Are there any good stock buys left?

The short answer might be a resounding NO.  For several months this past year readers have noticed our universe of stocks has dwindled from almost 25 to now down close to 10. The reasoning was simple for our hedging purposes in that if a security could not pay it's own freight so to speak why take a chance on it. Paying the freight meant that a combination of option premium and dividend income could cover most any scenario when forced to own it when the stock was put to us. Margin interest for us is a combination of 3.75% and 4.75% which are the current percentages for our underwriters.  Therefore in simple terms 5% dividend made sense since we like to consider the premium as our "profit" for hedging. 

Here it gets tricky since many selections which we like such as SO and DUK have indeed fallen significantly below 5% dividend levels.  Most of these dividend declines has nothing to do with cutting the dividends since many stocks have been raising their payouts. Almost all of the declines have come from investors crowding into these securities looking for yield. US Treasury payouts are a joke and fools gold for those who buy them and yes there are plenty of fools around. Ditto for many other bonds, except for municipals.  Municipals however have been calling bonds of late taking advantage of lower than low interest rates. 5% bonds are becoming 3% bonds quickly in the municipal arena. The risk profile for municipals is starting to trouble us as well. 

What this leaves are a few stocks where the option premium and dividend can be worth the trouble and our hedging going forward from this month will take a decidedly different approach.  That approach will be much more conservative and much less profitable. With the political situation and the fiscal cliff awaiting us in January in this country the huge risk now outweighs any profits available. Frankly they are not worth taking. As explained in a previous post we have finally accepted that Barack Obama can and will destroy the economy in the US by not knowing what hell he is doing and there is no need to risk so much for that high of a risk. Our greatest trading fear going forward is with the lowered number of trading stocks our concentration in those remaining is getting much larger. If Obama sets his mind to go after a company the losses could be staggering.  Maybe we should just stop trading at all now? 

We place just over $1 million dollars in value of option trades monthly. We will continue to risk the same amount, but going forward the risks will be so small on our trades to actually be a little risk at all. That difference should reduce our monthly premium take by at least 25% and maybe more. We like to play the game, but this market has gotten ridiculously risky to play in going forward for at least 5 more months.  If there is not a change in Washington DC in November we likely will hang it up on the hedging and options trading and shut down our fund. We can sit at the beach and say to heck with the country and world if indeed this country can not see ruin ahead with the current leadership. As we have said before we expect we are to be joined by many who will join us at the beach. 

Below are the current and maybe final stocks we will use for trading in our hedging activities until the November election. 

AGNC... almost guaranteed this stock is going nowhere but maybe up a little bit since it is US Government guaranteed debt and The Fed has said there will be no upward movement in interest rates for over two years. Safe and more safe. Closer to $31 is best however. 

BCE...Canadian telecommunications company that is frankly overpriced, but safe in Canada where government is business friendly. We like it $40 for the rising dividend too. 

CTL...Largest legacy telephone company should do well going forward. Economy of scale and frankly government support of rural land lines gives us some comfort.  High dividend that is safe going forward. Only risk is a bad earnings report, which is possible, but not likely. If it does report weak earnings it would be a good buying opportunity. Like here in mid to upper $30's. 

DUK...We are very close to dropping this one as the price is getting frothy.  Why take the extra risk if the payout is similar to SO. Just trade SO. We will see. 

ERF...God help us we are addicted to ERF.  Canadian oil company that has taken a pounding reducing the share price over 40%, which yes we participated in recently. However there has to be a bottom here somewhere and the risk has to be much less for more capital losses. The option premiums are rich and the dividend still above 8% even after the latest cut. 

JNK...Has held up well despite being junk bonds in a economic downdraft.  That makes for some comfort plus the high monthly dividend. 

LO... We just might being dumping this one as well like DUK above. We like tobacco and LO has more upside than any other tobacco. However it also has more downside risk here too. 

NNN.. This real estate stock has held up through thick and thin since 2008. No dividend cut and no drop in price. We too will stay with this stock even though the option premiums are not as strong as before. 

O...Frankly this stock is way overpriced here nearing $40, we like it at $35. So we will continue to write $35 options taking in the cash and being happy if we have own it via puts. 

T.. This stock continues to move up in price and it too is starting to reach the highest level we are willing to buy it. We might have to go to longer dated options to get our price. 

FTR...We have a large position of puts here and continue to fine with them if we are put the stock. The price is right here below $4 and the dividend good for the long term  We will however not add to this off balance sheet position.