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Unusual Options Activity: Petroleo Brasileiro (PBR)

Posted: 24 Oct 2019 03:00 AM PDT

Bet in surge of call buying.

There was a 25-fold surge in volume from 111 contracts to over 2,800 on the November 15th 2019 $16.50 call options on Petroleo Brasileiro (PBR), also known as Petrobras.

The options, with shares of the Brazilian oil company trading at $15.50, would trade in-the-money with a $1 rally in shares in the next 22 days. At a cost of just $0.19, or $19 per contract, it's a cheap bet on shares to rally in the next few weeks.

The news comes as workers at the company state that they will go n strike over the weekend. The company has also faced a variety of scandals and stood at the center of the country's political corruption over the past few years.

With shares of the volatile oil company trading as high as $18 in the past year (which would put the $16.50 calls at $1.50 in value at expiration), this is one company where anything can happen.

Action to take: The company looks overvalued relative to all its oil assets, but given the political issues swirling around, it's probably close to fairly valued right now. Investors can buy shares under $14.50 on a pullback.

With oil prices trending higher the past few days, and with the price sometimes spiking higher on security fears, the $16.50 calls in the next month look like an interesting trade that could potentially double or triple… but might go to zero, so take quick profits if you get them.

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Three Financial Stocks You Can Own Indefinitely

Posted: 24 Oct 2019 03:00 AM PDT

These firms have the staying power in any market.

There's an old saying that every general is prepared to fight the last war. Likewise, many investors are concerned that the next bear market will be like the last.

As a consequence, it's been a tough decade to invest in many financial company stocks. Nobody wants to have one of their positions be on the news over whether or not it will go bankrupt or get bailed out by the government! But the finance sector has plenty of opportunities.

Finance Stock #1: The Progressive Corporation (PGR)

Many investors are so fearful of banks that they overlook a great place to invest in the financial sector: Insurance. Insurance companies are regulated at both the state and federal level. And while regulation turns off many potential investors, those regulations tend to benefit the insurance companies, and thus their shareholders over time.

Progressive Corporation (PGR) is one of the largest insurance plays, with a focus on automobile insurance. The company has been growing its premiums by over 11 percent year-over-year, and has a combined ration of 92.3, showing an underwriting profit.

Nevertheless, shares have traded flat in the past year, giving them a 10 percent relative underperformance to the stock market. With shares at 12 times earnings, they're an attractive buy, especially as the big name continues to show reasonable growth prospects.

Besides paying $0.10 in quarterly dividends, the company also pays out a special annual dividend based on its earnings. While it can vary, this dividend was $2.51 in early 2019, making for nearly $3.01 in annual dividends last year. This mix of minimal dividends and an earnings-based payout is a more unique way of rewarding shareholders, but a lucrative one.

Shares are a buy up to $70.00.

Finance Stock #2: American Express (AXP)

With a focus on the banks, processing companies like credit card providers are still giants in the financial industry. Even with the rise of alternative payment methods, these companies have cemented themselves as alternatives to cash and with many convenient benefits such as rewards and cash back options.

In this space, American Express (AXP) is the industry leader. The company has focused its efforts on getting higher-end consumers, who tend to spend more. While their card isn't accepted in as many places as a result, American Express continually earns high profit margins as a result—over 18 percent on every card swipe. Catering to higher-end markets is a great long-term trend for any growing economy.

Shares of American Express are also cheaper than the overall market at 12 times earnings, although shares are up more than the overall market in the past year. The company's dividend is no slouch at 1.5 percent, and the company's history of dividend growth make this a great holding for the long haul. Shares are a buy up to $120.00.

Finance Stock #3: Annaly Capital Management (NLY)

If you truly expect the financial sector to fare well, one way to make a big bet on that trend is with a real estate investment trust (REIT) that specializes in mortgages. By owning claims to housing, it's an exposed operation… and these companies juice their returns with leverage.

