Saturday, February 12, 2011
It's ALIVE!!!!!!!
TAXCO LIVES!!! TAXCO LIVES!!! Looks like I won't have to go back to Jalisco's for that yuppie mexican food any longer!
Thursday, February 10, 2011
Dean Foods (DF)
Dean Foods is the largest distributor of milk and milk products in the united states. It's currently selling just above 10 yr lows. It's 52 week range is 7.13-17.00. The stock has had a pretty decent rally since its low in December.
Dean Foods operates in two segments, Fresh Dairy Direct-Morningstar and White Wave-Alpro. Fresh Dairy Direct-Morningstar is the largest US producer milk, creamer, and cultured products. White Wave-Alpro produces and sells branded milk, soy, and plant based products. Together, they have helped Dean Foods command 40% of the US milk market.
Historically, DF has had operating margins of around 6%, however, a combination of higher demand and the never ending helicopters full of free money Ben Bernanke has been dropping on the economy has driven up input costs of milk. This has squeezed Dean's margins to <3%. Making matters worse, retailers have refused to raise the retail price of milk and in fact have been using milk as a loss leader to lure shoppers into the store. Fortunately, this cannot last forever. As the retailer's margins begin to get squeezed, they will have to raise prices to reflect he input costs of milk and pass those costs onto consumers. Historically, the input costs of milk and the retail price of milk have moved in tandem, and their is no reason things shouldn't revert back to normal in the future.
One thing that is worrisome is that DF does have a significant debt load. However, they do not have any significant maturities until 2012 and will not have to refinance anything until 2014. They also have 1.4 billion in undrawn credit available. Also, they launched a $300 million, 3 yr cost cutting initiative during 2010 and have announced savings of $100 million already. Recently, a prominent hedge fund announced that they have taken a 7% ownership stake valued at $132 million. Another large shareholder is Blackrock. Many analysts believe most of the bad news is already priced into the stock.
I suggest setting up a synthetic long position by selling the Jan 13 $10 puts and using the proceeds to buy the Jan 13 $10 calls for a net costs of .50 or $50 per spread. This allows you to participate in any upside in DF until 2013.
A number of analysts have calculated the fair value of the stock at $15/share. If DF is $15/share before Jan 2013, your $50 investment will be worth $500-$700.
As always, selling naked puts obligated you to buy the stock anytime before expiration. However, the net costs will be < $8/share. But you can always roll your options out or close them out at anytime. Also, they report earnings on Feb 16, which might allow you to get in at a lower price.
Dean Foods operates in two segments, Fresh Dairy Direct-Morningstar and White Wave-Alpro. Fresh Dairy Direct-Morningstar is the largest US producer milk, creamer, and cultured products. White Wave-Alpro produces and sells branded milk, soy, and plant based products. Together, they have helped Dean Foods command 40% of the US milk market.
Historically, DF has had operating margins of around 6%, however, a combination of higher demand and the never ending helicopters full of free money Ben Bernanke has been dropping on the economy has driven up input costs of milk. This has squeezed Dean's margins to <3%. Making matters worse, retailers have refused to raise the retail price of milk and in fact have been using milk as a loss leader to lure shoppers into the store. Fortunately, this cannot last forever. As the retailer's margins begin to get squeezed, they will have to raise prices to reflect he input costs of milk and pass those costs onto consumers. Historically, the input costs of milk and the retail price of milk have moved in tandem, and their is no reason things shouldn't revert back to normal in the future.
One thing that is worrisome is that DF does have a significant debt load. However, they do not have any significant maturities until 2012 and will not have to refinance anything until 2014. They also have 1.4 billion in undrawn credit available. Also, they launched a $300 million, 3 yr cost cutting initiative during 2010 and have announced savings of $100 million already. Recently, a prominent hedge fund announced that they have taken a 7% ownership stake valued at $132 million. Another large shareholder is Blackrock. Many analysts believe most of the bad news is already priced into the stock.
I suggest setting up a synthetic long position by selling the Jan 13 $10 puts and using the proceeds to buy the Jan 13 $10 calls for a net costs of .50 or $50 per spread. This allows you to participate in any upside in DF until 2013.
A number of analysts have calculated the fair value of the stock at $15/share. If DF is $15/share before Jan 2013, your $50 investment will be worth $500-$700.
As always, selling naked puts obligated you to buy the stock anytime before expiration. However, the net costs will be < $8/share. But you can always roll your options out or close them out at anytime. Also, they report earnings on Feb 16, which might allow you to get in at a lower price.
