Well now that the extremely hyped and widely anticipated Apple iPad has finally been unveiled it is time to evaluate the potential winners and losers. As discussed at http://community.tradeking.com/members/bigdog/blogs/53185-are-you-digging-aapl-s-new-ipad there are certainly some high profile stocks that are involved in one way or the other.

Market Impact on Widely Traded Stocks  

Amazon.com (AMZN) is certainly the first company that will come to mind that will be impacted as its very popular Kindle product is sure to lose market share. This stock has had a very good run in 2009 but should see some resistance in 2010 as the Apple iPad starts to gain traction. In addition, book retailers will definitely suffer with their poor operating margins in particular Barnes & Noble (BKS) will lose share with its eReader product the nook.

I certainly think Apple (AAPL) will be a big winner over the long-term. Once the marketplace sees the extreme functionality over what is out there now and throw in the ease of use and it will not be long before the slight price differential becomes a non-issue. Also, you have the other popular suite of products that the iPad will be able to interface with and you have a product poised to blast off.

Playing the iPad Market Shakeup with Options

You should consider investing in Apple as iPad profits are sure to come. However, you will need to take a 9 to 12-month timeframe. You can certainly buy the stock outright but you can profit from this bullish opportunity by using at-the-money or slightly in-the-money call options. Be sure to use the longer-term Leap options like the January 2011 or 2012 series. This will provide enough time for you to realize the profits that are predicted to come from the new iPad.

Cheers and Happy Investing. 

Jeff Neal

As we begin 2010 many investors are looking to re-arrange their portfolios to maximize their dividend incomes. Utility stocks are often good places to start as effectively discussed at   http://community.tradeking.com/members/tk-all-star/blogs/49693-stock-spotlight-10-high-yield-utilities. However, there are also very attractive dividend yields that can be captured outside the utility sector.

Low Risk High Yield Stocks with Strong Fundamentals  

Kinder Morgan (KMP) is a stock operating in the oil and gas industry that is an example of a conservative stock with solid fundamentals that offers a 7.4 percent yield. In addition, other appealing dividend stocks include Annaly Capital Management (NLY), Altria (MO), Reynolds American Incorporated (RAI), Dish Network (DISH) and Chunghwa Telecom (CHT). These stocks cover a variety of sectors and offer yields from 6.90 to 16.10 percent. These stocks certainly should be considered when putting together your income portfolio.

Double Dipping by Adding the Covered Call

The dividend stocks showcased above all have a liquid options market allowing for the implementation of a covered call strategy. By applying a covered call to dividend stocks allows investors to enhance their yields by double dipping into the income pool. The investor receives their regular dividend income as well as the covered call income produced from owning the stock. It is a great way to turbo-charge your yield.

For additional information about dividends and dividend stocks check out Jim Cramer’s commentary at the following link:  http://www.cnbc.com/id/34690748.

Cheers and Happy Investing. 

Jeff Neal

The covered call is so often the first type of strategy an option strategist tries due basically to many investors coming from a background where they have always owned stocks. For a great discussion on covered call tips you should visit http://community.tradeking.com/members/optionsguy/blogs/35057-writing-covered-calls-successfully.

The covered call is way to derive income from the portfolio and/or lock in some profits, to a certain degree. However, before the covered call can be employed profitably many of its nuances and certain pitfalls need to be firmly understood.

Basically what the covered call entails is where the option strategist buys stock in increments of 100 shares and for every 100 shares sells a call option contract against it. When the option strategist actually sells the call, they are giving somebody else the right to buy the stock at a fixed price.

The word covered comes from the fact the seller of the calls is not at risk if the stock climbs higher as opposed to someone who sells uncovered or naked calls and can lose an unlimited amount if the stock moves higher. With covered call writing this upside risk is eliminated because you will always be able to deliver the shares no matter how high the stock climbs.

