Two energy plays

With oil prices tumbling, energy stocks have taken a big beating and some good names are trading at prices not seen in many years.  Among those, Morningstar recommends a set and even among them are two Devon (DVN) and Apache (APA) trading respectively at 60 and 64 dollars a share.   There are many good fundamentals these two can brag about too including a strong balance sheet and good management.   Their fair value estimates are respectively at 93 and 98.  Even the most pessimistic ones about the energy sector consider this a great time for those with a long term (5 year +) horizon.

Besides that there are some good PUT writing opportunities too.  Consider for example a strike 60 PUT on DVN for Jan 2016 selling at 7.55, or a 65 strike PUT on APA selling at 8.49.  These are positions I find more suitable for the risk averse; the return is good if the PUT doesn't get exercised and if it indeed does, then I am buying the stocks very cheap to hold. Think of it another way: it is like buying the stock today and getting a 10%+ return in about a year.

A Very Uncertain Moment Indeed

    Every day, we read of some new record that has been broken by the stock market and how events that have happened only twice or thrice in the last so many decades have come to pass recently. There are those who think that markets have gone up so high that nothing other than a reversal is possible. Yet there are those that continue betting in the belief that the US stock market is the only game left out there.  The Fed itself continues postponing the day of reckoning in terms of the cost of money that the government can print with no restraint, thanks to the lack of obligation to back its printing excess by anything other than hot air.

   In this backdrop, we now have a President who has challenged Congress with his bold pronouncements on immigration and some unilateral action, albeit in the real spirit of America and necessitated by the irresponsible apathy of the legislative branch. The reaction of the Republicans has been predictable, and don't be surprised if the confrontation escalates even more and creates a major shut down of the government itself.

     Not long back, the market has shown clearly that it is more worried about the turf battles and paralysis in Washington than other business and economy related challenges.  But who cares ?  It is all a battle for 2016, if not to increase one's own chance to win but at least to deflate those of the opponents by not letting them achieve anything they can brag about.

     This is certainly a time when cash is king and a time to prepare a short list of what one wants to pick up at bargain prices and to wait it out.  That is my view and the basis of my plans for the near future although I may continue not to let some of the cash stay idle but earn some money through carefully placed short puts.  Wish you good luck, if you have an alternative point of view since you may indeed need it!  Certainly, this is a very uncertain moment.

MT is attractive again

Arcelor Mittal (MT) has become very attractive from a short PUT at strike 13 for 2016.  Check out the return profile etc.  A 10.2% annualized return if the PUT doesn't get exercised and a great price if it indeed does for one with an eye on the long haul.

TSLA : to buy or not to buy

TSLA - to buy or not - that is the question that I get asked all the time.  There are some solid reasons NOT to buy, and you can find them in the following MorningStar article if you can access it:

http://news.morningstar.com/articlenet/article.aspx?id=665082&pgid=stockarticle

BUT, consider selling  a PUT for say 220 strike for Jan 2016 which fetches a premium of 15% of the strike.  It may even get better if TSLA goes forther down.  THAT, to me, is appealing and much less risky.

IBM again

With a 185 Put for Jan 15 yielding a premium of 10.30, it does appear to be a low risk, high reward strategy after all to write such a put.  Consider the annualized return if the Put is not exercised as well as the downside risk for this stock.

Get IBM on your watch list !

IBM is beginning to look attractive.  Here are the key facts:

1. It is punished by the market for a low P/E.
2. The above ignores two key facts - E goes up when shares are bought back (and IBM bought back a huge number in what should be considered a well thought out move) depressing P/E; the company is moving from low margin (27%) hardware business to high margin (87.5%) software business.
3. Buffet has an ownership of approximately 6%
4. Business quality is rated best.
5. Valuentum gives a rating of 7/10 which could quickly move higher putting it in the buy list
6. Dividend of 2.4%

I am watching but not yet buying.  Not enough opportunity to hedge well yet unless you will be happy to finish the year with some 7% or so total return.  Morningstar recommends a buy price of 148 which may be ridiculously low against a fair market value of 212 given by them but we could do better than the present market price.   Nevertheless, the stock may have a further downside of some 3%-5% to present valuation.  If it does, put writing may give some solid opportunities.

