RSG called away early

EDIT: RSG was called away a day earlier than I thought; the sale posted to my account on the 29th, but was executed on the 28th. Since the shares were called before the ex-dividend date, the dividend went with them.

In June, I sold 5 $25 October calls on my RSG stock; the stock is now trading at $26 and change, so imagine my surprise when the shares were called away yesterday on no news! They were called away on the ex-dividend date, so the buyer chose to call the shares on the very first day they wouldn't get the dividend. I'm baffled, but I'm happy to keep the dividend; it's a nice 2.87% yield at the current price of $26.50. I bought the shares at $19.11, so my yield is higher.

The dividend is $0.76 per share. The yield is the dividend divided by the current share price; this is the money you get in dividends for every dollar you spend.

$0.76/$26.50 = 2.87%

So for every hundred dollars I spend on RSG, I'll get $2.87 back this year.

However, I bought RSG at a lower price. My shares increased in value, but I'm paid the same dividend as all the other common shareholders.

My dividend yield is:

$0.76/$19.11 = 3.98%

For every hundred dollars of my original investment, I'm getting $3.98 per year.

This is why I like dividend bearing stocks, and why I keep a close eye on them.

Helpful links on dividends:
the SEC: http://www.sec.gov/answers/dividen.htm
Investopedia: http://www.investopedia.com/articles/02/110802.asp

Sold SSCJQ, MCK

I sold the rest of my McKesson stock at $57.86 (the majority was called away last month at $45 strike + $2.10 premium).

I also sold the remains of my Smurfitt-Stone preferred stock at $7.00, my first (and, hopefully, the last) OTC trade. Smurfitt-Stone was bought at $20.50, declared bankruptcy in January of this year, and even the preferred stock has dropped as low as $0.10 a share. The common shareholders have fared far worse. Now that the position has increased to a mere 65.8% loss, I'm selling.

Smurfitt-Stone's bankruptcy was the final factor in my decision to manage my own portfolio. Before, I'd managed about 10% myself, and left the rest in the care of my (expensive) Merrill Lynch advisor. The bankruptcy filing made me realize that no matter how much I paid my advisor, no one would care as much about my portfolio as I do. I now manage my portfolio myself.

Closed OTM puts

Today I closed October puts on FLS and TUP which were way out of the money, for $0.10 a share. All other things being equal, I'd let the puts go until expiration. With the current market drop, I want the cash ready to reinvest in discounted stocks.

Bought WAT

I bought a partial position (4%) in WAT today; I also have Nov $50 puts outstanding. WAT has been moving steadily upward since I opened my options position, and I am not sanguine about having the shares put to me. If WAT drops to my $50 strike price or below, it will be 5.3% of my portfolio (including the shares I just bought outright). If it stays above $50, at least I'll have my 4% and can later write more puts to hopefully fill the 5% target at a better price.

Bought ORCL

Today I put 3% of my portfolio in ORCL @ $21.50; I plan to add another 2% later, hopefully at a lower price.

A bunch of puts expired unexercised over the weekend;

4 $20 KCI, $2.20 premium
6 $15 JKHY, $0.65 premium
1100 $10 GTI, $1.60 premium
1 $65 PCP, $3.10 premium

for a total of $3,340 in income. I still want all these stocks, so I plan to write puts again to buy at a more desirable price. The exception is PCP; my targeted position in this stock is already partially filled, and it has increased dramatically in price since my initial purchase and I am reluctant to buy more at these prices.

Sold more MOS puts

Today I sold 3 MOS $50 puts for $3.80/share. My previous $45 MOS puts expired un-exercised last month. I still want MOS, since I like the company and I no longer have an agriculture position since I sold Agrium also last month). I compared MOS and AGU as long term investments.

