Current Trading Portfolio

These are our TRADING stocks, but as we have noted each time we post this list our strike prices make for excellent entry points for long term buys.  Maybe even a couple of dollars more on some picks since we reach very low valuations reducing risk for trading purposes. 

HFC..Our pick for the undervalued refinery business.  The refinery business in the US is doing very well.   Low priced Canadian and North Dakota oil to sell at higher world gas prices.  Low priced US natural gas to run refineries on makes for lower expenses.  Growing overseas demand for our refined products.  Low PE stocks.  All this makes for a value priced stock.  Strike price is $35

AAPL..We have one final holding here and will exit the position in August. 

CTL..This is our only holding now trading below strike price. We still like CTL but will tread cautiously here until we see further news.  The dividend well covered is most attractive. Strike price is $33

SHLD..Good trading premiums and a undervalued real estate portfolio. Strike price is $37

T...Trading at a near time low with solid financials and good dividend. Safe safe and safe. Strike price is $33.

BP..This stock has found a bottom here just over $40.  We believe ALL the bad news is known so the risk remains muted.  Strike price is $40

BCE.. The decision of Verizon not to enter the Canadian market makes life better for BCE.  Strike price of $40. 

NOV...Providing lots of hardware for natural gas boom in US.  Huge list of back orders in the billions of dollars.  Strike price is $62.50

O...Solid and maybe safest real estate trust out there and selling at a bargain price now. Strike price of $35. 

JPM..Best big bank in the US and only big banks have a chance of surviving under Obama policies.  Strike price of $45

JCP.. High risk, high reward pick.  But we believe it will survive and at $13 we might be at the bottom.  Strike price has yet to be set but it will be $10 or below which makes for plenty of comfort. 

AFL..Safe and undervalued insurer.  Strike price of $52.50

LO...Solid tobacco stock with good dividend. The overhang of menthol regulation makes for interesting option premiums.  Strike price of $37.50.

SO...Best run utility in the US and due to the rising interest rate environment is undervalued.  Strike price of $39. 

              

Two picks. One safe. One high risk.

Adding two stocks to our portfolio in this week's trading period. One a undervalued bank and the other a high risk pick. 

We have for quite some time looked for an entry point into the big bank area and found one yesterday with JPM.  We consider JPM the best bank in the business due to the high return in investment.  We also think Jamie Dimon the best banker in the business as well.  Add in the bank has been selling off for some time due to some legal issues and our desire to pull the trigger was intense.  Yesterday JPM got hit with yet another bad PR day with some concerns regarding their Chinese hiring practices.  The deal is that the NY Times reported that JPM had hired some young employees that had ties to some big wigs in China.  Well, duh, when did this become a issue.  This goes on in the US everyday as companies position themselves for the marketplace.  On the same day the NY Times reported that Boston Red Sox fans booed A-Rod too.  That both of these were NEWS tells you about that newspapers view of what "news" has become.  The sell off of well over $1 per share yesterday got us in at the $45 level on a put option and we are most happy with the premium. 

The other stock we are pursuing and will be buying options on in the next few days is high risk JC Penney.  JCP is on it's deathbed due to lousy management and lousy sales.  We believe however it will survive in some form and the current $13 price is the bottom here.  JCP, like Sears Holdings, has some impressive real estate holdings and unlike Sears has some customers who like to shop in their stores.  This is a short term trade which we will try make on a month to month basis keeping our options wide priced and ability to get out if the news turns against us.   The near 50% annual return in option premium is hard to ignore and makes up for the risk in this stock. Our 40% under current selling price of JCP strike price gives us comfort and room to move if needed.  Understand this trade is NOT for home gamers.  High risk could and should produce high income. 

                

Maybe best buys in market right now.

Oil refiners might be your best buy in the stock market right now. The PE's are ridiculously low and the upside could be substantial.  Add in that many of these stocks pay a nice dividend as well.  

The list is long here, HFC, VLO, PSX, and MPC are our favorites due to their market caps, size of business, and concentration in the refinery side of the oil business.  

All these stocks mentioned have PE's below 10 and dividends above 2%.  Note that HFC has a special dividend that has become a normal dividend and pays north of 6% right now.  HFC is the smallest of the group market cap wise however so the risk might be a bit more.  Of course with a PE of around 5 it is dirt cheap. 