Wednesday, February 9, 2011
Sirius XM Radio
Sirius XM Radio (SIRI) is a stock you either love or you hate. A lot of early investors really got burned by SIRI and XM before they merged. Over the past year, it surge over 100% and now many people believe it is currently overvalued. However, future prospects for SIRI appear to be getting better. They have managed to clean up their balance sheet, improve their cash flow situation, and re-sign their most popular content for 5 more years at very reasonable prices. The have attracted the attention of institutional investors and maintained their listing on the NASDAQ. There are also a number of future catalyst that can drive this stock higher which can be read about here.
There are a few ways to begin investing in SIRI now and building a position to profit in the future. Below are three ways to invest in SIRI which should be considered:
1. Buy stock. It trades at 1.78 currently, 3 cents off its 52 week high.
2. Sell Jan 12 $2 puts. These currently trade for .57 or $57 per contract. If SIRI is below $2 on the third Friday of Jan 2012, you are obligated to by 100 shares for each contract sold. The net costs of the shares will be $1.43 or about 20% lower than today's price. If they are above $2, the contracts will expire worthless and you can keep any premiums received.
3. Create a synthetic long stock position. You would do this buy selling either the Jan 12 or 13 $2 puts and buying the Jan 12 or 13 $2 calls. By doing this, you can participate in any upside above $2 until the respective expiration date. If it is below $2 by the expiration date, you will still be obligated to buy the shares at $2.
Do your research as their is no shortage of opinions out there on SIRI. I plan on selling some 2012 $2 puts, as I think the shares will be above $2 by Jan 2012 but do not mind someone making me buy them at $1.43 a year from now as well. If the shares are put to you, you can always begin initiating covered call positions to lower your basis further.
There are a few ways to begin investing in SIRI now and building a position to profit in the future. Below are three ways to invest in SIRI which should be considered:
1. Buy stock. It trades at 1.78 currently, 3 cents off its 52 week high.
2. Sell Jan 12 $2 puts. These currently trade for .57 or $57 per contract. If SIRI is below $2 on the third Friday of Jan 2012, you are obligated to by 100 shares for each contract sold. The net costs of the shares will be $1.43 or about 20% lower than today's price. If they are above $2, the contracts will expire worthless and you can keep any premiums received.
3. Create a synthetic long stock position. You would do this buy selling either the Jan 12 or 13 $2 puts and buying the Jan 12 or 13 $2 calls. By doing this, you can participate in any upside above $2 until the respective expiration date. If it is below $2 by the expiration date, you will still be obligated to buy the shares at $2.
Do your research as their is no shortage of opinions out there on SIRI. I plan on selling some 2012 $2 puts, as I think the shares will be above $2 by Jan 2012 but do not mind someone making me buy them at $1.43 a year from now as well. If the shares are put to you, you can always begin initiating covered call positions to lower your basis further.
Tuesday, February 8, 2011
Somebody call the NAACP, because this guy hates diversity!
This guy is betting it all on Apple and Google. I hope he has taken a little out and bought an iPad!
http://blogs.reuters.com/prism-money/2011/02/08/diversification-defiance-all-your-eggs-in-one-basket/
I think he should think about some insurance on his gains! Perhaps putting a collar on by selling the 410 Jan 12 calls for 19.70 per contract and buying the 300 puts for 18.05. Cheap insurance policy.
http://blogs.reuters.com/prism-money/2011/02/08/diversification-defiance-all-your-eggs-in-one-basket/
I think he should think about some insurance on his gains! Perhaps putting a collar on by selling the 410 Jan 12 calls for 19.70 per contract and buying the 300 puts for 18.05. Cheap insurance policy.
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| Don't listen to those idiots! Hop on my iPad, I'll take you to $450! |
Don't tread on my constitutionally protected facebook status updates
This is a huge victory for all those people dumb enough to criticize their bosses and company on their facebook and twitter accounts.
http://www.google.com/hostednews/ap/article/ALeqM5h36km4yy6CmflOcmFaYYz8CFGldQ?docId=496214c641714ab49c04f84719e0825b
Hear that people? Criticize away! But don't be surprised when you don't get promoted. The price of free speech!
http://www.google.com/hostednews/ap/article/ALeqM5h36km4yy6CmflOcmFaYYz8CFGldQ?docId=496214c641714ab49c04f84719e0825b
Hear that people? Criticize away! But don't be surprised when you don't get promoted. The price of free speech!
Chipotle busted for hiring illegal immigrants
This little bit of news could negatively affect Chipotle Mexican Grill (CMG). Earlier I wrote about taking bearish view on Chipotle over the next year. Reports say that they have had to layoff almost half their workforce in Minnesota. If rising food prices don't shrink their margins, higher labor costs might. Not sure how much this will really affect the stock price, especially with earnings coming out this week.
