Executive Decision with Bucyrus International
Hello to all Blue Collar Investors. On May 15, Jim Cramer welcomed Bucyrus International CEO Tim Sullivan to the show. Cramer has been bullish on (BUCY) for all you home gamers, for a while now. And he’s been right: The stock is up over 28% to $29.14 since his call on Dec. 9, 2008, and up over 84% since he reiterated the call on March 4 of this year! Cramer thinks this up-trend will continue.
First, before we get into what the CEO thinks, let’s see if this Cramer stock pick is good for our Blue Collar System:
Fundamentals:
IBD SmartSelect Scan is all Green, and a go!
Scouter rating of 8
The E/R is due 7/23, all clear so far.
Technical’s / Chart:
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BUCY as of 6-05-09
· We can see as of the beginning of May the 20d-ema crossed over the 100d-ema and has been up-trending since. Also looks like we have moving average support above the 20d-ema.
· MACD and the MACD Histogram are above the zero line, both positives.
· The Slow Stochastic oscillator is above the 80% line.
· The Volume is a little above AVG.
This stock can be added to our watchlists!
Now let us see what kind of (ROO) we can get with this option?
CURRENT STOCK PRICE IS $32.93
Sell the June $30 Call for $3.40
ROO = 340 – 293/3000 = 1.6% 2-week return = 41% annualized
Downside Protection = 293/3293 = 8.9%
Sell the June $35 Call for .90:
ROO = 90/3293 = 2.7% 2-week return = 71% annualized
Upside Potential = 207/3293 = 6.3%
Sell the July $30 Call for $4.60:
ROO = 460 – 293/3000 = 5.6% 6-week return = 47% annualized
DP = 293/3293 = 8.9%
Sell the July $35 call for $2.10:
ROO = 210/3293 = 6.4% 6-week return = 54% annualized
UP = 207/3293 = 6.3%
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Ok now more on (BUCY):
· Bucyrus is in the business of manufacturing large machinery and mining equipment.
· CEO Tim Sullivan tells Cramer that even though none of the stimulus money from the US has helped his company with new orders, one of the big players in new large machinery orders is China, (building airports, subways, and rails).
· Commodity producers are now in a good position as there is a revival in commodities after a 4th quarter pullback.
· Lending is getting better for deposits on big machinery orders.
· The CEO states that he is growing his company (making acquisition’s) with the extra cash on hand.
· Cramer says “this is the machinery company to own” Cramer likes BUCY.
Thanks,
Tony C.
****Congratulations to Tony’s band, Bigg Mouth, which had a song featured on NBC sitcom, Kath & KIM. In the “Wedding show BONUS Footage” the band’s song is featured in the last 1:36 minutes remaining of the clip, the DJ plays his song as the crowd goes wild! Here’s a link to that clip:
http://www.nbc.com/Kath_and_Kim/video/clips/wedding-video/783841/
Last week I posted a comment that Walmart (WMT) has decided to no longer report monthly same store retail sales statistics. On pages 137-138 of Cashing in on Covered Calls, I discuss the importance of avoiding companies that report such figures because of the volatility and inherant risk they generate. I refer to these companies as “banned stocks”. When Cashing in on Covered Calls was published, I provided you with a list of these stocks on page 138. As we delete WMT from this list, I thought it would be prudent to update our group with the current list of banned stocks. I wouldn’t be surprised to find other companies following in Walmart’s footsteps down the road thereby escaping the rath of the Blue Collar Investor world. Now the list:
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ARO |
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DEST |
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COST |
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AEO |
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PSUN |
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DDS |
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ANN |
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RVI |
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DLTR |
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BBY |
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ROST |
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FDO |
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BWS |
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SKS |
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FRED |
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CMRG |
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SCVL |
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FINL |
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CTR |
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TLB |
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GOTT |
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CHRS |
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BKE |
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JCP |
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CHS |
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PLCE |
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KSS |
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DBRN |
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GPS |
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M |
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GYMB |
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BJ |
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SSI |
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JAS |
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BIG |
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SBUX |
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JOSB |
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BONT |
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SMRT |
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MW |
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CBK |
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TGT |
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Other companies from the original list on page 138 of “Cashing in on Covered Calls” include
ANF, BEBE, CACH, CLE, CVS, DG, FD, HOTT, JWN, LDG, LTD, NWY, RAD, SHRP, TJX. WAG, ZUMX
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Economic News of the Week:
Recent reports give hope to an economic recovery. Job losses in May numbered 345,000 less than the 520,000 expected. The ISM (manufacturing) Index was up for the fifth consecutive month. Construction spending was up (0.8%) for the second consecutive month. Personal savings saw its largest increase in 11 months, up 0.5% in April. Productivity (non-farm business) was up higher than expected and consumer debt declined farther than anticipated. Most economists are still concerned about unemployment and housing before committing to an official end to the recession. One thing I have noticed is that it is much easier to locate healthy stocks suited for covered call writing than it was at the end of 2008. My stock portfolio is nearly fully invested but I am still favoring I-T-M strikes for my option sales.