The reason these stocks are low priced is that the refinery business has always been boom and bust depending on the cost of oil, the cost of refining, and regulatory pressures. These operations can not just turn on a dime and stop levels of refining when prices go down due to people driving less so what is in the pipeline at a higher price can get sold at a loss. Refineries are a not in my backyard business as well so no refineries have been in added in the US in about half a century.  Of course environmental extremists hate oil and have blocked any permits that have been sought. This has led to a concentration of bigger refineries owned by fewer concerns.  There is also the Ethanol mandate that is a good part of the recent and likely future rise in US oil prices.  The EPA yesterday decided not to allow some give in the mandate so gas at the pump is headed up due to the oversupply of Ethanol.  Lastly there is the constant overhang of Obama deciding to wake up one morning and slap a new onerous EPA standard on refineries. Yes, the risk the significant here. 

However the opportunity might be better.   The refinery group has lower cost oil via the new North Dakota and now even lower cost Canadian crude getting to the refinery cluster on the US Gulf Coast. The North Dakota crude was getting there all along by rail and mostly pipelines.  Now the landlocked Canadian crude is getting there by pipelines that have changed direction and lots more rail cars.  The Keystone XL pipeline blocked by Obama due to environmental extremist concerns has been sidestepped by those rail and pipeline measures and now the construction of the Keystone XL might be mute. Note Warren Buffett owns lots of these rail cars and making a killing there, plus he owns a big slice of PSX so he is making money on that end as well.  As long as Warren and Barack are in bed together there will be money to be made here by them and also you.  Lower priced crude being refined is now going outbound to other countries at the higher world price.  Yes, it hurts US consumers, but such is the cost of political inaction.  Add in that these refineries are now running on low low cost of US natural gas and the bottom lines from that energy source are making for higher profits as well. 

So the risk is there, but the low PE's note that the risk is already priced in to these stocks.  The opportunity is there as well and unless something changed significantly the value of buying these stocks makes for a good decision.  We currently own HFC and will likely add one more of these stocks shortly.  We suggest you consider one of them as well. 

                

I-795 and US 70 Upgrades not needed.

 At our age roads already built or in process of being built are the only roads we will ever ride or drive on.  Roads that are in process of being considered or even in the planning stages we will not use or more importantly be paying for them. But since we see the waste of taxpayer dollars we will opine. 

This brings to mind the absolute silliness of a road being proposed in the east central area of this state that some people are just damn determined to build.   Note that up until now almost all improvements of roads in this state revolved around who had political pull or who knew someone on the NC Transportation Board.   Governors since I have been born have made sure the roads in their home areas were upgraded a good bit. In the 1960's Governors had some modesty and did not go crazy building in their home counties, since about 1980 or so it has been different in that Governors have decided we will pave and pave some more in our home counties.   If you do not believe this go take a ride around Wilson NC and enjoy the first class roads there brought courtesy of 16 years of Governor Jim Hunt.  Best road system for any town in NC.  Wilmington NC has got some nice roads too courtesy or Governor Mike Easley.  Governor Beverly Perdue got some roads started in the New Bern area too, but with only four years in office did not get as much as some of the others.  Maybe Governor Jim Martin was perhaps the exception to the rule in that he did not spend his time helping his home area, but he did keep his promise of getting I-40 completed to Wilmington. Actually the best upgrade for this state in the last 25 years.  Maybe the integrity Gov. Martin displayed is why the people pushing the roads noted below are using him as a front person for getting them paved. 

All this is to note the current efforts by some to upgrade I-795 or US 117 from Goldsboro to I-40.  Not sure why so many elites seem to want this one built.  It is not a heavily traveled road nor will it be even if it is fully upgraded to interstate quality. We know that the current version of US 117 or I-795 upgrade from Wilson to Goldsboro is nothing more than "Jim Hunt's home to beach road".  What we can not figure out is why there is any need for any more upgrade of this road from Goldsboro to I-40.  With all due respect the current road is virtually a free way now from just south of Goldsboro, through Mount Olive to I-40.  There is a short couple of miles in Goldsboro south where you have 4 or 5 traffic lights, but even that portion of the road is a quick drive.  The only purpose we can see is to siphon off some traffic from current I-95 which takes I-40 to the beach and divert them via I-795.  The mileage and time savings is minimal and the economic infrastructure already on I-95 is bypassed.  the cost will be several hundreds of millions for a unneeded upgrade. A total waste or road dollars that could be used elsewhere.

Same thoughts with the same elite crowd regarding the desire to an upgrade of US 70 from Clayton bypass to Morehead City NC.  With all due respect guys this road does NOT need to be a interstate quality road.  The stretch from the end of the Clayton bypass to the soon to open Goldsboro bypass could use a couple less traffic lights, but an upgrade to complete restricted access is more silly waste of money.  Beside there is economic infrastructure on this road now dependent on the traveling dollar and what is be made of small business which has made significant investments there.  Personally I see the need for a currently planned bypass of Kinston, a needed bypass of James City,  a currently planned bypass of Havelock, and some improvements on traffic flow in Morehead City that would make this road a good as needed.  The rest of this road is now pretty much a open road with little to slow one down.  So why multi-hundreds of millions to complete restricted access where none is needed.  