AGU:
P/E ratio | 10.22
revenue / employee | $ 1.18 million
dividend yield | 0.21%
price / tangible book | 1.996
price / sales | 0.8293
price / free cash flow | 15.46
return on equity | 19%
return on assets | 16.89%
leverage | 2.166
current ratio | 1.953
debt / capital | 0.2679
net profit margin | 9.05%
Annualized 5Y revenue growth | 31%
YOY Revenue growth | 90%
Gross margin | 26%
EBITA margin | 9.5%
cash/share 2.29


MOS:
P/E ratio | 10.98
revenue / employee | $ 1.428 million
dividend yield | 0.28%
price / tangible book | 3.032
price / sales | 1.946
price / free cash flow | 19.05
return on equity | 30.87%
return on assets | 19.19%
leverage | 1.493
current ratio | 3.273
debt / capital | 0.1289
net profit margin | 9.22%
Annualized 5Y revenue growth | 34%
YOY Revenue growth | 4.9%
Gross margin |30%
EBITA margin | 28.3%
Cash/Share | 6.08

The two companies have very similar numbers, and either would make a good investment. For me, the deciding factor was the cash reserves held by MOS. MOS has a better current ratio, more cash per share, and is less leveraged. This cash hoard gives MOS more flexibility in its response to changing market conditions; it can afford to expand, buy a distressed rival, or hunker down in lean times.

In the ag space, I also really like Terra Nitrogen. However, I'm still trying wrap my head around their M.C. Escher business model Terra is both TRA (selling nitrogen products) and TNH (which owns a nitrogen manufacturing facility). Here's an excerpt from their website which attempts to clarify the relationship:

"[TRA]directly or indirectly holds approximately 75% of the outstanding common units of [TNH], which are traded on the New York Stock Exchange, and the remaining 25% of [TNH]’s units are held by the public. In addition to operating the [TNH] manufacturing facility in Verdigris, [TRA] also owns and operates five other North American manufacturing facilities, and has a 50% interest in an ammonia facility in Trinidad and 50% interest in GrowHow UK Ltd., a United Kingdom joint venture. [TRA] also has a deep-water terminal in Donaldsonville, Louisiana, and 50% interest in Houston Ammonia Terminal near Pasadena, Texas. "

TRA and TNH both have great management; ROE is 38% and 152% (!) respectively. However, while I can keep an eye on them, what about these little private companies? If GrowHow UK Ltd. accidentally vents ammonia gas, TRA will also be sued, whether or not they're actually responsible. Are these shipping arrangements in LA and TX bringing in income or are they just an expense? What if TRA decides to raise capital by selling it's 75% stake in TNH?

Bought ADBE

Adobe, a fabulous company, is trying to buy Omniture, another fabulous company which I already own. I still believe in OMTR, and the ADBE offer is for straight-up cash (not a cash + shares deal), so I put 3% of my portfolio in ADBE, which has dropped 6% on the news. If/when the offer is finalized in November, I plan to put the cash from the purchase into ADBE, which should complete my targeted 5% stake in ADBE.

I'm buying ADBE now due to the dip from news of the OMTR deal. The P/E is high, but justified by the company's other numbers:

Current ratio: 5.0
ROE: 19%
Total Debt/Equity: 0.1
Gross Margin: 95%
Net Margin: 18%
EBITDA(Earnings Before Interest, Taxes, Depreciation, and Amortization: 26%
Revenue/Employee: $455,600
Revenue Growth, annualized over 5 years: 18%
YOY Revenue Growth: 13%

Much of this information comes from WolframAlpha, a free data search engine which I use and recommend.

Sold KCI puts

Sold 4 Dec $35 puts on KCI for $1.85. That's a 5.3% gain in 3.2 months, 1.7% per month, 20% annualized. I've already written $20 puts on KCI, which will expire this month.

Article: Ghost Ships of the Recession

Shipping is a leading indicator of economic activity; BDI (Baltic Dry shipping Index) has become a buzzword of the current recession. The excerpts below are from a Daily Mail article published Sept 13 2009.

