Current Trading Portfolio

Once again let us note this is a TRADING portfolio for options and hedge trading.  However the strike prices here are compelling values for those looking for long term buys. 

AAPL...Apple is now in the sweet spot regarding trading.  Much of the downside is out of the stock price so there is limited risk going forward.  We are going to pick our spots but will look to up our exposure here to the highest in the portfolio.  Frankly the opportunity to make $21k annually from a $113k exposure is enticing.  We like AAPL at and below $400

BBT..We believe BB&T at around $29 per share offers good value and wev will trade at that level. 

BP..Much of the risk in this company is priced in now and at our trading price of $40 we will be glad to own it. 

BTE... This oil producer in Canada is under our trading price of $40.  We misread the market here a bit.  But if we end up owning it the 6.5% monthly payout and continuing call options will be solid income. 

CSCO..We believe CSCO has not properly participated in the tech run up of late and at $19 offers compelling value.  Add in the 3% plus rock solid dividend. 

CTL...Centurylink was hit hard earlier this year and we now take a wide view of it's value with our trading price of $33. Still a good long term value and dividend payer. 

FTR..We are slowly trading this stock out of our portfolio after making good money on it for many years.  We still like the company and 10% dividend.  But at $4 it is becoming harder to trade effectively. 

LO.. Lorrilard is slowly moving out of our price range of $35.  We will evaluate the shares and maybe move up our trading price when our June options expire. 

NOV...New entry with some risk. But Warren Buffett owns shares so maybe the risk is not as great.  Morningstar also has a 4 star rating on the stock. At $60 strike price the options are compelling. 

O...Great company, good dividend, but at now almost $50 per share we find little value left.  Our trading price of $40 and June options will expire and we will likely move assets elsewhere. 

SBY..This stock new to our portfolio has some significant risk, but long term we like Silver Bay as we opined in an earlier post.  Our trading price of $17.50 is low enough we will take it if reached. 

T...Got hit last week for not growing enough.  Duh...cell phone service in the US is no longer a growth industry, but more a take one another's customers industry. Verizon is too high priced for us here, but AT&T getting hit last week brought it back closer to our price of $33. 

TCAP...Triangle Capital price got ahead of itself earlier this year but has moved back some in recent months. Our strike price of $22.50 is good for trading here.

                

Some final thoughts on Apple earnings report.

We remain positive on Apple stock going forward, just maybe more positive long term than short term.  The stock is under pressure to some extent due to the expiration of the two year phone upgrade cycle which begins in late summer 2013.  Apple needs a new phone to keep customers from at least considering the offerings from Samsung and HTC.   We own a Samsung Galaxy Note Two and frankly it is an awesome piece of work.  Apple's stubborn insistence it does not need a larger phone such as the Note Two is foolish.  Maybe they need to check out the millions of these phones Samsung is selling.  On the other hand Apple has the people and smarts to add tech to their current offerings and still demand higher margins on their machines such as the ipad due to it being the best out there. 

Short term the analysts are pounding Apple for what we personally believe is Apple not performing up to their ridiculous price targets.  Frankly those targets were crazy from the start especially the one by industry leader Goldman Sachs at $1000.  So much for the so called smart money.  Apple will continue to produce iphones, ipad, and ipods for customers who like their products and quality.  They will continue to innovate, but maybe not as much. 

In the end Apple will be paying a 3.0% dividend which is solidly better than any US Treasury and frankly safer due to their huge $144 billion dollar cash pile. Plus their dividend is not subject to rising interest rates either. We also like the idea of borrowing money to buy back stock since Apple should use their AAA credit while rates are low to make long term bets on the business.  Apple remains a less than spectacular growth company with a nice payout and once the floor gets put in on the stock remains a buy in our opinion.  You might not get rich on Apple going forward, but you will make money that is above average.  Frankly for our purposes we like Apple now better than we have before. 

As a trading vehicle it has reached our sweet spot.  As a long term hold it is good as well. 

Apple Selloff

We know many of our readers own Apple stock.  AAPL has been in a sell off for some 6 months now.  A high of around $750 to now just at $400.   This for a company that has a solid product, a loyal fan base and I do mean "fan base", and trailer loads of cash in the bank.  The profits are solid and the future bright.  Add in a PE of 9, which is low for a defensive stock, much less a growth company that Apple surely is and you got a sell off that is not justified.  

