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.
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