The Three Stocks I’m Watching This September
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earnings season gets most of the attention as stocks zig and zag depending on which side of earnings estimates the penny falls. In the grand scheme of things quarterly earnings are a mere snapshot in time. For most of us we realize that financial security won't come by making a quick buck on an earnings bounce but about taking the longer term view. That’s why I’ve created a virtual portfolio called the “No Drip, No Mess” Portfolio. We’re buying stocks cheaper and collecting income along the way in order to reinvest in growth. Someday the strategies we employ in our own real money portfolios will have earned us the financial freedom to pursue more important endeavors.
Until that time, we have our work cut out for us as we need to maneuver around trading fiascos, government incompetence and our own inherent flaws. That’s why I like to use stocks to earn income, not just from dividends but from writing options. This September the “No Drip, No Mess” Portfolio has three options that expire and I wanted to review our, well options, ahead of time.
The first stock I need to keep an eye on is the iconic Ford Motors (NYSE: F). Even after reporting decent earnings the company’s shares have remained below the $10 strike price of both the puts and calls of the modified straddle I’ve created. That’s fine with me, if Ford continues to stay below $10 we’ll pick up a second slug of shares and look to immediately write $10 calls to keep driving more income back into the portfolio. I’d hold the rest of the shares, looking to write covered calls in the low teens if an attractive opportunity presents itself.
Like Ford, another company where I have in-the-money written puts is PetMed Express (NASDAQ: PETS). Their earnings were not that great and shares are now more than 20% below the $12.50 strike price. I wanted PetMed Express for their well-above-average dividend. Barring a buyout, come late September being assigned shares is a foregone conclusion. From there on out I plan on holding the shares and collecting the dividend as I think shares are undervalued and the call options don’t pay all that much.
The final stock I’ll be watching closely is Rex Energy (NASDAQ: REXX). Like both Ford and PetMed, I’ve written puts on Rex in hopes of buying it cheaper. At this point it doesn’t look like I’ll be scoring the hat trick for the month as Rex is more than 30% above my $10 strike price. Rex reported a decent enough quarter but what really seems to be driving the stock is a string of analyst upgrades as Rex’s Utica Shale drilling program looks to be a bigger than expected gusher for the company.
While Rex has yet to release results for their Utica well, better than anticipated results from a GulfPort Energy (NASDAQ: GPOR) well has excited analysts. We’re beginning to see a lot of value being put on the liquids rich Utica. Earlier this year, Chesapeake Energy (NYSE: CHK) sold a portion of their Utica position into a JV with Total for $2.3 billion. If Rex’s wells do as well as analysts think it could take the stock much higher. This is good for current investors, but not so good for those of us who wanted shares closer to $10 a share. At this point I’ll put Rex back on my watch list and wait for shares to drop a bit before writing new puts.
You might be thinking that you’re not really sure if options are for you, but consider this, those three option trades brought in $433 to my portfolio. Before commissions, that works out to a 7.8% yield on the $5,500 I’d allocated to buy those stocks. In each case, I wanted to buy the stocks, just wanted to buy them cheaper. If you’d like to begin making income on stocks you want to buy, think about becoming an options whiz.
latimerburned has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.