The industry leader, Annaly Capital Management (NLY), has about 10 times as much debt as equity. That's usually a scary concept, but with that leveraged money invested in Fannie Mae-backed home mortgages, which are insured by the government, the company is able to make a profit and pay it out to shareholders. In fact, the company breezed through the Great Recession just fine… it really only started to have trouble after years of low interest rates and mortgage refinancing activity pushed the cash flow of mortgages down.

While the dividend has been reduced to reflect lower mortgage income from lower interest rates on average, the current yield is a staggering 11.1 percent at present. This makes for a great holding for anyone seeking current high income, rather than the income-growth plays elsewhere in the financial sector. With that kind of income return, investors shouldn't expect much—if any—capital gains.

Shares are a buy up to $9.00, which is also the book value of the company—the value of its portfolio of loans.

Final Thoughts:

There are plenty of ways to stay invested in the financial sector. While banks get the biggest fears, even as they’re starting to do better, there are plenty of other parts of the market where there are opportunities to get solid, industry-leading companies at a huge discount to the overall stock market. And most of those companies also give investors steady, if not growing, income for their investment dollars.

Insider Activity: Plumas Bancorp (PLBC)

Posted: 24 Oct 2019 03:00 AM PDT

Director picks up $25,000 in shares.

Director Richard Kenny picked up over 1,150 shares of Plumas Bancorp (PLBC) recently, raising his stake by over 20 percent. The buy cost just over $25,000.

Insiders at the regional bank have been both buyers and sellers in the past few years, with the last sales coming at prices 13 percent higher than the recent insider buys. Buyers and sellers have just included corporate executives, not major funds or outside capital.

All told, insiders own nearly 20 percent of the company, a great sign that their long-term interest is aligned with shareholders.

The bank, whose operations straddle Northeastern California and Northwestern Nevada, operates 11 branches. Shares trade at 8 times earnings, and shares are down nearly 20 percent in the past year.

Action to take: Wait for now. The bank's shares are cheap on an earnings basis, but it trades at 1.36 times book, a bit pricey for a smaller bank holding company that keeps its loans on its books. We generally want at or under book value for smaller banks—where lower book value provides us with a margin of safety against the occasional loan loss.

Any fear in the banking sector could send shares down to $18 or under, where they'd be a reasonable bargain, even if bank insiders are generally bullish here.

The company has no options available for traders.

Unusual Options Activity: Kraft Heinz (KHC)

Posted: 23 Oct 2019 03:00 AM PDT

Bet on shares moving higher after earnings.

Over 6,800 contracts traded on the November 8th $29 call options on Kraft Heinz (KHC). Compared to the open interest of 141 contracts, that's a 48-fold surge in volume.

With shares of the company around $28.30, shares need to move just 2.5 percent higher in the coming 16 days before expiration to move in-the-money. For the call buyer, paying $0.90, to profit, shares need to move closer to $30 by then.

With the company next reporting earnings on October 31st, the trade is a bet on shares doing just that.

Action to take: As an earnings season trade, this options trade looks like a great bet here. The company announced a big write-down earlier in the year, then a second one, then replaced the CFO who had been doing that. And while 3G Capital, the largest shareholder, has been selling shares, insiders at the fund have been buyers at these prices. That's a sign that the worst is likely over for the company.

Besides the options trade, shares have been moving higher, but still trade at a compelling valuation relative to the expected future earnings. Plus, shares yield 5.8 percent here, giving an out-sized level of income for cautious investors. Shares are a buy up to $30.00, a price that the company may trade above after earnings.

Recession-Proof Your Portfolio With These Three Stocks

Posted: 23 Oct 2019 03:00 AM PDT

Prepare for the worst with these three recession-beating firms.

Nobody's sure how the next recession will hit. It could come from housing, like the last time. But lenders aren't being as risky as they were. Industrial profits are declining on uncertainties over tariffs and trade wars. But those issues can be resolved and go away just as quickly as they popped up.

Whatever does happen, with so many indicators showing a slowing economy, it's time to think defensive. But rather than give in to fear, consider recession-proof companies instead.

Specifically, we're looking for companies whose performance may not be exciting during a bull market, but, over the course of a bear market, are likely to trade flat at worst, or even rally as the economy resets.

