The sell-off and increased volatility in the market this past week triggered several more of my limit orders to sell put options on selected stocks. The pullback so far is completely to be expected within the context of the market’s still intact intermediate-term uptrend.
However, I continue to be wary of the market’s current valuation. So, I’m selling put options at strike prices reflecting the possibility – not necessarily probability – of significantly lower prices (and correspondingly fairer values) in the months ahead.
Boeing [[BA]] – On 10/26/09 I sold some May 35-strike put options against BA as it sold off on market weakness:
The stock of this major aircraft manufacturer and defense contractor has been languishing since topping out at over $100 per share in 2007, with investors fretting over delays of its 787 Dreamliner and possible future curtailments in defense spending. Currently trading at about $48 and yielding 3.5%, BA is currently in an intermediate-term uptrend. A break below the $43-$45 level would change this picture.
Valuation wise, based on next year’s expected earnings, BA may be about fairly valued here; based on current earnings, however, some valuation measures suggest its fair value is somewhere in the $20s.
While Boeing doesn’t have a long history of raising its dividend every year, it has done so for the last five years. In a recent conference call the company also indicated that “they were not at a point” where they’d consider cutting the dividend – not a resounding commitment to the dividend to be sure, but a sign that it may be safe for now. All in all I’d be comfortable having the stock put to me down at the $35 level, which would seem to be a reasonable value and offer a dividend yield of about 5%.
Dover Corp. [[DOV]] – On 10/27/09 I sold some June 30-strike put options against DOV as it sold off on market weakness:
Trading at about $38 and yielding 2.8%, the shares of this diversified industrial company remain in a strong intermediate-term uptrend from their March lows. A break below the $34-$35 level would suggest a more neutral/negative picture.
Valuation estimates for DOV range from the mid-$20s to upper $40s, suggesting the stock may be roughly fairly valued here. While not necessarily a compelling buy right now, DOV’s distinction as a Dividend Aristocrat (with 53 years of consecutive dividend increases) has earned it a longtime spot on my buy watchlist. I’m quite comfortable with the idea of owning the stock at below $30 (and with a corresponding dividend yield of 3.5%), which would be my cost basis if I’m ultimately put the stock.
Expeditors International [[EXPD]] – On 10/30/09 I sold some May 22.5-strike put options against EXPD as it sold off on market weakness:
Expeditors International of Washington is a global logistics and freight forwarding company. Currently trading at about $32 and yielding about 1.2%, its shares appear to be consolidating within a still-intact intermediate-term uptrend from the March lows. A break below $30-$31 would negatively change this picture.
Fair value estimates for EXPD range from about $20 to the mid $30s, suggesting that it’s not necessarily a particularly attractive value here. Longer term, EXPD’s strong growth rate and 14 years of consecutive double-digit-percentage-rate dividend increases have had me eyeing it as a buy candidate for my IRA. I’m quite comfortable owning it in the low $20s or below (with a 1.7%+ dividend yield), which would be my cost basis if I’m ultimately put the stock.
Genuine Parts [[GPC]] – On 10/30/09 I sold some May 30-strike put options against GPC as it sold off on market weakness:
This automotive parts distributor is another of my longtime watchlist buy candidates. It has earned a five-star rating at DividendInvestor.com (with 52 years of consecutive dividend increases) and currently yields over 4.5% at its current price of about $35.
GPC is currently trading right in the middle of valuation estimates of its current fair value, which range from about $25 to over $50, suggesting it probably isn’t especially under- or overvalued here. This would be a different and more favorable picture at under $30 (and with a corresponding dividend yield of over 5%), which would be my cost basis if I end up being put the stock.
Nokia [[NOK]] – On 10/30/09 I sold some January 2011 10-strike put options against NOK as it sold off on market weakness:
Located in Finland, Nokia is the world’s largest maker of cell phones and also a supplier of mobile and fixed telecom networks. Its stock has been hit hard over the last couple of years on earnings disappointments related to the company’s loss of market share in the U.S. and the overall economic downturn.
Currently trading at about $13 and yielding 4%, the stock has seen recent weakness following the company’s latest disappointing earnings report, but is still barely within an intermediate-term uptrend from its March lows. A break below $12 would have to be viewed as changing the trend to neutral to negative.
Overall not a pretty picture. But of course that’s often the best time to buy. Valuation analysis seems to agree, with fair value estimates ranging from about $12 up to the mid $20s.
NOK has a reasonable dividend history – it has consistently paid a dividend for many years – but the payout reflects the company’s fortunes and has seen occasional reductions, such as occurred earlier this year. Also, as is common with non-U.S. companies, the dividend is a single annual payment – in this case usually made in March or April.
I didn’t want to potentially be put the stock and then have to wait a year to receive a dividend payment, so I decided I’d sell a January expiration put option and be in a position to receive a dividend within a couple of months. I chose to sell the January 2011 10-strike LEAPS put options in order to collect an immediate, sizable cash payment from the option sale in my account (not unlike a dividend) while allowing for the potential eventual purchase of NOK at a cost basis of below $9 per share if it’s ultimately put to me.