Yes I know there are those elites who think making the afternoon tea on Fridays at the Coral Bay Club is sacrosanct and being there 10 minutes sooner means spending more time with your elite friends is worth all those hundreds of millions, at least if it is not THEIR millions being spent here.  But hopefully better heads will prevail and this silly spending plan will get killed other than the upgrades noted. 

Those who have business interests on the the Bogue Banks now and looking for more travelers dollars will get the same bang or the buck by just adding the bypasses.  Will Governor McCrory keep to his new transportation planning of spending resources where they are needed to alleviate congestion or will the elites steal money to build their non needed roads.  Note that of all these upgrades the only one that will likely be completed before we pass from this state is the Goldsboro bypass so we have no dogs in this fight. 

The final point here is once again hundreds of millions, maybe a billion, of road building dollars are being considered for political purpose roads, or pleasing elites and political favors and not needed improvements.  Wonder if we could find somewhere else in eastern North Carolina where there are roads needs not met?  Can anyone say I-95 through North Carolina here? 

Bo knows shoes, Bob knows bonds.

Back in the 1980's there were a series of commercials about Bo Jackson knowing Nike shoes, which became to be known as the "Bo Knows" series.  The implication was that if anyone knew anything about sports shoes that would make one a great performer it was Bo Jackson.  Bo Jackson in our opinion still reigns as the greatest athlete to ever live in this planet.  Well taking off from that idea let me do a posting on "Bob knows Bonds", or more specifically municipal bonds.  We might not be in Bo's league, but as we mentioned back in the early series of this blog our mentor Tom Pace taught us a good bit about municipals for many years and that knowledge allows us to sit down at our current bond broker and pick out the good stuff from the not so good stuff.  Few people can do that and few know bonds like we do. 

We started buying municipal bonds in the summer of 1979 and have had municipal bonds in our portfolio ever since.  We guess over the span of 34 years we have bought literally 200 plus bonds.  Our current portfolio has 54 different bonds, all from different issuers, all from North Carolina issuers, in varies amounts.  We have some general obligation and some revenue bonds.  GO's are bonds issued with the tax authority of the issuer generally a town or county for schools or other non revenue backed entities.  Revenue bonds are just that bonds backed by some revenue source such as a power plant, water and sewer, hospital, airport, etc.  For many years GO's were considered not as safe as revenue bonds, but we are not sure if that is so anymore.  We just did a posting on just that idea. 

Safety is the key here in that municipals in our opinion are just as safe as US Treasuries.  Truth be the US is a AA credit risk, the State of NC is a AAA credit risk.  But credit ratings aside I believe for instance bonds issued by Carteret County NC as a example are safer than most anything else since their GO's are backed by millions and millions of high priced real estate on the beach that can be taxed to pay interest and principal.   Let's look at a revenue bond for say the Raleigh Durham Airport which can add whatever is needed to the price of a ticket to pay interest and principal on their bonds.  Nobody can move the real estate and the airport is not going out of business.  Both bonds are safe and dependable interest payers long term. 

The best part of holding municipal bonds is that they are triple tax free.  No federal tax, no state tax, no local tax.   Add in that good municipals can be bought right now for par yielding 5.0%.  That equates to 7.35% taxable at federal and current North Carolina margin income tax rates. Not bad for good income and much better than US Treasuries which are federally taxed.  The key here is to buy INDIVIDUAL bonds and not bond funds.  Holding bond funds you are subject to the ups and more importantly the downs of bond values.  If you hold bonds funds currently you know what we mean in that your asset value has taken a hit.  Asset values go down when interest rates go up.  Holding bond funds means you get hit with that pending loss in value and are subject to the deposition of those bonds by the bond fund manager.  Holding individual bonds means that even if those values go down you can hold the bond until maturity and still get your full principal back.  The key is buying for the tax free income. 

Yesterday we bought 4 bonds.  One from Durham County, one from Asheville, one from Haywood County, and another from Raleigh NC.  All yielding in excess of 4.5% and all safe as can be. We will sleep well at night and enjoy the income from these bonds for many years.  In fact one of these bonds matures in 2047 and unless God blesses us with an extraordinary long life we will not be here to accept the principal back.  But 5.0% tax free sounds good to us for 34 years or less whichever comes first.  We suggest you consider municipals for a long term portfolio by buying your first one today and adding to them as funds allow and slowly building a portfolio.