Inherent Risks in the Covered Call

There are indeed risks in the covered call strategy. The position only covers you if the stock climbs through the strike price you sold the call at but it does not protect you from the losses incurred from a large drop in the underlying stock price. The covered call lowers the cost basis of the stock just by the amount of premium received. Any drop below that new cost basis would show up as losses to the position. This risk factor needs to be clearly understood by anybody wanting to use the covered call strategy.

Covered call writers usually fall into two different camps with two distinctly different objectives. One such type is the strategist who wants use the strategy to generate income against stock they plan to hold regardless. The other type of covered call writer employs the strategy for the sole objective of receiving high premiums. The more effective of the two covered call approaches is writing calls against stock you are willing to hold.

This income seeking approach allows the investor to receive a little downside hedge and then getting paid to sell the stock at a price they see favorable. Assuming it is fundamentally superior stock and the investor likes it then obviously they would be more apt to assume more downside risk. In essence, they would hold the stock whether options were available or not. This approach is like getting paid by the market to place a sell order limit on the stock.

Now the approach that just seeks out high premiums has many pitfalls and can be very dangerous. Typically traders just selecting on high premiums do not appreciate the true downside risk of the covered call strategy. Many times just selecting on high premium they do no further investigation on the quality of the issue or for that matter does not even know what they do. In addition, the issues that have these high premiums attached are often times very speculative issues prone to large price declines if things do not go exactly right.

Covered Call Summary

Covered call writing enable traders to weather moderate price fluctuations without accumulating losses. This should help you to reduce stress and any strategy that helps to reduce stress is a worthwhile addition to a trader’s arsenal. To gain added protection, try buying a long put against a covered call. The extra outlay of premium acts as an insurance policy and that could mean the difference between losing a little on the premium versus taking a heavy loss in a volatile market.

 Cheers and Happy Investing. 

Jeff Neal

Big news this week in the energy industry as Exxon Mobile (XOM) announced a $41 billion all stock deal to purchase XTO Energy (XTO). For an informative story on how the merger is being greeted by the business community check out http://www.star-telegram.com/804/story/1830160.html. 

This deal indicates a tremendous vote of confidence in America’s natural gas market. Exxon plans to issue 0.7098 of a share of common stock for each common share of XTO Energy. This deal is approximately a 25 percent premium for XTO shareholders.  

XTO  Energy has plenty of attractive assets with an outstanding resource base, strong technical expertise and skilled employees. In addition, XTO, based in Fort Worth, Texas, is one of the leading developers of unconventional resources including shale oil and gas or gas trapped in sands with low permeability that require advanced drilling techniques to recover.

Market Impact Going Forward

With this merger, Exxon Mobile, will become the top U.S. natural gas producer as it bets on natural gas expanding its share in the world’s largest energy market. This will certainly enhance Exxon Mobile’s capability in the development of unconventional natural gas and oil resources.

This merger has really fueled talks among many traders and investors about consolidation as some bigger players start seeking out independent natural gas producers for purchase. Looking ahead watch for cash rich companies like British Petroleum (BP) and Conoco-Phillips (COP) to go after other natural gas producers as the timing could not be better with the price of natural gas being at a relatively low level.  

Another reason these natural gas producers are such a compelling buy right now is because these resources have emerged as a potentially huge new resource play in North America, and their development has so far been dominated by independent U.S. exploration and production companies. Going forward, look for more merger action to take place within the natural gas sector.

Cheers and Happy Investing. 

Jeff Neal

One of the more important aspects of managing a trading/investment business is tax planning. Just as money management and your trade planning methodology are important factors, so too is being able to effectively carryout investment tax planning. There is a tremendous link I would recommend reviewing as it has some valuable tips by one of the best trading tax experts on this topic Mr. Jim Crimmins the President of Traders Accounting Traders Accounting.

The link is http://community.tradeking.com/members/tk-all-star/blogs/15924-resolved-smarter-on-taxes-when-trading and is a great read. I had the pleasure of interviewing Jim Crimmins a couple of years ago and came away with some very useful information on managing your taxes from the investor/trader angle.