You can see some detailed analyses in:

http://seekingalpha.com/article/2229723-does-ibm-deserve-a-low-p-e?uprof=45

http://seekingalpha.com/article/2229713-dont-expect-another-earnings-per-share-target-from-ibm?uprof=45

Overall, as rightly noted in one of the pages above, it does remind one of Buffet's saying: "I try to buy stock in businesses that are so wonderful that an idiot can run them.  Because, sooner or later, one will."
I worked in AT&T when Armstrong ruined it and know that all too well.  IBM is slowly getting to a point where it may become idiot proof.

Stratasys (SSYS) review

http://seekingalpha.com/article/2169663-stratasys-changing-the-outlook-in-3-d-printing-services-business?isDirectRoadblock=false&uprof=45

I found the above quite useful.  Thought others might too.

APPLE split

http://blogs.wsj.com/moneybeat/2014/04/23/apples-7-for-1-stock-split-is-very-unusual/?mod=yahoo_hs

What is my take ?  Smart move on the part of AAPL.  This makes the stock affordable to a heck of a lot more and also gives them the ability to book profits or take losses on a portion of their investment etc.  This will increase the demand for stocks in the short run, and like anything else as demand goes up the price will go up creating an upward momentum.  Yes, in the long run other things remaining the same, this effect will
get set back since valuation will determine price, but in the short run it is good.  More importantly, with a very large number of stock holders, a small few cannot exert all kinds of pressures like what happened with AAPL.  Will Google take note or can a similar move even help Google, given they have a very different governance structure altogether?

The importance of hedging

With any new technology, there are risks - the biggest being expectations and hype from the market players.  In this arena, it is so easy to unknowingly become a gambler instead of being an investor.
That is why I hedge.  With respect to 3D systems, this is a series worth reading and keeping in mind.
Buy low and hedge always if you are to get involved in such technologies except when you know the companies and the business first hand.  Or else you can become the proverbial "next fool" to buy vapor ware.  That said, for 3D, my take is that: stay with market leaders, buy low, hedge, hedge, hedge ....

http://seekingalpha.com/article/2146183-3d-printing-debunked-part-2-industries

Time to get yourself ready to enter

Looks like we are approaching a time when some good opportunities may start coming, and this is the time to be identifying the scripts to be involved in.

Right now, consider SSYS (Stratasys), a leading 3D printing company.  Its price (hitherto in the stratosphere by any metric you may wish to consider) has come down substantially but is still above what a conservative analysis would call as fair value.  But if you were to buy it at the present price of 94.58 and write a Jan 15 Call with strike 90 and collect a premium of 17 dollars and change, come Jan 15, you get an exercise of the call which brings you a very solid return, or alternatively if the call doesn't get exercised then you get to own the stock at a very reasonable net price.  Given that SSYS is one of the top two market share holders in this area and is vertically integrating itself well with a very good strategy, the second scenario may be better.

Alternatively, a Put with strike 85 for Jan 15 which has a premium of slightly above $10 is also a solid good strategy, although I am not sure that that put will get exercised.  So, if one is keen on buying and holding the stock for the long term, may be one should consider a 95 strike put which fetches 15.80.  It all depends on how much you would want to own this stock for the long run.

Read also

http://www.fool.com/investing/general/2014/04/13/3-d-printing-authority-reveals-why-they-chose-
stra.aspx

In any case, there is a compelling case to read up on SSYS and examine it more closely.

Once again, this is a market where I don't wish to buy and hold without any hedges.

Vulcan Materials - VMC

http://www.fool.com/investing/general/2014/02/06/why-vulcan-materials-companys-shares-popped-today.aspx

Remember this stock I mentioned long back as a worthwhile hold ?  I am not rushing to add to my position but remain more re-inforced in my faith on careful valuation based decisions.

Time to renew one's basics

http://news.morningstar.com/articlenet/article.aspx?id=631984

If the market makes a reasonable correction, it may be time to get back in.  The above would serve as a good review in honing one's skills in individual stock selection.