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Exit Strategies for Covered Calls Writing with Expiration Friday DVD:
The initial shipment of books has been sold out! Thank you so much for your continuing support. All orders taken by June 4th have been shipped. All orders taken on June 5th or later will be mailed on Monday or Tuesday when the new supply of books arrive.Use the following link for information and ordering:
http://www.thebluecollarinvestor.com/book.shtml
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Videos now playing on the homepage:
1- Cover Call Option Example.
2- Education is Power- lists many of the topics stressed in the Blue Collar System to a background of surfer music.
Best in investing,
Alan (alan@thebluecollarinvestor.com)
SCROLL DOWN FOR COMMENTS
11 responses so far ↓
1 Brian S // Jun 8, 2009 at 4:37 am
Alan,
Looking at the four option possibilities you give for bucy, how would you determine which is the best one to sell? They all seem pretty good.
Thanks,
Brian
2 admin // Jun 8, 2009 at 6:11 am
Brian,
There is no right or wrong choice here. Your assessment of the market conditions, stock technicals and calculations will determine your decision.
I prefer shorter term to longer term options because they generate greater returns and your risk of share depreciation is minimized. At the end of the near term option you can re-evaluate the equity and decide if its in or out for the next contract period.
In-the-money strikes are favored when you want additional downside protection. This will occur when the market is volatile or unpredictable or if the stock shows a mixed technical picture. The chart of BUCY is beautiful but you may be concerned about a market downturn.
Those of you who have followed my posts over the last few months know that I have been favoring I-T-M strikes so I would lean to the June $30. Remember that this post is coming from an extremely conservative investor. More aggressive investors may opt for the O-T-M $35 call.
Alan
3 admin // Jun 8, 2009 at 11:08 am
Please note that some companies that may not report same store stats on a regular basis should also be banned from consideration. These equities are found on page 138 of “Cashing in on Covered Calls” and include:
ANF, BEBE, CACH, CLE, CVS, DG, FD, HOTT, JWN, LDG, LTD, NWY, RAD, SHRP, TJX. WAG, ZUMX
As companies announce that they no longer will be reporting these stats we will eliminate them from this list. If anyone hears of such a situation shoot me an email and the source and I’ll post it for our group. I check several different sources, none of which seem to be 100% complete.
Alan
4 admin // Jun 9, 2009 at 10:12 am
CONVERTING DEAD $ TO CASH PROFITS:
Please follow this example..it will make you MONEY:
I bought HANS @ $42.81 and sold the I-T-M June $40 call. This generated a 3.2% 1-month profit.
A week later, the chart turned ugly 9check out the chart). Stochastics and MACD turned negative and sure enough the moving average indicators did so as well shortly thereafter.
I bought back the $40 call and sold the stock for a loss of $200 on the deal.
I then took the cash from that deal and purchased an equal dollar amount of VPRT and sold the I-T-M June $35 call for a profit of $250. Thus far I have a $50 profit/contract (250 – 200). VPRT is currently trading @ $42 so I have $7 of downside protection of this $50 profit. HANS, on the other hand, is trading @ $34 or $6 below the orignial strike.
Had I not executed this exit strategy, my current position would be (-) $400 per contract instead of (+) $50 per contract.
Those of you who have received your copy of my new book, “Exit Strategies for Covered Call Writing”, check pages 71-76 for a few more examples of “converting dead $ to cash profits”.
Alan
5 admin // Jun 10, 2009 at 7:27 am
Conservative vs. aggressive:
I have received several offline email questions asking why I remain so conservative in my investments in a strongly uptrending stock market.. My response is twofold:
1- I have been aggressive in this regard: Five months ago my stock portfolio was in 100% cash. I have since started selling calls gradually building up to the current fully-invested position.
2- It is true that I am currently selling the very conservative I-T-M strikes. Here are my reasons:
- I am conservative by nature…can’t help it.
