Engineered Income Investing: Exclusive Premium Research
On September 8, 2020, I introduced the concept of a Storm Portfolio to our group. A collection of companies with strong ability to weather economic downturns, safe, well covered dividends, and expected to resist broad market corrections or recover quickly from them.
Since that time, 10 tickers have been identified for the portfolio along with covered option ideas to open positions. Those tickers include AMT, OTIS, GPN, PH, PII, GIS, CL, JNJ, DOC, and LMT. Part 1 of the review and update revisited AMT, OTIS, GPN, and PH. Today, I’ll look at PII, GIS, and CL.
Polaris Inc. (PII) has fully recovered from the virus bear market. Third quarter results were better than expected, with management raising guidance for the remainder of the year. Revenues were up 10.3% YOY to $1.96 billion. It has been trading in the upper half of its typical sideways range bound pattern who’s upper boundary limit is near the YDP fair value of $105. The long term price oscillator axis is at $89.00, and the lower channel boundary is at $70.00.
Those wishing to add PII positions at this time should consider writing the 32 day cash secured puts for 1/15/21 $85.00 @ $1.97 premium. This provides a 27.06% annualized yield rate on net covering cash of $83.03, along with $10.83 (11.54%) downside protection from the current $93.86 market price. These short term contracts give flexibility to adjust quickly if market outlook weakens sharply on fears of a renewed virus driven recession.
Those with current positions in PII might consider rolling forward at good net yield rates at this time.
General Mills (GIS):
GIS continues performed very well through the March virus bear market, quickly rebounding and breaking out of the prior year long sideways channel trend to a new channel centered on its current YDP fair value of $60.90. Shares are currently trading in the lower half of the current sideways trending channel, testing the lower boundary limits.
Those wishing to add a position at this time might consider writing the 32 day cash secured puts for 1/15/21 $55.00 @ $0.65 premium. This provides a 13.65% annualized yield rate on $54.35 net covering cash, along with $4.97 (8.38%) downside protection from the current $59.32 market price. Longer term contracts at the $55.00 strike going out as far as the 214 day 7/16/21 puts are also attractive and can be considered.
Those wishing to enter or add to long share positions at this time might consider a buy-write with the buy at market leg of $59.32 and concurrent write of covered calls for the 214 day $65.00 @ $1.91 premium, giving a net debit cost of $57.36. This provides a net premium yield rate of 5.68%. When combined with the 3.44% dividend yield, total yearly rate is 9.12%.
Yields at this time do not offer any attractive DOPA (dividend-option premium arbitrage) plays for the January 7th ex-dividend.
Colgate is another strong consumer staples target that saw a very fast recovery from the March virus bear market and has continued to power higher reaching a new high on 11/20/20 at $86.41 and trading sideways in a consolidation mode moderately in bubble territory. Current YDP fair value is $78.00, with shares trading currently at $86.41.
The Storm Portfolio introduced CL as a target ticker in the report of 10/14/2020. The primary suggest to consider writing the 93 day cash secured puts for 1/15/21 $75.00 @ $1.70 premium. This provides a 9.10% annualized yield rate, along with a break-even point of $73.30, $6.96 (8.67%) below market, as well as modestly below fair value.
Currently, with shares in a moderate bubble, it appears best to allow those 1/15/21 contracts to run out to expiration. Yields for a roll are not attractive at this time.
No DOPA trade for the January dividend looks attractive at this time either.
We continue and increase our focus on deep downside protection while generating superior income yields with an eye toward recession resistant target tickers. This month, I will continue to present Storm Portfolio ideas, along with special situations and DOPA plays as opportunities arise.
As always, I remain available to you for any questions or other things you may wish to discuss.
I am not a licensed securities dealer or advisor. The views here are solely my own and should not be considered or used for investment advice. As always, individuals should determine the suitability for their own situation and perform their own due diligence before making any investment.
Enjoy the holidays. Stay safe and well.