Monday, February 7, 2011
The Social Network (Winklevoss network)
I decided to watch "The Social Network" this weekend. Overall, I thought it was good. A little far fetched, but a good story.
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| WE INVTENTED IT! WINKLEVOSS BOOK!!! |
Great article on hedging
Here's a great article on how to hedge yourself against large market fluctuations and set yourself up to make money in the future.
http://www.philstockworld.com/2011/02/05/breakout-defense-part-deux-5-more-trades-that-make-500-in-a-rising-market-members-only/
http://www.philstockworld.com/2011/02/05/breakout-defense-part-deux-5-more-trades-that-make-500-in-a-rising-market-members-only/
Take the money and run
Sometimes it pays to be poor!
http://www.nytimes.com/2011/02/06/realestate/06cov.html?pagewanted=1&_r=1
http://www.nytimes.com/2011/02/06/realestate/06cov.html?pagewanted=1&_r=1
Apple Update
I have written about 2 possible apple trades here and here. Here's a good article about why Needham & Co have raised their price target to $450! This bodes well for our two previous trades.
http://blogs.barrons.com/techtraderdaily/2011/02/07/apple-needham-ups-target-to-450-ipad-growing-like-hybrid-corn/?mod=wsj_share_twitter
http://blogs.barrons.com/techtraderdaily/2011/02/07/apple-needham-ups-target-to-450-ipad-growing-like-hybrid-corn/?mod=wsj_share_twitter
Rio Tinto and Southern Copper
The large miners are set to report earnings in the next two weeks and they are predicted to be blowouts. These stocks are flush with cash and are looking to make acquistions, increase dividends, and launch large share buybacks. They also have juicy option premiums! One of my favorites is Rio Tinto. The company has a decent debt load but has paid down nearly 40 billion from its acquisition of Alcahn back in 2007. The company has a foward P/E of 7.50 and should benefit from higher commodity prices over the next few years.
Here is a short description of southern copper from seeking alpha. This one should benefit from increased copper demand in 2011. Copper Industry. Market cap of $38.38B. PEG ratio at 0.85. 5-year average ROA at 26.7% vs. industry average at 15.21%. 5-year average ROI at 30.99% vs. industry average at 18.73%. 5-year average ROE at 45.48% vs. industry average at 21.3%. Short float at 3.16%, which implies a short ratio of 2.81 days. The stock has gained 55.53% over the last year.
Buy 100 RIO @ 73.12: ($7,312)
Sell 1 Jan 12 75 Call @ 9.00: $900
Sell 1 Jan 12 75 put @ 13.08: $1,308
----------------------------------------------------
Total cash outlay: $5,104
Potential return: $900+1,308+188= $2,396 or 47% on a stock that needs to go up by 2.5% in the next 11 mos.
Break-even: 63.02
Buy 100 SCCO @ 46.32: ($4,632)
Sell 1 Jan 12 50 call @ 4.1: $410
Sell 1 Jan 12 50 put @ 10.2: $1,020
--------------------------------------------------
Total cash outlay: 3,202
Potential return: $1,798 or 56.15% on cash invested. Shares need to increase by 8% by jan 2012.
Break-even: $41.01
I also might buy a protective put on these below our break-even, just in case the copper market crashes for a little insurance. Look at the SCCO 35 put at 2.9 and the RIO 50 put at 2.85
Here is a short description of southern copper from seeking alpha. This one should benefit from increased copper demand in 2011. Copper Industry. Market cap of $38.38B. PEG ratio at 0.85. 5-year average ROA at 26.7% vs. industry average at 15.21%. 5-year average ROI at 30.99% vs. industry average at 18.73%. 5-year average ROE at 45.48% vs. industry average at 21.3%. Short float at 3.16%, which implies a short ratio of 2.81 days. The stock has gained 55.53% over the last year.
Buy 100 RIO @ 73.12: ($7,312)
Sell 1 Jan 12 75 Call @ 9.00: $900
Sell 1 Jan 12 75 put @ 13.08: $1,308
----------------------------------------------------
Total cash outlay: $5,104
Potential return: $900+1,308+188= $2,396 or 47% on a stock that needs to go up by 2.5% in the next 11 mos.
Break-even: 63.02
Buy 100 SCCO @ 46.32: ($4,632)
Sell 1 Jan 12 50 call @ 4.1: $410
Sell 1 Jan 12 50 put @ 10.2: $1,020
--------------------------------------------------
Total cash outlay: 3,202
Potential return: $1,798 or 56.15% on cash invested. Shares need to increase by 8% by jan 2012.
Break-even: $41.01
I also might buy a protective put on these below our break-even, just in case the copper market crashes for a little insurance. Look at the SCCO 35 put at 2.9 and the RIO 50 put at 2.85