3 Stocks from My December Watch List
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 you know that the stock market can be a bumpy ride. It’s tempting to make snap decisions in an effort to keep up. Those quick decisions often lead to mistakes.
Taking a step back and watching as events unfold on the other hand can be a very profitable endeavor. Over the past month I watched a half dozen companies that I’d overlaid options on in my “No Drip, No Mess” Portfolio. Now that those options have expired I have more, um, options that need to be considered.
Pipeline to profits
I wrote December $50 puts on Enterprise Products Partners (NYSE: EPD) that expired worthless. I narrowly missed being assigned shares as the stock finished just $0.18 out of the money. The trade added nearly 5% of options premium to the portfolio from writing this put back in July.
As one of the largest midstream companies in the country, Enterprise is part of the backbone of our domestic energy industry. The company has $8 billion of growth projects in the pipeline to keep our nation’s growing supply flowing. These projects deliver excellent value to investors as each delivers additional cash flow that can be distributed. There are no signs that Enterprise will be slowing down any time soon so you can expect a follow-on trade shortly.
The chemical equation of profits
Like Enterprise, I had written a put on Dow Chemical (NYSE: DOW). A month ago it looked likely that I’d be assigned; however, the stock ended $2 above the $30 strike price as its shares rose nearly 11% for the month. Since I initiated the trade, shares are up around 9% so that the 6.5% worth of options income added to the portfolio in those four months isn't bad.
Dow is a perfect complement to the energy investments in your portfolio. With natural gas being one of the company’s primary feed stocks, it benefits from the low natural gas prices that have sunk shares of top producer Chesapeake (NYSE: CHK). Dow is investing billions to take advantage of the low energy prices thanks to our abundant supply. Its ability to sop up this extra supply will help Chesapeake and other producers by pumping up demand. We’re still several years from demand having too much effect on prices, making Dow a great portfolio addition.
Driving profitable returns
For the second time this year, Ford’s (NYSE: F) shares drove higher than my written strike price leaving me with just income to show for my efforts. This second trade on the company added 3.25% worth of options income in just three short months. In the five months since taking Ford out for a spin, the company has added nearly 10% worth of income to the portfolio.
While that income is nice, simply buying shares would have been the optimal outcome. The unencumbered shares that I do still own have risen by more than 27%. Unlike its top rival GM (NYSE: GM), the company has enjoyed an unencumbered balance sheet as it hasn’t been weighed down by the overhang of a government bailout.
Even though “Government Motors” is in the final stages of shedding its top shareholder, Ford has been able to concentrate on operations as opposed to government relations. Ford’s ability to nimbly operate and streamline its efforts through its “One Ford” model is starting to yield excellent results. While the company’s European operations remain weak, its growth in Asia and strength here at home should keep driving shares higher.
Putting it all together
Options are a great way to earn income as shares bounce around on the whims of the market. While my original intention was to use options as a means to share ownership, I can’t complain about only earning income. The plan is to keep using options on all three companies to keep the income flowing back into the portfolio.
latimerburned owns shares of Enterprise Products Partners L.P and has a synthetic long on Ford. The Motley Fool owns shares of Ford and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Motley Fool newsletter services recommend Enterprise Products Partners L.P., Ford, and General Motors 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!