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As Bearish Option Volume Picks up, It May be a Good Time to Long and Short

Posted: 14 May 2020 04:30 AM PDT

FedEx Corp (FDX) is a company whose operations have been essential through the COVID-19 closures. It's industry was one of the few places that added jobs in the most recent jobs report and even benefited by Amazon halting its shipping service that would have competed with UPS and FedEx. With all of that news, you would have thought that FDX would have performed better, but it may be representative of the future economic challenges the global economy faces.

In the past couple weeks, the price has been under pressure as it's fallen from around $130 to below $110. On Wednesday, the options market began to seize on the potential that FDX may head significantly lower.

The put option volume was over 3 times the average early in the session with 19% getting filled at the ask and 62% between the market. The activity was largely on the expiring 15 MAY 20 $110 put. Early on there were over 3,00 contracts traded, mostly bought, at a price around $0.86 to over $1.40 against an open interest of 2,866. That interest is definitely reflecting near-term bearish sentiment, but it's not significantly so.

Action to Take: If FDX closes below it's $107.50 support, it's likely going to roll back to the March low near $90.

However, there is a chance that the price is more oversold, and the stock may rally strongly following the near-term selling. This is where an option trade can provide an opportunity to profit a little of the stock keeps falling but has the potential to profit a lot if it rallies strongly.

Speculators may want to consider the 17 JUL 20 110/120 back ratio spread for a $0.20 credit or more. This strategy involves selling one call at the $110 strike and buying 2 calls at the $120 strike. The trade has $980 of risk if the stock closes at $120 at expiration, but makes $20 per contract if it closes at $110 or below at expiration. The upside breakeven is at $130 and has unlimited upside from there. The intent of this strategy is to not hold it to expiration, but could be carried to within 20 days to expiration. The objective is seeing a large move up, but having the opportunity to make some money if the price falls.

5 Buffet Style Stocks with Fast-Growing Dividends

Posted: 14 May 2020 04:30 AM PDT

There is a group of stocks called "Dividend Aristocrats" that have paid and grown dividends for at least 25 years. You may wonder how some of those stocks got where they are today. At some point they had to initiate paying dividends and have the means to grow them. As the size of the company expands and the dividend increase, the amount of the company's earnings being paid out in dividends increases. It's these types of qualities that are attractive to renowned value investor Warren Buffett.

One way to measure the amount of net income being paid in dividends is a measure called the payout ratio. The ratio is calculated by taking the amount paid in dividends, shown on the cash flow statement, and dividing it by the net income of the company.

Typically, a value of 60% or less is pretty reasonable, but values near 60% or higher creates a situation where the growth rate of the dividend will slow. In order to support significant increases in the dividend, a company has to be growing its earnings and have a low payout ratio.

The following list of five stocks have a 20% payout ratio or less, a 5-year median dividend growth rate of 15%, has increased dividends for at least five consecutive years and has a 5-year historical earnings growth rate of 15% or higher.

Dividend Growth Stock #1: Mastercard Inc (MA)

Mastercard is a $273 billion technology company that connects consumers, financial institutions, merchants, governments, and businesses using electronic forms of payment.

It has a current dividend yield of 0.54% and has a payout ratio of 18%. The company has grown its dividends for 9 consecutive years with a 5-year annualized dividend growth rate of 18.6%. Those statistics reflect a company that is highly capable of paying and growing its dividend.

The company also has a strong track record of growing its earnings. Its 5-year EPS growth rate, excluding non-recurring items, is 19.5%. The growth rate of earnings reflects an ability to both grow its dividend through increasing the payout in addition to growing its earnings organically.

Dividend Growth Stock #2: HDFC Bank Ltd (HDB)

HDFC is a $73 billion holding company that offers a range of banking services covering commercial and investment banking on the wholesale side and transactional/branch banking on the retail side. It also offers financial services.

It has a current dividend yield of 0.80% and has a payout ratio of 20%. The company has grown its dividends for 8 consecutive years with a 5-year annualized dividend growth rate of 17.1%. Like MA, the company is highly capable of paying and growing its dividend in the future.

The 5-year EPS growth rate of HDB, excluding non-recurring items, is 18.9%.

Dividend Growth Stock #3: HEICO Corp (HEI)

HEICO is a $10.6 billion company that manufactures Federal Aviation Administration (FAA)-approved jet engine and aircraft component replacement parts, other than the original equipment manufacturers (OEMs) and their subcontractors.

It has a current dividend yield of 0.17% and has a payout ratio of 6%. The company has grown its dividends for 16 consecutive years with a 5-year annualized dividend growth rate of 17.8%.

The 5-year EPS growth rate of HDB, excluding non-recurring items, is 19.3%.

Dividend Growth Stock #4: D.R. Horton (DHI)

D.R. Horton is a $16.9 billion homebuilding company that operates in 84 markets in 29 states. Its segments include its 44 homebuilding divisions, its financial services operations and its other business activities.

It has a current dividend yield of 1.45% and has a payout ratio of 13%. The company has grown its dividends for 6 consecutive years with a 5-year annualized dividend growth rate of 31.8%.

The 5-year EPS growth rate of HDB, excluding non-recurring items, is 23.2%.

Dividend Growth Stock #5: Visa Inc (V)

Like Mastercard, Visa is a payments technology company that connects consumers, merchants, financial institutions, businesses, strategic partners and government entities to electronic payments. Visa has a current market cap of $394.2 billion.

It has a current dividend yield of 0.61% and has a payout ratio of 20%. The company has grown its dividends for 12 consecutive years with a 5-year annualized dividend growth rate of 20.0%.

The 5-year EPS growth rate of HDB, excluding non-recurring items, is 19.5%.

Senior Manager and 10% Owner May be Rating this Asset Management Company a Sell

Posted: 14 May 2020 04:30 AM PDT

Apollo Global Asset Management Inc (APO) is an alternative investment manager in private equity, credit and real estate. The company is rumored to be seeking for as much as $3 billion for their infrastructure fund. In response to the rumor, the co-founder Josh Harris said:

"We remain in the market for real assets-related strategies such as infrastructure equity and U.S. and Asia real estate, all of which are seeing attractive opportunities emerge in distressed, stressed and capital solutions."

Clearly, their looking to acquire some distresses assets in this space to capitalize on a potential infrastructure spending package being passed through Congress.

However, these are uncertain times and capital can be hard to come by. When you look at large cap companies with at least 2 sell transactions, APO rises toward the top of the list with over 1.7 million shares sold with a value of over $74 million. The seller is a 10% owner in the company and Senior Managing Director, Marc J Rowan. In May alone he accounts for all of the selling. Since February 7, he's reduced his holdings in APO from over 14.5 million shares to just under 5 million.

Action to Take: APO has a near-term target of $35 as the price looks to give back around 50% of its rise since mid-March.

Speculators may consider the 19 JUN 20 41/40 long put vertical for $0.50 or less. That max gain of $50 a contract or 100% ROR is achieved if the price closes below $40 by expiration. Consider closing early for $0.80 or more.

Trade #1

Fed Chair Powell Dismisses NIRP as Likely and Bonds Rally

Federal Reserve Chairman Jerome Powell made a number of statements on Wednesday regarding the state of the economy and the possibility of negative interest rate policy (NIRP). These statements had a direct impact on stocks as well as the bond market. In response the iShares 20+ Year Treasury Bond ETF (TLT) rallied off support.

With regards to the economy, Powell said it will take some time to get back to where we were and that the recovery will take longer than most people would like. A recent Fed survey anticipates that 40% of
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