving up. It also has some stock repurchasing plans, since last December. This shows that it is trying its best to give shareholders maximum profits. GNC is present in 53 countries around the globe at more than 7600 locations, including Singapore. I must admit that I do not go there very often but what I know is that it offers a variety of products like health supplement products, vitamins, minerals, herbs. People these days are undoubtedly getting richer and more educated, and almost all know the importance of the health. Therefore, I believe that GNC will thrive not only in Singapore but also in other countries. But, one thing that must be noted is its high Debt/Equity ratio of 0.85. Another thing to note is its competitors, there is some competition in its industry with companies like Vitamin Shoppe (VSI) but I believe that GNC will beat VSI because, firstly, the latter only has exposure in 40 states in the USA compared to GNC's 53 countries and that GNC has much better numbers than VSI.(Like Sales, EPS, etc.) Another advantage that GNC has is that it is relatively undiscovered. Not many watch it or even know about it. I feel that this is a really good buy now, also since it just pulled back a little.

EG.Ticker  Price Now  progress since recommendation   price at recommendation

In the portfolio:

  1. DIS 44.50 ^2.16% {43.56}
  2. T  33.69 ^1.20% {33.29}
  3. KMB 79.46 ^1.45% {78.32} -- Not written about
  4. MCD 91.05 ^1.12% {90.04}
  5. ROST 62.47 ^0.47% {62.19}
  6. GNC 39.55 ^0% {39.55}





Friday 25 May 2012

Trades for the week of May 28 to June 1

   Hi, I'm back with the trades- again. FB performed badly this week, going $8 dollars down or slicing 10B off its market cap. Not much action this week in the market, with the Dow still fluctuating around the 12300-12500 range.  Back to my portfolio, the week was fine, earning a total of 14% Ralph Lauren (RL) options, 20% on HP (HPQ) options, 63% on Tiffany (TIF) options and 38% on Dell Inc. (DELL) options. On the other hand, Guess? Inc. (GES) options decreased 18% in value after earnings and American Eagle (AEO) options too decreased 18% in value. GES and AEO moved too little after earnings, and in the end, time decay resulted in the loss.
   As the earnings season comes to an end, fewer trades will be made.


Trade 1: Reiterated Straddle
I have talked about Joy Global (JOY) last weekend
Now, at $59.70, what I'm going to do are the exact same trades from last week:
Buy a June 2012 ATM Call Contract ($60)
Buy a June 2012 ATM Put Contract ($60)

Trade 2: Straddle
Lion's Gate Media (LGF) reports earnings on Wednesday 30 May
At a price of $12.90, here is what I plan to do:
Buy a June 2012 ATM Call Contract ($13)
Buy a June 2012 ATM Put Contract ($13)
It's IV is a appropriate 40-60% range, worth a trade.

Trade 3: Straddle
Ascena (ASNA) reports earnings on Thursday 31 May
At a price of $19, here is what I plan to do:
Buy a June 2012 ATM Call Contract ($19)
Buy a June 2012 ATM Put Contract ($19)
It's IV is at a acceptable 40-50% range, good for a trade.

  And so, that's all for the trades. As promised, I will pick a company with a smaller market cap, here it is:
Stock Purchase: Ross Stores (ROST)
Ross Stores (ROST) has been on a unbelievably steady uptrend over the past year even as the Dow fluctuated up and down. I believe it still has space for growth at a market cap of 14B. Even so, it is the biggest apparel store chain in the USA. Still opening more stores, this large apparel company currently has more than 1100 stores across the USA. Targeting mid income families, I believe that this company will grow along with the rise in the number of middle class. Its management is superb and its sales are great, shown through its remarkable ROE of 46%, its quarterly sales growth rate of 14% and its quarterly EPS (Earnings Per Share) of 25%. All these numbers are great. Furthermore, it offers a quarterly dividend of 0.14 per share, which is not attractive but it is already good since its management is already trying to maximize shareholders' profits. (Ex-Dividend is on June 1st). It also has a stock repurchasing plan. It bought back 125M in shares in April 2012, which places it 158th of 1740 companies and top in its industry in terms of stock repurchasing . Its debt equity ratio of 0.09 is really quite remarkable too. Generating profits without borrowing much  growing those profits at an incredible rate with efforts in maximizing shareholders' profits gives you one great company to invest in. 