Key Investment Tax Planning Ideas

Some of the more important nuggets of information used for effective investment tax management include:

·         Understanding the Wash Sale Rule. The rule is: If you hold a security or option, sell it for a loss, and then buy substantially the same security or option back within a 61 day window, (thirty days after you sold it for a loss, or thirty days prior to selling it for a loss) the trader no longer can consider the original loss a loss.  Rather than a loss, it adds to the basis on the second sale. For those of us who trade the same stock, or options on the same underlying stock over and over during the year, this can become a real nightmare, since at the end of the year if we have not broken the string of trades we have made, we may not be able to use any of the loss for this security.  While we will not have the cash flow to show for it, we could in fact show a gain on our tax return, when in actuality we had a loss.

·         Organize as a trading business. This would be more of an alternative for active traders. By doing so however, allows you to be eligible for a lot of tax advantages. For instance, educational expenses are deductible which includes the cost of class, travel, hotel and food.

·         Instead of selling a stock at year-end to protect a gain, you may consider the alternative of buying puts to protect against declines in your position while you avoid paying capital tax on it. You could purchase the put on your stock or on something broader like the Standard & Poor’s 100 (OEX) to ensure that a loss in value could not go beyond a certain amount while still owning the stock.

·         Make sure to become knowledgeable on the new tax laws that impact traders and investors. Many think that it rests solely on their accountant. It is very important for you to know what you are doing to maximize your tax benefits as well as helping in your yearly tax planning.

 Finally, there is great investment tax planning tool that can save you a lot of time and aggravation and can be accessed by going to the following link: http://www.tradeking.com/p/home/tradeking/tour/tools/maxittaxmanager.tmpl. I highly recommend it as Maxit Tax Manager also flags all wash sales.

Cheers and Happy Investing. 

Jeff Neal

Looking at the results from 2 of the biggest holiday shopping days of the year the results seem to be mixed on what companies will benefit from these seasonal sales. Visit  http://community.tradeking.com/members/bigdog/blogs/48731-retail-stocks-ho-ho-ho  for a lively discussion on which retail companies will benefit and which retailers will be disappointing. Looking at who is gaining momentum within this sector leads me to have some confident views on the winners and losers this holiday season.

Stocks That will Generate Holiday Cheer for Investors

Black Friday and Cyber Monday were very kind for stocks like Amazon.com (AMZN), Dillards (DDS), Nordstrom (JWN), AutoZone (AZO) and Best Buy (BBY). All these retail stocks have shown tremendous earnings growth with AutoZone and Amazon looking particularly attractive. Based on both Black Friday and Cyber Monday results these two fundamentally superior stocks appear to have a lot more upward momentum still intact and certainly should be in a stock investor’s portfolio. Another option versus picking an individual stock is to buy the SPDR Retail ETF (XRT) to diversify your choices and lower the risk.

Bah Humbug Retail Stocks

Some retail stocks not participating in the holiday cheer include Abercrombie & Fitch (ANF), Costco (COST), Target (TGT) and Wal-Mart (WMT).  Wal-Mart announced very disappointing sales over Cyber Monday and Abercrombie continues to experience declining same store sales. These stocks should be avoided for the time being and certainly do not expect them to get a boost over the holiday season.

Option Alternatives

All the underlying stocks mentioned have an options market allowing you to write covered calls or you can lower your initial cash outlay by using a straight call or a bull call spread versus purchasing shares in the underlying equity. In addition, the SPDR Retail ETF has liquid options allowing you to use these strategies with this underlying as well.

Cheers and Happy Investing. 

Jeff Neal

The recent Dubai credit worries injected some fear and volatility into the markets. As talked about at http://community.tradeking.com/members/bigdog/blogs/48732-will-dubai-scare-spread the estimated $60 billion Dubai World default certainly prompted a global stock market selloff and left many investors scratching their heads about the future fallout.  It has since been lowered to $26 billion, which has eased market fears of another global credit crisis.

