3 Things to Remember when Trading the Government Shutdown

As we all wait for Congress to get back to work, there are some things to keep in mind about playing the market swings. 

• Never put your money in when there is crisis (unless you found out about it before any one else)
• If you think you found out about the crisis before anyone else, chances are you haven't
• It may be a good idea to buy the dips on solid stocks that have good balance sheets and good management

I wrote a post a while back about shorting the market when it is high.  These situations are perfect examples of why shorting the market is always the most profitable trade.  There will always be an unforeseen crisis that will bring the market down and when the market goes down it goes down fast.  There is nothing that happens consistently that brings the market up fast.  The market will always go up slow and down fast.

The key is to find stocks that are overvalued and their balance sheet and management may be going through some difficulties.  At the slightest sign of market weakness these stocks will drop fast.  Conversely stocks that are strong internally will weather these dips and it is a good long term play to buy the dips on these stronger stocks.  Do your homework before jumping in and I always prefer dividend paying stocks for long term plays because it takes the edge off any potential losses and may even prevent any losses. 

Stocks that may have problems because of the shutdown are those that depend on government contracts like defense, food service, research, transportation, medical, education.  Stocks that may be insulated from the shutdown are those that don't have contracts like clothing retailers, luxury brands, entertainment, etc.

Do your homework and set your stops.  Happy trading!

Tesla Is Always A Good Buy

I really missed the boat on this one.  I saw the news article on Tesla and the battery catching fire and knew the stock would go down, but I didn't pull the trigger.  Tesla's back up something fierce today.  truth be told I should have bought stock last year when I was day-trading heavy.  It was my wife who told me to buy some and I should have listened.  In May of last year Tesla stock was around $55 then it shot up to around $100 and is now trading at $174 today. 

Elon Musk is not one to bet against.  With the savvy and courage to run multiple businesses and still keep them afloat he is the type of person who will always come out on top.  I'll wait for another dip and then get in on this one.

Are REITs Down For The Count?

As you know I've been a fan of REITs and one in particular ARR.  It's been a rough few weeks for REITs who have taken a beating because of the murmur about the Fed easing up on QE3.  This would cause interest rates to go up and take away some of the stellar profit margins that have been making REITs attractive. 

Even if interest rates go up the effect on the profit margins will be minimal.  If you consider that these REITs can pay down some of their indebtedness and refinance to create a bigger profit margin.  The advantage that REITs have is that their commodity is real estate.  It's not like any other good or service that you would have trouble getting financing for. 

I personally feel that this is a minor inconvenience.  If you look at ARR when interest rates were higher the dividends were even higher than they are now.  That tells you that the company knows how to restructure their books to create the profits that allow them to pay the kind of dividends that they have been paying.

I think that now is the time to stock up even more on ARR.

Great simplified approach to trading

I know I mentioned this guy's trading technique before but I want to post another one of his more recent videos that describe in more detail his trading style.  He has also developed a software service that gives his daily setups.

OPTION TRADER makes $105MM PROFIT

This lady has uncanny skills in picking option trades.  Her basic approach is not too complex at all.  She started out just shorting stocks as they go up, making money on the corrections.  Seems like a very successful and efficient way of trading, no iron condors, butterfly spreads, etc. just a basic wait and pounce approach.

This approach actually makes a lot of sense.  You can almost always guarantee that any stock will go down at some point in time over a two month period.  There is enough drama happening to make all stocks sink down at some point during any given week.  So by placing a put on a volatile stock when it rockets up you can almost guarantee some sort of profit during a two month window.  All the successful traders I've researched recommend a two month window for options trades.  I tend to agree unless you are strictly trying to gamble as in the case of binary or weekly options.  No one knows what's going to happen in the short term but you can almost guarantee the market will go in either direction in the long term.  She's just playing the downside.

Dividend Alert

If you haven't paid attention to the latest news on ARR well they just announced their dividend payments for the first quarter in 2013.  I have been ringing the bell on this stock this whole year.  Now it's even better than when I first started buying it.  The stock is at $6.64 as of the end of today, well below it's normal $7.00 range.  Let's just do the math... if you invest $10,000 you would have 1506 shares.  With a $0.17 MONTHLY dividend, you are making $256 a month just by owning the stock.  I'll let you decide...

http://finance.yahoo.com/news/armour-residential-reit-inc-announces-210828981.html

Update:  I mistakenly read the first announcement.  The $0.17 dividend only refers to the PREFERRED Stock which is trading at $25 a share.  The common stock dividend is paying $0.08 a month.  Still a good investment.

