3 Stocks I’m Watching This December
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As an investor who uses options to both build a portfolio and earn income, I’m well aware that there is a bit more work involved than that of a simple buy and hold investor. I’ve seen that firsthand by building a virtual portfolio that I’m calling the “No Drip, No Mess” Portfolio, which has had a steady stream of options trades since inception.
Each month I usually have a handful of expiring trades that need to be watched a bit more closely than the rest of the portfolio. This gives me the opportunity to rethink the position and begin to plan for any post-expiration follow ups. This December I have a total of six positions that will expire, three of which I’ll be reviewing in this article.
Enterprise Products Partners (NYSE: EPD)
I wrote December $50 puts on Enterprise that until recently looked like a sure bet to expire worthless. With shares now right around my strike price, it’s a coin toss as to whether they’ll be assigned or not. If I’m not assigned, it’s a pretty safe bet that I’ll be writing another round of puts shortly after expiration.
Enterprise is one of the largest midstream companies in America and plans to get larger over the coming years with around $8 billion worth of projects in the pipeline. As these projects come online, it’ll give Enterprise the capacity to keep giving more money back to their unit holders. Enterprise is exceptionally well positioned for long term success thanks to our growing domestic energy industry, so they are a company that I want add to my virtual portfolio.
Dow Chemical (NYSE: DOW)
Like Enterprise, I have a written put on Dow which looks likely to be assigned with shares around $28 and my put striking at $30. That’s a perfectly acceptable outcome for me as I want to add shares to my portfolio. That would lock in a 4.3% dividend, as well as plenty of upside as the company benefits from two major long term tends.
Specifically, I think Dow has a great position to benefit from the future growth in both agriculture and chemicals. Ag is a $75 billion industry that is dominated by Monsanto (NYSE: MON), which generates $11 billion in sales. Dow just generates a billion dollars from their Ag businesses, but that’s just a taste of what they have the potential to do as more people around the world are added to the middle class. A growing middle class means more disposable income, and therefore the need for more food, which should drive the bottom line at Dow for decades to come.
Further, their chemicals business is in an even better position, as they are in the sweet spot to benefit from our increased domestic energy production. This increased production will give Dow access to an increasing amount of price advantaged feedstock. They’re investing billions to develop a Propane Dehydrogenation Plant and an Ethane Cracker to take advantage of the growth in liquids production. These projects, when combined with the rest of Dow’s assets, should drive excellent returns for years to come.
Ford (NYSE: F)
Speaking of driving returns, Ford’s shares have been driving higher since I made my second trade on the company. While they’ve come off a bit since the election, they’re still above the $10 strike puts I have on the company. My plan has always been to own some shares outright and use options to generate some income on the rest of my allocation.
I really like Ford’s position relative to their competitors, especially GM (NYSE: GM). They were better managed before the financial crisis, which put them in a position not to need a bailout. They continue to be in a better position both financially and competitively, which I think will enable them to outperform their rival over the long term. Still, the global economy is not firing on all cylinders just yet so I think my combination of owned stock with options overlaid is the right strategy for this environment.
It’s quite a possibility that I’ll be assigned shares of all three companies come mid-December. Then again, a fiscal cliff relief rally could change that rather quickly. Either way, these are companies I want to own for the long term, so I’ll either see that happen next month or I’ll try again real soon. I have three more companies that need watching this month and you can read about them here.
latimerburned owns shares of Enterprise Products Partners L.P. and has an options position on Ford and Monsanto. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Enterprise Products Partners L.P., Ford, General Motors Company, and Monsanto Company. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!