Current Trading Portfolio.

Our current trading portfolio.  We continue to move towards stocks that have sold off, present values, or stable in price. 

O...Realty Income...This stock has been a favorite for many years due to the quality of the real estate assets and the monthly dividend.  However the price has moved up to above $45 and we no longer consider it a value there.  We continue to sell options at the $40 price point when the opportunity presents itself. 

CTL...Centurylink....We like this stock a lot at the current sold off price due to the cut in dividend.  We believe CTL has reached the point where the value is compelling and the dividend rock solid.  We sell options at a $32 strike price. 

BBT..BB&T Bank...New to our list due to the weakness recently.  The thought that this bank might not be solid due to the stress test is silly.  BB&T was one of the few banks that came through the financial crisis in good shape.  We use a $29 strike price. 

BP.. .BP Petroleum...This oil company is paying a good dividend and has sold off due the current court proceedings.  We believe the bad news is priced in here and once the taint is lifted and court settlements done it will move up.  At $40 we like it. 

INTC....Intel....One of the old line tech stocks that has sold off a good bit.   We believe the manufacturing quality and size make it appealing at $20. New to our list. 

LO...Lorrilard....At $35 this stock is worth the options and risk of menthol regulations. 

AAPL...Apple has sold off and we would be more than glad to own it at $400.  New to our list. 

BTE..Baytex Energy....New to our list and replaces long held ERF.  BTE is mainly a Canadian oil producer of heavy oil.  Has a monthly dividend.  Solid profitable company that could jump with approval of Keystone XL pipeline.  $40 is our strike price. 

SO...Southern Company...Our oldest and still most solid holding. $42 is our strike price. 

T..AT&T...Another long time holding.  We like it at $33. 

MSFT..  Microsoft....New to our list due to the belief it has become one of the most dependable cash generators in the US.   We like it at $26. 

SHLD...Sears Holdings....Lousy retail business that has done decently with web marketing.  We like it due to the real estate holdings and think at $40 it is a value.  New to our list. 

FTR...Frontier Communications...We hold this stock, but will eventually sell it off not due to bad business prospects rather market dislike of it's long term potential.  We currently hold it at $4.

TCAP...Triangle Capital....We love the management and the quality of the business. However the price is way above our $22.50 strike price making trades almost impossible. 

BCE...Bell Canada...Strongest telecom in Canada, but above our strike price of $40 enough we will no longer trade it. 

The Southernaire

Imagine a hot Saturday night in the south.  One has just finished a hard day's work around the house or on the farm.  You get to the house, take a bath, put on some clothes for "going out".  Your family gets in the car and drive 25 miles or so onto a dark road headed towards the coast.  Then out in the distance just past the last turn on the right you see it.  The "it" is the old Southernaire Seafood Restaurant.  

Now I am not old enough to know when The Southernaire started, but I expect since it was just down the road from the back gate to Camp Lejuene I would assume sometime right after the great war. What I do know is we as a family considered dining there a real treat and something to be anticipated as you drove to get there.  The draw here was fresh seafood from the docks at Sneads Ferry right down the road.  Fresh as in that day's fresh and that is almost impossible to find nowadays. 

The Southernaire was located in a building that was about 100 yards down the road from the intersection of NC highway 210 and what used to be Folkstone Road. This was before there was a bridge on NC 210 that crossed over the Inter coastal Waterway and onto Topsail Island.  Therefore there was little reason for most people to drive down this road if not going to the small hamlet Sneads Ferry or taking a short cut to the military base.  That meant it was dark, as in REAL dark during most of the ride.  The Southernaire had little around it other than maybe a few old houses so when you got to the intersection the lights of the restaurant were like an oasis in the night. 

One would drive up to the building, which was a long building right on the road and park where ever you could find a place on the sand covered lot around the business.  My fondest memories are when you opened the car door the smell of seafood permeated the air.  Make that the smell of "fried" seafood was all in the air.  Chances were good that we had invited another family to join us and we would get a large table for eight people or so.  We would get a basket of hush puppies and some butter and the waitress would take our order.  This was a critical moment as us kids preferred "filleted" fish and we looked to get our parents to let us order the then higher priced fish as opposed to the fish with bones still in.  Once the order was placed everyone would enjoy each others company and wait for the seafood to be delivered to the table. 

Did I mention The Southernaire for the first few years we went had no air conditioning?  Yes, that was part of the enjoyment as one would sit and wait for cool sea breezes through the screened door and windows to cool you off.  So here you sit in the warm building with lots of lights and your food arrives. Honestly here I can not describe the feeling and taste of the moment as the fresh seafood hits your nose and palate.  Maybe we cook seafood like this now, but I can not find it and expect the reason is that the whole experience, the drive...the dark....the lights....the screened doors....the family atmosphere....and of course the fresh seafood all came together to make memories.  

I miss the old Southernaire.  My best guess is that my last visit there was sometime in the early 1980's while staying at Topsail Beach with friends.  When I moved inland chasing a career I forgot about it and stopping going.  My recent visits to Sneads Ferry to visit The Riverview Cafe brought back the memories when we drove by the old building where The Southernaire once stood.
Funny too since The Riverview Cafe was the first restaurant I ever went to at age 18 months as my mother and father along with friends dined at their oyster bar as I sat in my basket in the counter sleeping.  I suppose they thought of the Riverview the way I now think of the Southernaire and wish I could dine there one more time. 