http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html

"The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year.
... the hulls gather rust and seaweed at what should be their busiest time of year.
Local fisherman Ah Wat, 42, who for more than 20 years has made a living fishing for prawns from his home in Sungai Rengit, says: 'Before, there was nothing out there - just sea. Then the big ships just suddenly came one day, and every day there are more of them.
'Some of them stay for a few weeks and then go away. But most of them just stay. You used to look Christmas from here straight over to Indonesia and see nothing but a few passing boats. Now you can no longer see the horizon.'
...750ft-long merchant vessel is standing absurdly high in the water. The low waves don't even bother the lowest mark on its Plimsoll line. It's the same with all the ships parked here, and there are a lot of them. Close to 500. An armada of freighters with no cargo, no crew, and without a destination between them.
...This time last year, an Aframax tanker capable of carrying 80,000 tons of cargo would cost £31,000 a day ($50,000). Now it is about £3,400 ($5,500).
...This is why the chilliest financial winds anywhere in the City of London are to be found blowing through its 400-plus shipping brokers.
Between them, they manage about half of the world's chartering business. The bonuses are long gone. The last to feel the tail of the economic whiplash, they - and their insurers and lawyers - await a wave of redundancies and business failures in the next six months. Commerce is contracting, fleets rust away - yet new ship-builds ordered years ago are still coming on stream.
...These empty ships should be carrying Christmas over to the West. All retailers will have already ordered their stock for the festive season long ago. With more than 92 per cent of all goods coming into the UK by sea, much of it should be on its way here if it is going to make it to the shelves before Christmas. But retailers are running on very low stock levels, not only because they expect consumer spending to be down, but also because they simply do not have the same levels of credit that they had in the past and so are unable to keep big stockpiles."


There's quite a bit more, mostly industry-specific. I encourage you to read the entire article.

Article: Boring Fair Value

This is an interesting article from which compares the current rally to the 1930 "hope" rally which presaged a long decline in US stocks.

Haven't We Been to this Show Before?

Caveat; I am suspicious of anyone who uses phrases like "muse wondrously" in an otherwise serious article. PJ O'Rourke can get away with it; this guy can't. Also, the author is a banker, not a historian. His degree is in public policy, not economic history.

This article by Jeremy Grantham has a more cogent view of the current market environment:

Free subscription required

If you aren't already a subscriber, go to www.gmo.com/America/MyHome/, register, then access the article "Boring Fair Value" in the site Library. Published July 2009, but still relevant.

Let your winners run

I posted the following on one of my favorite boards, on the topic of taking profits on multi-baggers or letting your money ride. This is true only from an investment perspective, when you've done significant research on your position. Speculators probably do something different. I'm not being catty; I don't understand the spec mindset.

Personally, I prefer to let my winners run, but when I keep a big gainer I also use a stop-loss order to bolster my selling discipline.

It's easy to overlook a "slow leak" in a position; I've been surprised by sales from a stop-loss order I'd placed and forgotten.

It's possible your order will trigger, and then the stock will reverse its losses. Stop-loss orders are useful when you've picked a sales price you'll be happy with, but are not concerned with selling at the absolute highest price you can get. You can also set the order to sell all or part of your position.

I'm doing exactly this with a big winner, Helmerich & Payne, HP. Bought at $7.89, it's now a 350%+ gain; the old saying "pigs get slaughtered" is echoing in my head. However, I still love the stock.

Instead of selling, I have a stop-loss order in place to sell PART of my shares if the stock drops to $31. That's a large enough gap that the order won't be triggered by ordinary market fluctuations. I'd be selling about a third of my position, which would recover my original investment, plus a little extra profit. Two-thirds of my HP position would remain invested; I'd sell that portion only if the reasons behind my original investment hypothesis changed.

This allows you both to preserve your profits in the face of irrational market pricing changes, and to capture the out-performance of stocks which have already proven themselves to be winners.

Sold WAT puts

Today I wrote 3 $50 November puts on WAT for $2.24 each. Waters makes basic (and very expensive) lab instrumentation, and provides service contracts for their instrumentation. I believe Waters will benefit from future economic recovery; these instruments are useful in quality control for many industries. In the meantime, WAT will earn more through service agreements, as companies make more frequent and more expensive service calls to help their old equipment limp along until they're able to replace it.

MDT, PCL

Today I put 5% of my portfolio into PCL (Plum Creek Lumber) at $30/share. I chose to buy now because Plum Creek has not participated in the current rally; it's above it's March lows, but is currently trading near its April stock prices. The stock has a 5% yield and I believe lumber and mineral rights are an excellent hedge against inflation.

I also wrote four October $36 puts on MDT, paying $0.85 per share. I had puts on MDT expire un exercised last month; if the stock dips in the next six weeks, I may get it at a desirable price. If not, I'll continue to write puts for it; I want the stock, but not enough to pay $38/share for it.