Ok Let Me Back Up

Once again, let me start with our daily note to our Salve Lucrum Family earlier in the day.

Boys and Girls

I am following the market this morning and can happily report that yesterday was definitely a sell off ala profit taking and it did generate one more distribution day for each of the indices making it 4,3,2 (The blog should have said 2 because we were already at 1) for the NYSE, S&P 500, and the NASDAQ in that order.

The market is higher on decent economic news and no more surprises from Uncle Ben.  Gold is slow to recover, but we are re-establishing our positions on the way up.  There is a tough resistance point at 1,750.  If we clear that we could be back on again.

The anchor in your account is the VXX.  If you do not have option trading you are off about 5%.  If you have options it's uglier than that.  REMEMBER, these are January 2013 call options and they are insurance against your core holdings.  As your core holdings improve with the general market, these options (and the underlying ETF VXX) become worth less.  When you look at your portfolio performance, take out the VXX or VXX option drag (Loss).  When, the market corrects or if something catastrophic happens, we take the profits on the core holdings, and watch the VXX peak (along with Gold), and make money on the ride down.

We are seeing some upward movement in UNFI and again I can not explain it.  They report next week so this maybe some smart money making a move before the report?  That is just a hunch?

There may be some new money coming into MGRC because of the dividend announcement as the stock has had a nice bounce this morning.  2.9% yield is pretty.  Nice Call MaryKate, she spotted this on in December I believe.

Of our four speculatives (I have not bought these for you as they are very speculative.  I do have them in my account and a few of the trust accounts.) LQMT, ASXSF, TGH, and EPAY, EPAY is up 4.5%.  The ONLY reason we can see is because of the YELP ipo hype today.  We'll take it.

Thanks Brian

In the account today we did sell a couple of more call options. Now, one more time, we are selling call options against position we own. We sell call options at a strike price that is "out of the money". That means the stock must rise in order for it to make sense to the buy to execute the call options. In other words is a stock is currently selling for 10 dollars and there is a call options for April 15th at a strike price of 12 dollars and the it cost $1.00 to buy the options, it does not make sense to buy the options unless you are very confident that the stock will be worth 13.00 on April 15. In that case the strike price was $2.00 "out of the money".

We explained this several weeks ago about some call options we sold against our ling position in XOM. They are holding up well, and we think we will be keeping the premium we received when we sold them.

Today, we used the same logic to sell some AAPL $570 a share strike price March 17th call options. That makes the option "out of the money" by $25.53 out of the money. In order for this options to be profitable, AAPL will have to be at $575.30 on March 17th, as we received $5.30 a contract ($530=$5.30 X 100) Now that is not outside the realm of possibility, and it that is the case, we will have our shares called away at a nice 17.9% profit, plus the premium we received when we sold the options.

Ok one more. We sold some GWW March 17 $210.00 call options for 1.85 a contract. GWW closed at 207.82 a share today. The options are $2.18 out of the money. We received $1.85 a contract (again each contract controls 100 shares), so for this trade to make sense to the buyer, the shares will have to be at 211.85 on March 17. which is a 7.4% gain for one month ownership.

Ideally none of these calls will execute, I keep the long position, and pocket the sale of the option and do it again next week or next month. The three trades in question will generate at least 2.42% for the month I hold the options which is an annualized rate of 29.02%. BUT, options are not for the faint of heart.

OK Let's Back Up A Bit.

One of my colleagues, a non reader (Kinda sounds like a non-believer) pointed out the news that NHTSA (ya know the Highway folk) are trying to enact a law originally suggested by Bush The Dimmer (I can call him that as I voted for him and donated money for his Library) that would require all cars to have back up cameras. The bill (Kids Transportation Safety Act of 2007) was recently put on hold until next year, but it seems to be fait accompli. My colleague suggested looking at the companies that make the cameras.

Last night I found out who the players are. While there are about 6 Chinese manufacturers, it looks as though the leader is a company called GNTX, Gentex Corporation designs, develops, manufactures, and markets electro-optical products for the automotive, commercial building, and aircraft industries primarily in the United States, Germany, and Japan. It offers automotive mirrors, including automatic-dimming rearview mirrors, such as interior auto-dimming mirrors and exterior auto-dimming mirror sub-assemblies; and non-automatic-dimming rearview mirrors with electronic features. The company also provides fire protection products, which include smoke alarms and smoke detectors combined with various models of signaling appliances for office buildings, hotels, motels, military bases, college dormitories, nursing homes, and other commercial establishments; and single-station alarms for commercial and residential applications. In addition, it offers variable dimmable windows to the aircraft manufacturers. The company sells its automotive mirror products directly through a direct sales force; and fire protection products directly and through manufacturer representative organizations to fire protection and security product distributors, electrical wholesale houses, and original equipment manufacturers of fire protection systems. Gentex Corporation was founded in 1974 and is headquartered in Zeeland, Michigan.

Fundamentally, it has no debt and throws a sustainable 2.14% dividend. (Its payout ratio is about 40%). Its return on assets is a respectable 15+%. It's earnings per share is a lackluster 9.28%, but considering that is through the nasty part of the economy, and how that nasty economy brought annual vehicle sales below 8 million units total, an impressive number. (Today's vehicle sales number blew everyone away at a 8% above expectations to 15.1 million units.)

Most of the negativity of the stock comes from the technical analysis. The news of the law postponement has taken the willy out of this stock. It is below its 20 day, 50 day, and 200 day average and the chart looks sick. To a tea leave reader like me, I can see a clean buy point established last April at 31.83. With a suggested stop at 29.28, you would have out of the stock and watching it collapse.

IBD does not highly rate the stock giving it a 47 out of 100. That is strictly due to the fact its EPS growth is not as robust as the peers IBD has compared them to. (Delphi, BorgWarner, and American Axle)

We think, and Morningstar agrees there is a lot of room for growth with other products and with the recovery of the auto market to be patient with the stock until the law (Kids Transportation Safety Act of 2007) is put in place. From what I have read, worst case scenario 100% of vehicles made in 2015 will have RCD (Rear Camera Display). The down side of the delay is that other companies can gear up for production and squeeze GNTX's margin base.

I would consider this a speculative play and only for people who can be patient as it could take two years to see any meaningful return. A fair value of the stock is probably about 32-32 a share. It may take a while to get there. It closed today up 2.7% at $24.30. We can be patient so we will be easing into a position in the morning. We will try and get in at $24.50 and put a stop at $22.54.

Salve Lucrum