Disclosure: I am long DIS, KMB, T, MCD and may initiate a position in ROST in the next 72 hours

Sunday 20 May 2012

Extra

   Hi everyone, I just feel like writing something today, a stock purchase. This may just be a replacement for every week's "stock purchase" section. I'm not letting myself write something I don't mean next week so... here's the extra stock purchase for this week.

Stock Purchase: McDonald's Corp (MCD)
McDonald's have been beaten down quite a lot in recent weeks, down to a price below $90, down to a price which will be acceptable to me already. I have had this stock in my portfolio before but have sold it already. This stock is re-entering my portfolio. Just some qualities I like about this company. It is the biggest company in it's industry, Restaurants, at 91B. It is a brand well-loved not only by me, but by many other people in the world. People are willing to pay S$8 or even S$10 for a set meal at McDonald's. Its food, is obviously great. The management are remarkable, the company has a ROE of 38% and it has a dividend of 3.12%. It also has a quarterly sales growth rate of 7.12%. Its expansion in counties like India and China, places where the middle class is growing a lot,will ensure that it gives strong sales and revenue numbers in the coming years. Now, back to its price. At a P/E ratio (Price/Earnings) ratio of 16.7, it is acceptable and even attractive compared to competitors such as Chipotle Mexican Grill (CMG), with a P/E of 54, Dunkin Brands (DNKN) with a P/E of 62 and Wendy's (WEN) with a P/E of 56. The only thing I dislike about it is its Long term Debt/Equity ratio of 0.82, which is too high for my liking. Overall, this is a good buy for me now and I would add some shares of this to my portfolio, and would buy some more soon, no matter whether its share price increases or decreases.

Another stock: Yum! Brands Inc. (YUM)
I'm not planning to buy this stock now, but will buy in a pullback. I have bought this stock last year when it was in its 50s and sold it already. It has a P/E ratio of 21.4 and a ROE of 77%. The numbers are great too. I will not go too in depth about this one but it owns the brands KFC, Taco Bell and Pizza Hut, two of which are popular in Singapore. Like McDonald's, its expansion in Africa, India and China, will ensure it gives strong numbers in the years to come. Although it pays a mediocre 1.7% dividend, I like this company a lot. Its Long term Debt/Equity ratio is 1.4, an uncomfortable number for me. Overall, all that is holding me back from buying this one is its price.

Disclosure: I am long DIS, T, KMB and will intiate a position in MCD on Monday

Saturday 19 May 2012

Trades for the week of May 21 to May 25

   Hi all, I'm back, with this week's trades. Facebook's IPO, yesterday 18 May 2012, ended flat. That 100B IPO was one of the most anticipated IPOs on Wall Street since some big stocks like Google went public. FB was disappointing, and it lead to some social media stocks like Zynga to fall quite a lot-- about a dollar to around $7. I wouldn't touch FB at all right now.
   Although this week was bad for the major indexes(Dow dropping >3%, S&P dropping >4%), it was relatively good for my portfolio. AutoDesk (ADSK) options performed well, with a 76% increase in value. Ralph Lauren (RL) had to rolled out to new strikes. I gained 30% in the process. Tiffany and HP options are performing well too. One more trade I did, options for American Eagles (AEO), is still in the red. Now, without further ado, the trades for this week.