The question now, particularly for investors, is just how much impact this bump in the road will have for certain sectors and individual stocks. As the dust starts to settle it appears many of the sectors and stocks that have been in a strong uptrend, after a brief retracement, has started their climb once again.

ETFs and Stocks Poised for Further Growth Despite Dubai Worries  

The Exchange Traded Funds that seem to have had a minimal adverse impact from the Dubai World woes include the exchange traded funds China 25 Index (FXI) and the Emerging Market Index (EEM). These 2 ETFs have remained strong and demonstrates the lack of concern from the Latin American and Asian business communities.

Multinational stocks like McDonalds (MCD) and Coca-Cola (KO) have seen their global sales and earnings growth increase while at the same time expanding their operating margins. These big blue chip international companies have shown no signs of concern for any global credit meltdown due to the recent Dubai news.

As global recovery picks up speed one of the better investment is the Emerging Market (EEM) exchange traded fund. It offers a great way to participate in a strong uptrend while enjoying the diversification that comes with an ETF. The technicals for this ETF also look good with a strong uptrend intact and confirmed by an up trending On Balance Volume indicator.

EEM Price Chart

Financial Stocks that Could Struggle with the Latest Dubai News

The most likely sector that could see some fallout would certainly be in the banking/financial arena. Stocks like Bank of America (BAC) and Hartford Financial (HIG) might hit some resistance here at least over the short-term until more confidence starts to take hold with investors. Banks with Dubai exposure like Citigroup, Barclays and HSBC will still be under some pressure and it will probably take a longer time period before they can show signs of true recovery from the Dubai credit debacle.

Cheers and Happy Investing. 

Jeff Neal

There have been a lot of discussions from both investors and economists alike whether we are currently experiencing a recovery or not. For those that believe that we are in a recovery there have been a variety of stocks and sectors suggested that will be the most bullish. One such discussion that is well worth the visit is http://community.tradeking.com/members/tk-all-star/blogs/46959-10-stocks-on-the-rebound. While I do agree that there are certain stocks and sectors that will be big winners during the recovery my particular list may surprise you.

Sectors and ETFs that will Benefit from an Economic Recovery  

Certainly there will be sectors that will outperform the rest of the market during a recovery. Some areas worth noting include technology, basic materials and emerging markets. The investor should take a close look at the exchange traded funds U.S. Technology Sector (IYW) as well as the Emerging Market Index (EEM).

Of these two ETFs, the Emerging Market Index has the most profit potential as the recovery starts to take hold. The primary reason is because of the increase in spending among the booming middle class populations in China and the Latin American regions. This spells big profits in these areas as we continue to recover and a great way to participate is by purchasing the Emerging Market Index.

Recovery Stocks Best Poised for a Huge Breakout   

Within these sectors there are individual stocks that have a great chance of breaking out to the upside as the recovery gains traction. Stocks that you should consider putting on you radar screen include Sociedad Quimca (SQM), CNOOC Ltd. (CEO),  and American Tower (AMT) in the emerging market sector.

In the technology space take a look at Marvel Technology (MRVL), Cree Incorporated (CREE), Google (GOOG), and IncrediMail Ltd. (MAIL). All of these tech stocks have stellar fundamentals and are in a great position to profit from a recovering economy.

If I had to pick one stock out of this group it would be Sociedad Quimca (SQM) with its impressive earnings growth and strong return on equity. In addition, the stock is beginning another uptrend confirmed by the MACD and On Balance Volume indicators. The strong fundamentals coupled with an attractive technical picture render it a great stock candidate to breakout during an economic recovery.    

Option Alternatives

All the underlying stocks mentioned have an options market allowing you to write covered calls or you can lower your initial cash outlay by using a straight call or a bull cal spread versus purchasing shares in the underlying equity. In addition, the Emerging Market ETF has a liquid options market as well.

Cheers and Happy Investing. 

