M’M, M’M Good
Campbell Soup Company (CPB)
Hello fellow Blue Collar Investors! In Alan’s last article “Earnings Reports Are Telling Us To Buy Stocks!” he mentioned that many companies are reporting better than expected earnings reports or positive surprises. Campbell Soup Company (CPB) fits this trend. As noted by J. Cramer (CPB) “is down more than 35% over the past 10 years and has missed four straight quarters before finally pre-announcing that 2008’s earnings should come out on the high side of previous estimates.” Also, as Cramer always tells us, “institutional money drives the stock market and as the flight to safety continues, there’s a good chance that the Big Boys will move into this stock and drive it upwards. Our Blue Collar Investor Checklist:
Overall: A
Technical: A-
Fundamental: B
Attractiveness: A
Group Technical: B
Industry: Food Prep.
Scouter rating: 9
Also, if you look at the technicals as of July 7th, this equity has been in an uptrend with positive technical indicators. Check early July in the chart below and note that there was a positive MA Crossover with the OHLC bars remaining above the 20-d ema. This was confirmed by a bullish MACD crossover and stochastic crossover, all on high volume. CPB has been on the rise ever since.
This is an example of a stock that is considered quite safe in this volatile market. Since it lacks extreme volatility the option returns will be lower than other equities on our watchlist. Given the current market environment, see if you feel that this security may be right for you. Here is an example of a trade you could have made on July 31st:
Buy 100 x CPB @ $36.38 = $3638 investment.
Sell 1 x 9/$37.50 @ $80
This is a 2.2%, 6-week return or 19% annualized.
If CPB appreciates to the strike price by 9/08, we earn an additional $112 or $192 total for the 6 weeks. This represents a 5.3%, 6-week profit or 45% annualized. Not bad for such a great performer.
Here are some additional key points for your consideration:
1- It is a recession proof stock (turnaround play with minimal downside as per Cramer).
2- Grain costs are down and increasing sales prices are boosting revenues.
3- Expansion overseas to China and Russia.
4- Management is consistently buying back shares indicating its faith and confidence in the company’s future.
5-Could be bought by a large firm that deals in Euros (due to the weak dollar, the company is considered cheap).
6- Ranked #7 out of 46 stocks in the industry (THS is rated #1 and passes all our system criteria but was NOT mentioned by Cramer).
7- The earnings-per-share rank (a company’s earnings performance of a period of years is combined into a single indicator so it can be used to rank earnings momentum against all other companies) is in the 86th percentile.
Remember that Cramer advises: “Buy and Homework”, not “Buy and Hold”. Surely this is a philosophy we Blue Collar Investors subscribe to.
Hope to hear back from you all!
Tony C.
High Volume Stocks Unveil Gems:
Every day on the IBD’s Website homepage is a list entitled “Stocks on the Move”. This list displays equities that have gone up in price that day on high volume. As you know, this buying pressure means that the institutional investors are taking a position in these equities. Since it is difficult for the big boys to take their full positions at one time (for fear of driving the price up too rapidly) we can take advantage of this knowledge and take our full positions.I screen out stocks that have reported earnings that day because that could represent a one-time volume spike resulting from the ER. All others can be run through our system. I checked this list on Wednesday and Thursday and came up with the following equities:
ANSS
TMO
ACN
WBSN
Check them out and see if they make your watchlist.
I encourage comments and suggestions on the comments link of this article or contact me directly @ :
alan@thebluecollarinvestor.com
*****SPECIAL NOTICE*****
I am forming a VIP List for EARLY NOTIFICATION of my next seminar Series in New York this fall. This will occur when I return from a series of presentations that I will be doing for Norwegian Cruise Lines in September. Since there is limited seating and all previous seminars have been sold out, those on the VIP list will have an opportunity to register prior to the information being posted on this website. Simply send your email address and other contact information to:
alan@thebluecollarinvestor.com
My best to all,
Alan
3 responses so far ↓
1 Alan // Aug 3, 2008 at 1:59 pm
The New York Stock Exchange has finalized arrangements with Google to access real time quotes at no charge. Most other sites give quotes that are 15-20 minutes delayed. Here is the link:
http://finance.google.com/finance
Alan
2 Alan // Aug 5, 2008 at 3:07 pm
Here ia an email question I recently received that may be of interest to many of you:
Alan,
What is the most important factor in determining the type of strike price you decide to sell?
Thanks,
Russell
My response:
Russell,
Here are the factors I use in order of importance:
1- General tone of the market- In a volatile or down market I will opt for predominently in-the-money strikes to get the additional downside protection. In an uptrending market, I will sell mostly out-of-the-money strikes to take advantage of the upside potential. In a sideways market, I will ladder my strikes and have some in, some at, and some out-of-the money.
2- Technical Analysis of the individual stock- all positive indicators, I am most likely to sell out-of-the-money strikes. If the picture is mixed, in-the-money.
3- Option returns- use the ESOC to determine which strike will generate the best returns. Note that this is my 3rd most important factor. I always factor in risk reduction over profit potential.
One final factor is the ER. If the ER is scheduled to be made public in the next contract period, I will sell the in-the-money strike since I will be getting out of the stock anyway. In other words I won’t mind being called out.
Hope this helps,
Alan
3 admin // Aug 8, 2008 at 4:04 pm
Email question motvating my next journal article:
Hi Alan –
I recently purchased your book on Amazon.com and thoroughly enjoyed it. I am in the process of paper trading for the next few months while I get a handle on everything. I had a question though on ETF investing if I do not have the funds to diversify correctly with stocks. My question is how should I handle an ETF that has appreciated in price and at option expiration the option that I sold is deep in the money to where it is not feasible to buy it back and sell the next months option? I know for stocks you say to just let it get exercised and move on to another equity, but I wasn’t sure if this still applied for ETF’s since you mention that you sell the Q’s for your mom every month. I’m just confused on how I should exit in this scenario.
Also, I was wondering if you had looked at selling options on the Proshares family of ETF’s? I notice these are leveraged to move at twice the market so it is possible to get some nice returns on them. I was looking at the QLD (Nasdaq 100), SSO (S&P 500), and the DDM (Dow 30).
Thanks again for the great book!
Eric
My response:
Eric,
I’m pleased that you enjoyed my book. Emails like yours really energize me.
Regarding the Proshares, the decision is based on the amount of volatility you can tolerate. It may be good for some but not for my 86 year old Mom where I must remain conservative.
Regarding how I handle ETFs: The short answer is the same as individual stocks. Your question is not only a good one, but also an important one. I have decided to answer it in detail in my next journal article which I will publish on my website within the next few days. It will deal with when to buy back an option as it nears expiration Friday. After it’s published, let me know if you have a better handle on this situation.
Best regards,
Alan
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