I Am Not a Hype Investor

I am not a hype investor.  I’ve seen it many times over the years.  People get hyped about a stock because of a media buzz or worse…a social media buzz, and get taken advantage of after they put all this money in the stock.  Whether it’s a penny stock or one on the major exchanges, there are folks who are going to inflate the value of a company in order to jack up the stock price and then cash out off of everyone else’s expense who have put money in believing the hype.  I’ve been there, I caught the hype bug over a penny stock and it did go up for a day or so off of the buzz, then it tanked and I lost some money.  One of my friends lost more than I did.  Thankfully I didn’t jump in with any large amounts.  

Take your time and study the value of a company over time.  If there is no information about the company on the web, then I wouldn’t invest in it.  Let the big spenders and cowboys have the wild west.  I’m investing to build wealth for myself and my family.  I look for bargains when prices of stocks go down and get in on the upswing.  I also focus on dividends for monthly income and overtime the value of my investments has grown.  Have a long term plan not a short term get rich quick scheme.  This will help you continue to add value to your investment portfolio. 

Market Update 7-18-12

Yesterday was a bit choppy but I was able to make a nice run on Walmart again.  When Bernanke started talking and not saying anything about QE3 the market tanked and went back to a support level.  I watched Walmart until it got really oversold and then I knew that it had fallen too far.  Walmart is too strong a stock to stay down for any length of time so went in after I saw some green candlesticks which showed that the stock had strength.  I waited till it got back up close to its new highs and took profits.  

I got into Dunkin Donuts as I saw it swing up but I didn’t make it high enough to make it to my profit margin.  That was a bad move because it fell back and never regained its strength.  JP Morgan downgraded it so some of its energy had been sucked out.  Hopefully it will rebound off of the moving average today.  The 15, 30 and 60 minute charts all have it right at either the 20 or 100 period moving average.  Let’s hope it bounces back.

After watching Cramer’s picks from yesterday I’m looking at FUN and MCD.  I’m more partial to MCD because it is a major brand name and the trade volume will be there.  MCD made an inverted head and shoulders and just moved ahead of a resistance level.  It has also pulled back to the moving average on a couple charts.  Cramer also mentioned one of his analysts said he has a $97 price target giving us about 6 more points to run. I ran it through my stock valuation calculator and I have at least a 95 price target. I think MCD is about to pop.  I may get into it today if I see strength (that’s if Walmart doesn’t break its highs).

How to Value a Stock

I did some serious study this weekend and came across a few great articles about how to value a stock and how to know when a stock is undervalued and is “on sale.”

It is important to be aware of overall market conditions that will bring stocks down to discount levels.  With that said regardless of market conditions if a stock is cheap then eventually people will buy it.  That is the case with a few stocks that I checked out this weekend.

Before I post my list I want to give the reasoning behind the list so these picks will make sense.  I read several articles that talked about how to value stocks.  They all had good approaches and formulas:

http://stocks.about.com/od/evaluatingstocks/a/Pricesale020305.htm

http://www.stockpriceanalysis.com/

http://ezinearticles.com/?How-to-Calculate-a-Stock-Price&id=2589837

This last one however had a more comprehensive formula that just made sense in how to value a company’s stock.  If you take what a company is worth right now if it was going to be sold you would have a good indication of its value.  That formula would take into account the assets minus the liabilities, available stock, and future earnings growth.  This will give you what the stock price should be trading at based on the value of the company.  If you compare that to what the actual price is you can find some seriously undervalued stocks (and some seriously overvalued ones too).  This method will also help you determine a target price to take profits.

I added another component to this method to further refine the stock picks.  This was to look at the analyst reports on Yahoo Finance to come up with a professional opinion of the target price for the stock.  I look at the high, low and mean target price based on 20-30 analysts opinions and compare that to where the stock is currently trading.  

By calculating the sell-now value of the stock and the analyst target price I can see if a stock is undervalued or not and also set my “take-profit” price.