- I am still sore from the number of times the market has bopped me over the head with negative surprises. I have since wisened up and protect my positions even at the expense of additional profits( which are not too shabby, by the way!).
- I’m still concerned about housing and unemploynment.
- Short sellers have been covering their positions and may have less of a positive influence on the market going forward.
- Oil prices are on the rise.
- Unsure as to how the economy will react when government stimulous subsides.
There is no right or wrong when it comes to your investment approach. Everyone has their own level of risk tolerance. It is important to find your comfort level and gear your strategy accordingly.
Alan
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6 admin // Jun 11, 2009 at 11:47 am
BUCY Update:
Had we sold the June $30 contract on this equity as shown above, our 1.6% 2-week profit remains intact. Although the stock has dropped over the past 4 days to $31.59 (at the time of this post), we are still above the $30 strike and retain $1.59 of downside protection. This is a great example of the advantages of I-T-M strikes.
Checking the ER date, we see that the report is due after the expiration of the July contracts. Therefore, as we approach expiration Friday (I start checking Wednesday of next week), we may opt to roll out or roll out and up into the next month’s contracts. If the market value is below $30, then of course, that won’t be necessary….so many ways to make money and avoid risk…..we must master them all. Then we’ll be on equal footing with the Wall Street insiders.
Alan
7 admin // Jun 12, 2009 at 3:11 am
With one week remaining to expiration Friday and the July contracts right around the corner, most of us are evaluating the myriad of influences that will impact the market and our investments.
One of these more esoteric factors is “window dressing.” This is an (unscrupulous) strategy, used by mutual fund managers near the end of a quarter (June 30th) to improve the appearance of the fund’s holdings before showing it to its clients. This means that as we approach the end of this month, they will sell their poor performers and buy the great performers. Since our portfolios only contain the greatest performing stocks in the greatest performing industries, this bodes well for our holdings or at least represents an additional positive influence we have going for our investments.
The window dressing factor will take us through the end of the June contracts and through the first 7 trading days of the July contract.
In a neutral or moderate bull market, I favor O-T-M strikes when window dressing is playing a peripheral role (March, June, September and December).
Here is a link to an article I wrote about this subject in December of 2007:
http://www.thebluecollarinvestor.com/blog/beware-of-window-dressing/
Alan
8 admin // Jun 13, 2009 at 7:26 am
Currently completing my next journal article which will discuss the use of moving averages in our buy-sell decisions plus updated SEC regulations regarding ticker symbols.
Alan
9 Gary // Jun 13, 2009 at 8:42 am
Hi Alan,
I am doing cover calls since February 2009 using your system, I am little more risky then you (most of trades I do A-T-M or O-T-M) and so far I am 45% up from 02/2009, I know that is not going to be every month, plus market is good for cover calls right now. I just received your latest book and it will definitely help me with exit strategy.
I have a few questions:
1. I have NFLX in my portfolio, I bought it for 39.46 and I sold June 40 calls for 3.00, now I see the fundamentals for NFLX are starting breaking up (according to IBD stock screen).
Should I wait until expiration (next Friday) or buy back calls and sell the stock now (it was good stock for me for a while, I made a lot of money trading it)
2. Have you ever used spreads.
I started using credit spreads on 10% of my account and I making very good returns plus I can use spreads 2.5-2 weeks before expiration with limited risk. What is your opinion re spreads?
Thanks
Gary
10 admin // Jun 13, 2009 at 11:01 am
Gary,
Great call on NFLX. I too, made good money on this equity the last few months. A few weeks ago I bumped it off my watchlist because of the fundamental breakdown you alluded to AND the technical breakdown (please check the chart).
What I do in situations like this is buy back the option (it’s 10% of your original sale which meets the system requirement in my new book). That will cost you $30 per contract plus your loss on equity depreciation. Next I check my watchlist to see if there are any stocks I can generate a profit on in just 1 week. For example, if GMCR is on your list and you are comfortable selling an A-T-M strike, you can sell the June $60 call and generate a 1-week 2.5% profit.
Other choices include selling a July call or holding on to the cash for another week and then delving into the July contracts.
Alan
11 admin // Jun 13, 2009 at 11:13 am
Gary,
Almost forgot your second question.
For those of our readers who are not familiar with credit spreads as it relates to options, it is the buying of a low premium option and the selling of a higher premium option on the same underlying equity.
I used this strategy many years ago with some degree of success but found that my results were much better with CCs so I went with the money!
Best way to decide which is better for you is to paper trade both and see which works best for you. Perhaps you will succeed with and use both.
Alan
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