Trade 1:Straddle
 Dell Inc. (DELL) reports earnings on Tuesday,May 22
At a price of around $14.70, here is what I plan to do:
 Buy A June 2012 ATM Call contract ($15)
Buy a June 2012 ATM Put contract ($15)
 It's IV is at a relatively low 35-40% range, worth a trade

 Trade 2:Straddle 
America's Car Mart Inc (CRMT) reports earnings on Friday,May 25
At a price of around $41.70, here is what I plan to do:
Buy a June 2012 ITM Call Contract ($40)
Buy a June 2012 OTM Put Contract ($40)
 It's next option is at $45, but preferably I would do a $41 and $42 trade.
 It's IV one around 30% and the other around 50%, good for a trade now

 Trade 3:Straddle
 Joy Global (JOY) reports earnings next thursday, May 31
At a price of around $60.70, here is what I plan to do:
Buy a June 2012 ATM Call Contract ($60)
 Buy a June 2012 ATM Put Contract ($60)
 It's IV, in the 50-60% zone, is good for a trade. This one may be rolled to a new strike price. I would do this only late in the week or at the earliest, Wednesday this week.

Stock Purchase: AT & T (T) 
AT & T (T), the biggest telecom company in USA, is holding up well in recent days, even as the market is performing badly. It even hit a new 52-week high recently. It is the biggesy provider of high speed wireless and internet connection, which I feel is very important these days in our lives. The release of new tablets and smartphones will only improve AT&T's business It's recent breakout because of it's fabulous earnings on Apr 24 only showed the stability of the company in these turbulent times. It's dividend, At 5.23%, is the highest within the Dow Jones Industrial Average (^DJI). Even if AT&T is involved in a pullback soon, I'm sure this one will thrive in the years to come. I am long DIS, KMB and T. 
   Utility stocks like Duke Energy (DUK), Dominion (D) and Southern Company (SO) are holding up well too. Although I am not buying these shares personally, they may be worth a look too.
   Stocks that hold up in bad times are always the ones that are the most stable and are the ones one should put his money in. I know I have been picking mega-cap stocks these weeks. I'll try to recommend a stock with a smaller market capitalization next week. But, in these times, stable stocks are the way to go.

Tuesday 15 May 2012

Trades for the week of 14May to 20May

Option Trading
These stocks are historically volatile so it would be suitable to trade Straddles, Strangles, Guts or Reverse Iron Condors as earning plays . Please find out more at investopedia.com or optiontradingpedia.com if you do not understand options.
Trade 1: Strangle
Ralph Lauren (RL) announces earnings on May 22 Before market opens.
At a price of around $157, here is what I plan to do:
Buy a June 2012 OTM Call contract ($155)
Buy a June 2012 OTM Put contract ($160)
Both their IVs are around 40-50%, so it would be good to do a strangle.

Trade 2: Strangle
Tiffany (TIF) announces earnings on May 24 before market open
At a price of around $61.50, here is what I plan to do:
Buy a June 2012 OTM Call Contract (62.50)
Buy a June 2012 OTM Put Contract (60)
Its IV, in the 35-45% zone, is worth a trade

Trade 3: Straddle
AutoDesk (ADSK) announces earnings on MAY 17
At a price of around $35.90, here is what I plan to do:
Buy a June 2012 ITM Call Contract ($36)
Buy a June 2012 ITM Put Contract ($36)
This pairs' IV is around 40-50%, worth a trade too.

Stock Purchase: Walt Disney (DIS)
I have just noticed a cup and handle pattern in the chart of Walt Disney (DIS) and I am going to buy shares of Disney. Firstly, this company has been stable and have been providing people with entertainment for more than half a century. It has strong fundamentals and is this is the biggest, #1 company of its industry, Entertainment-Diversified. With Disneyland, its movies (the Avengers just earned 1B for the company) and its cartoons are still really well liked worldwide. As the world gets richer (generally), people that have money will seek entertainment by going to the movies. These companies in these industries, as long as they have films that people love and the right management (which I think Disney has-- ROE of 13%), will survive and thrive in the years to come.

As you can see, I am long term in some aspects (Stocks) and I also like some short term equities (Options). Although I am still using a Simulator, I will try to trade real cash after I am confident enough.

My first post, just some background info- Trading for around half a year, started getting exposed to options last month. Technical analysis 4 months ago. As you can see, I am not exactly experienced so this is just a point for further research, not any signal for one to buy the shares recommended. I plan on doing this weekly except during exams.

I dont know who will be reading this, but I suppose I am just writing this to myself. :)
This is just a platform for me to post whatever I'm going to do and my reasons, to improve my trading techniques.