4 Stocks I’m Watching This January
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I like to keep my options open, especially my stock options. As an investor that means that I need to pay a bit more attention each month to ensure that I’m ready to follow up as positions expire. This coming January I have four options trades from my “No Drip, No Mess” Portfolio that are coming to an end.
These four positions were all simple written puts with two simple outcomes. No matter what, the income received is mine to keep. The only outcome in question is whether I’ll be assigned shares or not. With a month to go, let’s take a look to see how likely that will be the outcome.
I virtually bought shares and wrote a January $35 put on Exelon (NYSE: EXC) to be a steady source of income generation for my portfolio. While I was concerned that Exelon wasn’t likely to grow its dividend anytime soon, its shares were just too cheap to ignore. Unfortunately, shares proceeded to get much cheaper as management hinted that the company’s dividend could be on the chopping block.
With shares now south of $30 each I’m likely to be assigned. That’s fine with me as I view Exelon as a very long term investment in the recovery of power prices. While I’m not thrilled by the possibility of a dividend cut, the real returns will be generated from Exelon’s ability to deliver capital appreciation as power prices recover. I plan to take assignment and hold my shares on this incredibly cheap utility.
Tech is cheap
I doubled down on my Intel (NASDAQ: INTC) position by writing a January $22.50 put after previously writing an October $25 put. The company’s shares have continued to decline thanks to pressure from a soft PC market as well as the company's inability to make inroad in mobile. With shares now closer to $20 it looks like I’ll be assigned again later this month.
The tech giant is incredibly cheap at just nine times earnings. When you add in its more than 4% dividend you are paid to wait for Intel to get its act together. While some would say the PC is dead and tablets will take over the world, I still think that there will always be a lucrative market for Intel's chips.
Will we rise above?
I wrote puts on defense contractor Raytheon (NYSE: RTN) to defend my portfolio from election-related volatility. With just days to go until we go over the fiscal cliff, Raytheon is the defense contractor best positioned to thrive under sequestration and other cuts. That’s likely one reason why the company has risen above my January $55 put strike price.
If cliff-related volatility does hit company’s shares, I’ll be happy to be assigned. The company pays a 3.6% dividend that it has grown by more than 10% annually over the past decade. With a strong balance sheet and very shareholder-friendly management team, Raytheon should have no problem rising above anything Washington throws its way.
Banking on a recovery
The final trade to watch is my written January $35 put on Wells Fargo (NYSE: WFC). Currently, shares are just under my strike price so it’s a toss-up whether I’ll be assigned. As one of the nation’s most conservative and best run banks, Wells Fargo is the bank I want to own.
The company continues to earn the stamp of approval of Warren Buffett. His Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) owns a 7.8% stake in the company worth more than $14 billion. Buffett likes the bank so much he’s said he likes, “Wells better than anything by far…I like loading up on the one I like best.” That’s high praise from Buffett and one of the reasons I want to own Wells Fargo. If I’m not assigned in January I’ll keep writing puts until that finally happens.
With a month to go it’s looking like I’ll be assigned on three of the four positions. That’s fine with me; I use options as a means to share ownership. If I don’t end up assigned I can always write new puts and earn more income. It’s a win-win outcome if you ask me.
latimerburned owns shares of Intel and has the following options: Exelon, Wells Fargo, Intel and Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, Intel, Raytheon Company, and Wells Fargo & Company. Motley Fool newsletter services recommend Berkshire Hathaway, Exelon, Intel, and Wells Fargo & 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!