Apple is selling off today due to lower than expected earnings reports from some of it's suppliers which signals to many Apple sales are in a steep decline.  That too is hogwash as mobile phones, mobile phablets, or just plain tablets are the future of computing and Apple sells a ton of these babies.  Yes, Samsung has come out with some innovative products that have eat the lunch of Apple lately.  The new Samsung phone is a nice piece and has some good features but nothing so innovative as to make many buyers run from Apple. The Samsung Note 2, which we personally own, is a brilliant piece of work and a game changer for many mobile devices.  The Note 2 is selling big time and everyone who owns it loves it.  However unless Apple is full of people who have not seized on the Samsung moves and are right now planning a counter punch we are fooled. Even without any new phones Apple will still sell lots of phones, make lots of profits, and pay a handsome dividend. 

We have 200 puts on Apple at $400 for May 3 and we are quite happy with owning Apple at that price.  Lots of opportunity for growth, lots of opportunities for call options going forward, and yes a 2.65% dividend which will likely be raised during their April 23 earnings report.  We suggest you consider Apple here at around $400.  We can not guarantee that it will not go lower, but sooner of later it should come back to this price and give you some capital gains plus more dividend payout than you can get from treasury bonds. The moment of most concern here remains next Tuesday when Apple reports earnings, but much of that concern is not baked into the price. Be careful, but take advantage of opportunities when they present themselves.   Frankly Apple payout's might be safer than treasury bonds with the huge cash pile backing it and growth potential. 

               

Adding back a position

We traded HFC, Holly Frontier, earlier this year for nice profits.  As the stock rose above our comfort zone into the upper $40's and into the upper $50 per share price zone we exited the position and backed off.  We find HFC to be in the current sweet zone when it comes to the crack price of oil refining due to the bottleneck of oil in Oklahoma and mid continent.  Gushing oil production from the Bakken areas of North Dakota and western Canada is flowing south to the refineries along the Texas Gulf coast, but due to the lack of pipelines the flow is slow and all the crude can not reach the refineries normally.  As long as Obama does not approve the Keystone XL pipeline we see no let up from the large difference in oil sold from the mentioned regions versus world oil price. Therefore the difference is being made up in larger profits by refineries in the US.   Gas at the pump will almost always sell at world price and not US price simply because oil is a world commodity now.  If all this oil actually reached the refineries oil prices world wide would back off. 

Warren Buffet is playing the political angle well talking a progressive line for his buddy Obama, while at the same time making huge profits on the backs of working people by using his railroads to haul the gushing mid continent oil to the Gulf refineries.  Warren also has significant assets via Phillips 66 refineries thereby making money on both ends of this gravy train.  Since Warren has much of the railroad capacity wrapped up by his huge stake in railroads, we play the other end refineries, which frankly are the more profitable end of the trade. 

This game will not last forever since sooner of later there will either be a Keystone Pipeline or a similar pipeline in Canada to the west coast there to relieve this glut of oil. So we will make money while the oil mismatch continues.  HFC has now moved back into the mid $40's where we like it better. So we will soon add back HFC into our trading with a put at $40 and will play it as long as it does not get overpriced again. 

"As long as I am alive, you will be too."

If anyone loved their church it was my father.  For someone who waited a couple of decades into his life to join his local Baptist church he made up for lost time.  His 65 year membership in the First Baptist Church in Richlands NC was one of increasing devotion and desire to improve the relationships of fellow members and outreach of the ministry.   Considering my mother, Wilma Jones, is the one who pushed him from being a believing Christian to being a practicing Christian I have some huge shoes to fill.

But this Sunday I found myself in that role.  I dearly love this church and the congregation and have a long history of association since it was the church in which I was raised, found repentance, and grew to love my Lord.  There is also the little matter that I was "tasked" by my father during his last year to help do his part to make sure a certain item on his check list got completed.  Fortunately for me the current pastor and leadership at RFBC are doing the heavy lifting and getting the last check mark on that list closer and closer to being fully checked off.  My only contribution has been to verbally push the idea and to financially contribute what my father would have if he had been here. 

During his last year of life his love for the his church that was literally across the street from his home had us discussing the church's future regularly.  The church at the time had a intentional interim pastor who in my opinion was God sent in his calling to slowly point the church towards the future. "Pastor Larry" as he asked to be known was a fine a Christian man as I have ever known.  On the Sunday following the Friday passing of my father he dismissed regular Sunday services for a hour or so of remembering "Mr. Bonner Hugh", as my father was known to the membership.  As my wife and I sat there listening it became clear to us through the tears and pride that we needed to do whatever my father would have wanted in getting the Family Life Center built.  

So now some over five years since my father passed on this Sunday we got the pleasure of being invited to witness the groundbreaking of the Richlands First Baptist Church Family Life Center.  The present pastor Gary McAbee, also in my opinion God sent, has slowly lead the church towards this moment from almost the first day he stepped foot in Richlands.  His leadership became obvious to me when three years ago I asked him to help me get an annual youth scholarship started in my father's name to a worthy young person who was a member of the church and needed some financial help with starting post high school study.  That first scholarship was handed out last year after Pastor McAbee never tired of this task.  This man was a Chrstian leader as well  and I was convinced he would get the RFBC moving again towards the Family Life Center my father so wanted to see built. 

