billytickets

[billytickets]

Yesterday while discussing the market, someone said Billy its a stockpickers market now.

Guess what? Its always a stockpickers market. Are we at the bottom? Who knows. Here's what is obvious to me

Valuations on the stocks that are on my radar screen have not been this low in awhile

Anheuser Busch is BELOW where WEB bought in almost 3 years ago. With price increases and managements stockbuybacks and the possible Imbev merger there certainly is MORE upside than downside . the 40+% high ROE and almost 50% market share in the US are powerful.The 45 march put pays you 95 cents and is a great way to "get long" bud . Please respond in this thread if you need further explanation

Kraft is 10% below where billionaire takeover specialist Peltz bought in last year and his handpicked board members,the "breakaway" from Altria and the fact they are buying back stock heavily should combat the increase in commodity prices which have made these stocks a GREAT VALUE. Neither KFT or BUD are losing market share although the commodity prices have been a drag on earnings

Johnson and Johnson is another WEB pick and he owns over 3 billion dollars worth of the stock which he bought near this level LAST SUMMER

This company is a 3 headed monster with pharma,medical device sales and consumer goods and its over 20% ROE is very appealing at these levels


Altria alias "BIG MO" has a high div yield a ROE of over 40% and should be unlocking more value with its spinoff of the international cigarette market


Will all 4 of these stocks double in the next 2 years? Don't think so. How long is the recession going to last? I don't know and neither does anyone else

Many have said Billy these stocks look "dead. THATS RIGHT. BE GREEDY WHEN OTHERS ARE FEARFUL.

1)These 4 stocks are all recession proof .All 4 of these companies products are affordable and consumable.It is doubtful that ANY household in the US is NOT doing business and PROFITING off these 4 companies

2)Cash is yielding about 3.5% and is taxed as ordinary income.The Dividend yield on this portfolio is almost 4% and is taxed at LOWER rates than interest income

3) Even though these companies"seem" to be "no growth" industries they all have HUGE FREE CASH FLOW which can be used to

4) Buyback their stock at these LOW PRICES which benefit the long term shareholder

5)FORWARD PE is about 14 for ALL these companies which historically is LOW especially in todays low interest rate enviornment


Thse stocks make up about 75% of my portfolio. BNI makes up another 20% and has aforward PE of 12 and a 5 billion dollar investment by Warren Buffett ,but "new money should enter it about 5% lower than prseent levels . aperson who sold the March 80 puts and collected a 1.75 would at "worst" be entering at 78.25

Certainly there are stocks with higher long term "upside" and there are always those who want to"wait" until the markets get to "unrealistic" lows before they get in. ( someone told me that when JNJ gets to 50 they are buying) That is each individuals choice but at these current price levels DOUBLE DIGIT annual compounded returns should be realized.


JUst think about this if these 4 stocks are bought at the current levels and they end the year EXACTLY where they ended the year at 2007 . Lets analyze how your 11 month returns would be

BUD 47.03 today price 52.34 dec 31st price RESULT: 11.29 appreciation + almost 3% dividend=OVER14%in 11 months

KFT: 28.95 today price dec 31 32.63 RESULT:12.71 appreciation +almost 4% dividend =over 16.5% in 11 months

JNJ 62.87 today price dec 31st 66.70 RESULT: 6.09 appreciation +2.9dividend almost 9 % in 11 months

MO 73.13 today price dec 31 75.58 RESULT: 3.35 appreciation + 4.1% dividend almost 7.5% in 11 months.

So you see the odds are in your favor.Since 1957 18 of the top 20 performing S&P stocks were either pharmaceutical or consumer staples companies if reinvested dividends were factored in. This information and the low PE, High ROE and High Dividend yield (read past articles to “recap” how important these traits are)

[lzou]

Good reminder. Look at individual business instead of market condition for these solid companies. sold Feb and March put options on BUD, JNJ and a couple of others past a couple of days. Let's see how market is going to play out.

[Roke6362]

BillyT:

Please explain how a put helps you get long on a stock? Why not just buy the stock with no margin when the price in undervalued?

[billytickets]

Excellent question Roke. Steven Walthall Doctor options "taught me" this .Ill lay out the scenario for you. ( steven correct me if i am mistaken)

Also I added some 'stats" to the original article


What you can do is use half the money to buy the stock outright at 47.03 .


You can also SELL a March 21st 45 put for 95 cents per share ( todays closing price)

Lets for example sake say you wanted to purchase the options to buy 1000 BUD shares at 45 dollars that expire on Mar21st. Selling the put gives someone the right to "put you" or sell you the stock at 45$ a share on or BEFORE March21st.

Obviously if the stock is more than 45 the stock will not be put to you and you collect the 95cents a share multiplied by 1000 shares or 950 dollars.The 45,000 dollars MUST be set aside but will STILL BE EARNING INTEREST as it would be in the bank.

Lets look at the 2 scenarios


If the stock is over 45 and NOT put to you, you will earn 950 dollars PREMIUM in addition to whatever you would earn on your money that was "set aside" 950 dollars on a 45000 investment for 45 days which is 2.1% or 17.03% ANNUALIZED and in EFFECT LOWERS YOUR ORIGINAL BASIS 95 cents on your DIRECT purchase of 47.03.( for tax purposes you would have the gain but could REPEAT the process again next month if the option was priced"accordingly"

If the stock is UNDER 45 and IS PUT to you your basis would be 45000-950 premium which is 44050 ( plus any commission)

This will give you a basis of 44.05 ( plus any commission)


This is a "more efficient" way to"average down" after exploring all possibilities


Please keep the questions coming.Steven please feel free to chime in here or "correct" ERROR or misstatement of mine.peace

[gregeph]

BillyT:

When you run the numbers for JNJ using your formula, are you using 2007 actual earnings of $3.63 or 2008 consensus earnings of $4.43? The expected return is quite different depending on which you use.

Thanks.

[david80]

hi billyt,
i would know why you picked to sell mar 08 $45.
If you pick Jun 08 $45 you get:

A) $2100 in 135 days (4.6%,annualized 12.9%) if bud> $45

B)a basis of $42.09 (4500-2100) if bud<$45

how can i know if it s better march put or jun put.

thanks

and sorry for my english. i hope that you understood my question

david

[Smileyguy]

Thanks Billy.

At what point would selling the March 21st 45 put not make sense? I mean when is the risk too high?

I'm trying to get an understanding what we should look at in the option chain to determine buy/sell pressure.

For the March 45 put, if the premium is very low then would you still sell the put to lower your cost basis? Wouldn't this occur as we approach March 21st?

[billytickets]

Gregeph: GREAT QUESTION i always use the earnings EXCLUDING non recurring items .I actually used 4.12 per share which i got from value line. Even using 4 dollars per share that proves this stock is "cheap"


Dasitaly: The March put has a higher annualized % return and after March if you don't get put the stock you can do it again for june. Steven would be able to evaluate these 2 "propositions" better than i could.The important thing is to get"long" a company "cheaper" than you would normally .Great question please feel free to ask as many questions as possible


Smileyguy:Very perceptive.There is no premium once you get to february. Steven my mentor has seemed to suggest puts that are around 45 days away. The 95 cents for mar45 BUd seemed fair to mePlease keep asking questions.