Jeff Neal

The recent acquisition by Berkshire Hathaway (BRK.A) of Burlington Northern (BNI) has really juiced up the shipping and transport space. This move represented the largest purchase Warren Buffet’s company has ever made and sends a resounding vote of confidence for the entire transport sector. Investors are also starting to take notice as the money flow into other stocks in this industry has picked up.

Transport Stocks Poised for a Breakout

There has been significant chatter about a lot of stocks, especially Dryships Incorporated (DRYS). The big issue with Dryships is its poor fundamentals. Even though it looks relatively cheap unfortunately there is a reason behind the current valuation. The company has bad sales growth, ugly margins, and a dismal cash flow. However, this has not stopped traders from speculating in this stock with the recent upside volume spike.

Some much better stocks to watch in this particular sector include Union Pacific (UNP) and Dollar Thrifty Automotive (DTG). Both are experiencing impressive earnings growth and a strong return on equity making them attractive buys. These two stocks are at opposite ends of the market cap spectrum with Union Pacific being the big giant. Both  stocks have a liquid options market allowing the investor to lower the risk of stock ownership by writing covered calls or instead of purchasing the underlying buy call options or create a bull call spread..

If you want to be a bit more conservative take a look at the Ishares Transport exchange traded fund (IYT) to capture profits from all this new investor interest. Regardless of what investment route you choose, the transportation sector is worthy of being on the radar screen.   

For more discussions on the transport/shipping industry please go to the following:

http://community.tradeking.com/members/bigdog/blogs/46715-after-bni-what’s-next-for-buffett-brk

Cheers and Happy Investing. 

Jeff Neal

Ever since the Federal government initiated these different bailout programs, analysts and taxpayers alike have been anxious to see just how this huge investment of public funds will all pan out. Well, with the recent bankruptcy of the CIT Group (CITGQ) the first $2.3 billion of public funds have been flushed down the tubes. Despite the disturbing early results we need to take into account the other bailed out companies within both the financial and automotive sectors to get a better feel for the overall impact of the bailout programs.

 Relevant Company Comparison Profiles

As taxpayers are quickly realizing with CIT Group, just because you have preferred stock status does not guarantee anything when the company becomes worthless and declares Chapter 11 bankruptcy. Keep in mind preferred stockholders are behind the bondholders and creditors in terms of getting paid in a bankruptcy. The reality is that preferred stock holders rarely see a penny so this has to be marked up as a total loss for the taxpayer.

There appears to be some other banks that have received bailout or TARP money that are struggling as well. Companies like Sterling Financial (STSA) and UBCH Holdings (UCBH), which have shown serious signs of weakness. Sterling Financial recently did not honor its August 17^th dividend payment and announced they incurred over $59 million in losses over the first-half of the year. UBCH Holdings had its own unique problems with major questions about their accounting practices, which appears to be leading to an earnings restatement.

Among the big financial giants that received TARP money there are some rays of sunshine with Wells Fargo (WFC), American International Group (AIG) and Fannie Mae (FNM) showing a nice improvement in their fundamentals led by stronger revenues and impressive earnings momentum. The main laggard out of the big bank arena is Bank of America (BAC) as it is demonstrating anemic earnings growth and there are still some questions about needing another infusion of capital.

In the automotive sector you have DaimlerChrysler (DAI) and General Motors showing some recent improvement in sales but still struggling to get back to profitability. Contrast that with Ford Motor Company (F), which never received any TARP money, surprising Wall Street analysts in its latest earnings announcement by posting a quarterly pretax profit of $1.1 billion.

If delivering a progress report grade for all the bailout money that has been doled out I would have to give it a “C”, with room for improvement. Though there are certainly some signs of possible turnarounds in particular companies there definitely remain a lot of question marks, especially in the banking sector.

For more discussions on the potential investment impact of the government’s bailout programs please go to the following:

http://community.tradeking.com

Cheers and Happy Investing. 

Jeff Neal