Just before Sunday services today I ran into one of my father's oldest friends and long time music director there.  His comment of "good to see you here today" was quickly followed by " actually I would have been surprised if you had not been here today" spoke directly to how I felt at the moment. I would have walked from my home 85 miles away if it had been needed.  The service was uplifting with wonderful music on this joyous occasion and the pastor gave an inspiring message.  Maybe it was just luck, but I tend to think it was another God inspired act, that the church choir sung a outstanding version of "How great thou art".  That was my mother's favorite hymn.  

As the ground was broken in the ceremony as the church membership stood by watching my wife and I were there watching as well.  During the ceremony I took a second to look over the street to the house that was once my childhood home and my father's residence for right at 40 years and knew he was looking on as well. His generation had lead the charge some 44 years earlier by buying land the current church sits on and building the buildings adjacent to the new Family Life Center.  I expect it was at some moment some half a century earlier they too had someone task them with getting the church to move forward and exit it's Hargett Street home and find the land and financial resources to grow the church and increase the ministry at the now Rand Street home.  We all build on the shoulders of the generations past and the land we now build on was bought with the foresight that in the future when new church buildings were needed there would be land to build on, so it will be for those who are young and looking on today we pray. 

As this new building takes form and is occupied hopefully early next year I will get the moment to realize that the task has been accomplished via the current generations efforts and as my father was accustomed to say that we have "passed it on".   During his last year as he became more concerned about his declining health and the church's future regarding the Family Life Center I told him to "pass on" that concern to me as when he was gone and I was still here I would do as he would have done.  My comment was simple  "as long as I am alive, you will be too."  " Mr. Bonner Hugh" the building is in construction and I expect there are several others in his generation looking on pleased with the current generation's efforts as well.

              

We refuse to participate.

We suppose this is what it looks like when so much money is chasing so few goods.  Stock inflation is what we have in today's market and has been pushing prices higher for some time.  Corporations are flush with Obama's and Bernanke's cash as well as those high flying traders on Wall Street and stock prices are headed higher.  Everyone waiting for the correction might be waiting awhile.  As for waiting that is basically what we are doing with our cash in our trading fund as the risk is too great to take nothing but low risk positions.  We have some options out, but with fairly wide moats to protect us from a black swan event.  A black swan event is what will eventually draw a blow against what we consider wild speculation in stock prices.  This could very well be what people saw in 1929 when the lid finally blew off that market, just that there the issue was not fueled with so much un-backed currency floating all around. 

Remember that just last week Japan joined the US and Europe in cranking up the printing press and flooding the markets with money so the last few days of up and more up is being fueled by that as well.  The one fly right now in the ointment is the increasing concerned members of the Federal Reserve about all this money printing.  Even today we had a "leaked" Fed minutes that more members have voiced concerns.  If you think you have seen a sell off imagine a more disciplined Fed pushing rates up and causing Obama's spending plans to come crashing down upon him and more importantly upon us. Young folks beware. 

Note that nowhere here have we mentioned "main street' is flush with cash.  Most small businesses are concerned about the regulatory environment and Obamacare costs to hire anyone or make an expansion.  Add in the seriously depressing tax hikes just passed by the Federal Government and you get high unemployment, low job growth, and a weak main street economy.  The only thing holding that together is the huge amount of those federal dollars gushing forth from Obama via food stamps. welfare, disability, and other federal largess. The point is that all this cash is making the rich richer and no one else despite what Obama says otherwise. 

We have watched our holdings in mutual funds prosper and we have slowly and regularly moved highly appreciated stock holdings to bond holdings as Bill Gross noted in his comments today. We find comfort to be in the same camp as Mr. Gross. Originally we thought this movement not wise, but changed opinions last month when it became clear that corporation earnings this quarter would be lower than expected.  Now about 60% stocks and 40% bonds we expect it to flip in the next few weeks or even days if this continues. As for our trading positions we have all but halted trading unless the opportunity is so sweet and with a wide enough moat we can sleep at night.  Current positions are being allowed to expire without renewal too. 

Maybe we will be proved wrong, but we invested during the great 1980's Reagan bull market and that was accompanied by rapidly increasing corporate profits, slowly dropping interest rates, and jobs increasing 500k monthly and labor participation rates going up.  None of that is happening now.  Dougie Kass who has called a good number of the movement in the current market says he is standing on the sidelines with jaw wide open. If you are buying we caution the old rule buyer beware unless it is a serious value buy.  If you can find one let us know.