Recession-Proof Pick #1: McDonald's (MCD)

Shares of fast-food giant McDonald's (MCD) recently sunk to four-month lows after the company missed its earnings expectations for the third quarter. Astute investors know this time of short-term fear is the perfect time to invest.

That's because the company was just one of two firms in the Dow Jones Index to show a gain in 2008. When the economy tanked, high-end restaurant chains ended up on the brink of bankruptcy as consumers cut back. But no matter how much you cut back, fast food will always be there—and McDonald's dominates the industry with no change of that status in sight.

It's likely to do so the next time the economy slows down as well and consumers become more price conscious. And while the company did recently miss on earnings, they still grew same-store sales by over 5 percent, a huge accomplishment for such a large company to begin with!

Shares of McDonald's are a recession-proof buy up to $205.00.

Recession-Proof Pick #2: Wal-Mart (WMT)

The other Dow Jones Index stock to show a gain in 2008 is everyday low price retailer Wal-Mart (WMT). The company dominates the world by sales, and strives to keep its prices down. That means it tends to gain market share when the economy is bad.

Of course, with the economy still in good shape… folks are still shopping at Wal-Mart. And the company has been expanding its online presence to a point where it's starting to grow market share at the expense of firms like Amazon in the areas where they overlap… including using the company's network of physical stores to offer next-day delivery.

Although the company's rapid growth space is behind it, expanding its online presence can greatly improve its profit margins, making for decent returns, even when the economy goes south. Shares are a buy up to $122.00.

Recession-Proof Pick #3: Procter & Gamble (PG)

A consumer goods giant making everything from shampoo and razors to vitamins and laundry detergent, it would be nearly impossible to find a home that wasn't stocked with at least some good from Procter & Gamble (PG).

Consumer goods are an excellent recession-resistant play thanks to their inelastic demand—the economy would have to get pretty bad before people cut back on soap. That kind of demand may mean that the company looks like its best days are already behind it, but looking forward to a slowing economy, shares can likely move higher as growth stocks crumble and consumer giants hold their own.

The company's push to international markets has been stalled with recent trade issues, and there's some future growth prospects there that make this an interesting recession-safety play with a future growth catalyst to move things higher.

Shares of P&G are a buy up to $125.00.

Final Thoughts:

Each of these companies has held up well during prior recessions, and should likely do so in the next one. While each recession is different, each of these companies is an industry leader with the size to make it through tough times. And each company has a strong advantage over competitors, whether in the form of a brand or being the lowest-cost provider.

As a result, these companies are rarely value plays, and investors will have to pay up. But over time, they'll do fine as these firms pay out rising dividends over time. That's why recession-resistant stocks will also likely match up nicely with stocks you want to own for a decade or more!

These are the elements that are common across industries to make for great investments—in both good times and bad.

Insider Activity: Independence Contract Drilling (ICD)

Posted: 23 Oct 2019 03:00 AM PDT

Cluster of insiders pick up shares.

A number of insiders at Independence Contract Drilling (ICD) have started buying shares in recent days. The buys include a 6,400 share buy from the CFO, a 20,000 share buy from a director, a 5,000 share buy from the CEO, and a 2,500 buy from the company's head of HR.

These buys follow up on another cluster of insider buys going into the prior week as well, and so far insiders have bought over $50,000 in shares this month.

Full insider data shows an explosion in buying from corporate executives, with just a handful of small sales.

Independence Contract Drilling provides land-based contract drilling services for the oil and natural gas industry, with a fleet of 32 rigs.

Action to take: None, yet. Shares have been sliding for years thanks to high oil and gas production, which has been pushing shares lower. In the past year alone, shares have slid 80 percent from over $4.30 per share to around $0.80.

We think investors can get shares under the 52-week low of $0.76 in the coming days, and a price target of $0.70 or lower makes sense as a speculation, with a likely turnaround next spring, unless other events cause a spike in oil prices.

Although the company isn't profitable, it has been growing its revenues, and is likely to continue to stay in business for the foreseeable future. Although there are a few possible options trades, speculators should just stick with shares.
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