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Two short term trading opportunities

For those of us who still posses some animal spirits in this economic environment here are a couple of ideas for some short term trading profits.  We own neither at the moment, but would consider both if the market brings their price closer to our strike price. 

Apple...This company has taken a pounding recently having moved down from $700 per share to now approaching $400.  Apple has huge cash flow and lots of free cash in the bank.  Apple also has one of the two strongest smartphone businesses in the world.  The other being Samsung.  Samsung has been making some serious moves into Apple's share of the market.  Samsung has come out with big screen smartphones and the Galaxy 3 is considering on par with any iphone.  Sometime in the next 30 days they are coming out with an upgrade on the Galaxy 3 so they are not sitting still.  Of course Samsung is not totally perfect here as there have been consistent rumors of Google wanting more out of their open source Android operating system and might consider splitting with Samsung. Apple will eventually upgrade their iphone 5, but how much of an upgrade it will be remains to be seen. Both manufacturers are allowing some of the lower end of smartphone market remain out of their reach and we would not be surprised to see Apple come out with a lower end phone. Apple we believe has reached the oversold position in their stock.  They might end up being number two for awhile, but even then there is some serious cash flow of lots of billions of dollars of free cash flow quarterly and there is the 2.5% dividend that is as safe as they come.  We believe a $400 put here is worth the risk and the nice 17.6% annualized return for a May date. 

Sears Holdings... Sears is a lousy merchandiser and is in a declining retail store business. Eddie Lampert the supposedly genius who owns much of the shares in his hedge fund and personal accounts made a large buy in the open market recently.  Mr. Lampert is a billionaire and despite many thinking he does not understand what he is doing must be taken seriously.  Sears Holdings owns a bunch of their stores as in over 60% of the actual Sears locations.  Some less for the Kmart locations. Sears has the nation's largest appliance business in Kenmore and the best by far tool business in Craftman's tools.  In all this business despite it's issues has some assets.  The real estate alone is priced at $12 to $16 billion minimum.  So with the stock trading at a $5 billion market cap it is selling at no less than half the real estate value. You get whatever cash flow Mr. Lampert can squeeze out plus the marketable values of the two brands noted above.  This is a long term wait and likely not much capital gains for investors who want some quick money, but the value is compelling.   We are looking at a $40 put for June and a 15.1% annualized return.

            

We remain on the sidelines in this market.

We have been asked at least a dozen times in the last week, what is going on with this market move upward.  As we opined about one month honestly we do not know what to make of it.  It seems each day brings a new high. 

Our first reaction is this has become a market where many investors are nothing more than piling in thinking if they do not get in it will be too late.  Money movement in the last week or so justifies that claim as a good bit of money has moved from bonds into stocks.  Add in the new money coming in due to the fact many see this market as better than .001% CD's or Treasuries.  Of course many times in the past this is a clear sign of a market top. 

Doug Kass the omnipresent analyst now is full bore behind this market not being up to the fundamentals.  Corporate profits are good, but the forecast for futures profits is not so good. That coming from these same companies who have seen their stock prices move up nicely this year.  Note that this is a big company corporation move and not to be confused with any small business environment.  Many small businesses are reporting weak sales and weak profits. Much of that coming from the increase in social security tax and small business taxes on Jan. 1 and the Obamacare regulations.   Strange that this kind of market move is coming under Obama, when he hates corporations so much. Goes to show he talks down corporations, but in truth is in bed with many of them. 

There has been discussion we are in for a 1987 stock market moment, but I do not see that as the situation was far different then.  The market in 1987 got overvalued in a very strong economy.  This economy can be said to be anything but strong.  Unemployment is still high, and hiring still quite weak at under 150k monthly.  We are not gaining at a rate that would mop up the people out of work and those entering the workforce. 

We continue to play this market cautiously.  Most of our hedge positions remain on the short side and those in less volatile stocks. Add in that we plan on adding to our orphan and widow selection as positions expire.  We will be adding MO, T, PFF, MRK, and maybe even XOM as we move forward. Many of our selections have gotten down right pricey such as BCE, TCAP, and HFC and we prefer not to be there if the market does go into a correction. 

Our personal portfolio remains a large selection of blue chip stocks, a small number of small cap stocks, some real estate,  some corporate bonds, and finally our largest holding municipal bonds.  Animal instincts occasionally make us consider taking chances, but we as yet have not. For instance Eddie Lampert the CEO of Sears bought a large block of that company today and despite the sales problems there know the company sits on $12 billion or so of real estate.  There are always opportunities opening up, but why take chances in a high valued market and a Obama administration that can come after your company any day. 

Much of this move is likely more of the sugar high we discussed in our last post on the market. The Fed continues to buy $85 billion or so each month of government debt that Obama is producing. This keeps interest rates low and lots of juicy stimulus going.  The key is knowing when either the Fed decides to slow or stop the stimulus and that will be like a mob rush to the doors so if you are not out prior to be prepared to get killed. The other worry remains as how long this pumping of money will be tolerated by other countries.   We have about $50 trillion in debt in the US both public and private and about $75 trillion in assets in this country so when will others say enough is enough?  

We remain on the sidelines.