Friday, November 22, 2013

Investment Idea Sharing for Nov. 23, 2013

This Week's Activity – November 23, 2013: 



This week, the Dow Jones 30 hit a new all time high of 16,068 as did the S&P 500 at 1,805. Other world wide indices were mixed. Here is a good article that summarizes this week’s activities: http://www.marketwatch.com/story/dow-retreats-after-record-close-as-intel-sinks-2013-11-22?siteid=yhoof2

I still think the markets are overpriced.  But, I will keep looking for good values.

Warren Buffett is possibly the world’s most famous “value investor”.  I am also a value investor.  Warren and I both look for companies that have strong underlying value but whose stock prices are temporarily under priced.  But, Warren has an advantage over me because many of these companies actually CALL Warren and ASK him to buy $1 Billion or more their preferred dividend paying stock (often paying him a 10% dividend) and often throw in a “buyer’s” bonus of stock warrants that will allow Warren to buy EVEN MORE of their stock in the future at a price similar to the current depressed stock price that he is paying.  Read about examples of these sweet “Warren Only” deals in this article http://online.wsj.com/news/articles/SB10001424052702304441404579119742104942198
As you can see, sometimes Warren gets dividends of 10% or more and does not even have to do any research to find this great opportunity.  My only problem is that even if these companies DID call me, I could not send them $1 Billion.  But, there are good companies out there that regular people CAN afford to buy that pay a 4% dividend and a 6% “buyer’s” bonus in the form of a PUT premium.

One of these companies is Excelon (EXC) a diversified utility company serving Chicago, Baltimore and Philadelphia.  EXC is at $27.35 a 10 year low, pays a 4.4% dividend and I just sold a July 2014 PUT at strike of $27 for $1.80 (6.7% premium). If I get EXC PUT to me, I will hold it and continue to receive that 4.4% dividend, if the PUT expires worthless in July, I will have made a 6.7% return for having my money tied up for the next 8 months. 

Not as good a deal as Warren gets, but a pretty good deal for someone like me. 

See the Yahoo Profile for EXC at http://finance.yahoo.com/q/pr?s=EXC+Profile  


StockEvaluator “Short List”
Stocks on the ‘Short List’ have Current Price <5% above 52 week low and have <5 Red cells in Stock Evaluator.xls.  Stocks on the list this week are:  BFK, TKPPY, RCII, DSU, PTGI

Stock Evaluator “Volatility Sort”
Stocks on the ‘Volatility Sort’ have Current Price <5% above 52 week low, Volatility >3%, Profit>0%, <6 Red cells in Stock Evaluator.xls.  Stock on the list this week is: PTGI
   
MutualFundEvaluator “Short List” shows funds that are within 3% of their 52 week low AND have less than 3 Red cells.  This week’s list has 35 funds.  All except 1 are Bond funds, which are all still 3 to 5% above their lows from 2006 to 2008 before The FED dropped interest rates to bring the U.S. out of the recession.  When interest rates go down, bond prices go up, and when interest rates go up, bond prices go down.  These bond funds only pay a 3 to 4% annual dividend and I think they will go down another 3 to 4% when The FED finally lets interest rates go back to historic levels.  I will continue to wait before buying any bond funds because I will lose a whole year’s worth of interest if I buy back in too soon.  For example, PRGMX closed this week at $9.55, down from 2011 high of $10.22, but still 4% above 2007 low of $9.14.  My target buy price for PRGMX is $9.35.
Here is the 10 year chart for PRGMX that shows these price ranges:

Watching the interest rate on 10 year treasury notes gives another hint of when these bond fund prices will get back to normal.  As this interest rate comes back up, the prices of these bond mutual funds will go down.  The interest rate on 10 year treasury notes closed this week at 2.75%, up from 2012 low of 1.50%, but way below 2006 - 2007 highs of 5.2%.  My minimum target for 10 year interest rates is 3.5% before I will be ready to buy back into bond mutual funds.
Here is a chart showing interest rates over the past 13 years for 10 year treasury notes:

Next Monthly Meeting 2nd Tuesday of every Month:
Tuesday, December 10, 2013 , 7:30 PM at my house. 

Here are my Stock BUYs for This Week:
Buy   Company   Buy
Date  Bought     Price    Target Sell
----- ---------   -----  ------------
none

Here are my Stock SELLs for This Week:
Sell   Company   Sell     Buy       Buy
Date    Sold        Price   Price     Date
-----  ---------   -------  -------  ------------
none

Here are my Option (CALL or PUT) Sells for Last Week:
I only do Covered CALLs or Cash Secured PUTs
Option  Sell    Stock    Strike   Expiration   Option  
Type    Date   Symbol  Price      Date         Price    
------  ------  --------  ------  ----------  --------
PUT    11/21    EXC     $27   July 2014   $1.80

StockEvaluator and Mutual FundEvaluator spreadsheets are available for download at www.ultimatestockfinder.com

Please remember to send me any other investing ideas, information or questions that you want to share with the group.

Thanks,
John D.

Disclosure: The author has no positions in any of the stocks or mutual funds mentioned in this article unless clearly stated above. We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article.  Please see our full legal disclaimer at:  http://www.ultimatestockfinder.com/stockevaluator_disclaimer.html
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