With that said here are my stock picks for this week (they are not in any particular order):

CMCSA

Trading at 31.36 according to the formula, the value of the company is 54.33

The mean analyst target price is 34.6 (high 41, low 31)

TGT

Trading at 58.07 according to the formula, the value of the company is 112.51

The mean analyst target price is 63.67 (high 69, low 54)

MSFT

Trading at 30.18 according to the formula, the value of the company is 61.97

The mean analyst target price is 35.69 (high 40, low 29)

INTC

Trading at 26.16 according to the formula, the value of the company is 60.58

The mean analyst target price is 29.41 (high 35, low 19)

CAT

Trading at 84.61 according to the formula, the value of the company is 182.3

The mean analyst target price 124.68 (high 142, low 95)

WMT

Trading at 71.36 according to the formula, the value of the company is 113.99

The mean analyst target price is 67.39 (high 79, low 55)

Although these prices are based on the actual “sell-now” value of the company, you have to take into consideration the current market conditions and any news coming out about the company.  In short...Do your homework.

P.S… If you donate $5 ...I will send you the Excel Spreadsheet with the Stock Valuation Calculator plus the list of 25 stocks that I studied.  Also included on my spreadsheet is a list of 37 companies that pay the best dividends.

Thanks for viewing my blog!

Stocks to watch 7-1-12

Entertainment

http://www.bloomberg.com/news/2012-07-01/universal-s-ted-no-1-film-with-54-1-million-in-receipts.html?cmpid=yhoo

TWX – Time Warner

Release of “Magic Mike” this weekend exceeded expectations

CMCSA – Comcast

Release of “TED” this weekend exceeded expectations

GE – General Electric

Release of “TED” this weekend exceeded expectations (Comcast and GE co-own Universal Studios)

SNE – Sony Columbia Pictures

Spiderman release Tuesday may push stocks higher, however this stock has been on a downward trend since 2001.  It has done the typical up and down dance but I think it has possibly bottomed out.  We may be poised for an upside swing.  Sony just closed on buying half of EMI’s publishing catalog on Friday and tomorrow they will be offering their music library through Apple’s ipod and ipad.  All of these developments may make the stock a good buy tomorrow.

Yahoo article on publishing

http://finance.yahoo.com/news/sony-group-closes-2-2b-162924405.html

Morningstar article on publishing library

http://news.morningstar.com/all/ViewNews.aspx?article=/DJ/201207012005DOWJONESDJONLINE000185_univ.xml

Retail

DG - Dollar General

This stock has been on a run since the beginning of this year and even when all the other stocks were going south from the news in Europe, it has continued to grind higher.  We had a retracement on Wednesday last week and it pulled to a support level off the 100 day moving average.  It popped up the typical halfway point between the high and the low of the retracement and is poised to go either way tomorrow.  The bottom line is, if you think this stock is going to grind higher from positive news in the market then go long.  But if you think the value of the company is priced all the way in at these highs (which are the highest this stock has ever been) then go short.

An interesting article talking about DG being overvalued at these prices:

http://seekingalpha.com/article/693721-walmart-target-stock-buys-compared-to-dollar-general?source=yahoo

FDO – Family Dollar

This might be a better play than DG simply because it is cheaper.  I always believe in buying low and selling high.  FDO has gone down to a support level and is poised to go back up especially if the market as a whole has a jump tomorrow.

Here’s an article that gives more detail:

http://beta.fool.com/techjunk13/2012/06/29/another-value-play-opens-retail/6433/?ticker=FDO&source=eogyholnk0000001

I still like Walmart (WMT) even though I took profits on Friday and I may take another position tomorrow.  I also still like ATT (T) because of the technical setup.

Electric Car charging stations companies to watch for a long term play

I had an idea about investing in companies that are manufacturing charging stations for the electric cars.  Since we are definitely moving away from oil and into electric cars (it’s not about if at this point it’s only a matter of when), there will be a need for stations for people to charge their vehicles, especially in places like Texas and California where you need to drive long distances to get to places.  There are several companies manufacturing them for private use and for companies to offer for their employees, but the only concerted effort has been the EV Project that has a $125 million grant from the government and a matching grant from private investment.  One company NRG is the only company to venture in from the private sector.  Here’s an article about them setting up chargers in Houston.

http://www.plugincars.com/worlds-first-privately-funded-electric-car-charging-ecosystem-set-houston-106506.html

Here’s another article from Plugincars.com that lists other companies that make charging stations with updates in the comment section:

http://www.plugincars.com/need-electric-car-charging-station-here-are-companies-are-building-them-49735.html

My Picks:

GE  - General Electric

I prefer GE because it is a highly traded company and has the infrastructure and resources to create stations on a mass scale.

AVAV – AeroVironment

This company was contracted by Nissan to by the sole provider of charging stations for its LEAF customers.  It is also the company selected by NRG to set up chargers across Houston.