By Robert Hauver
Institutional buyers have increased their purchases of Textainer (TGH), by over 12% over the past quarter, pushing its share price up by over 8% thus far in 2012. Thanks to institutional support, TGH has also been one of the best stocks to buy for price gains over the past 6 months, having risen nearly 40% from its summer lows:
TGH’s institutional support is in stark contrast to its container-leasing industry peers, especially SeaCube, (BOX), which has seen a huge decrease in institutional buying in the past 3 months. The stocks in this group are mostly small caps, ranging in size, from $330M Seacube (BOX), up to $2.04B mid-cap, GATX Corp. (GMT), which is also in the railway business.
Judging by TGH’s industry-low Institutional Ownership, it may have quite a bit of room to gain further support:
Company Profile: Textainer has operated since 1979 and is the world’s largest lessor of intermodal containers based on fleet size. TGH has a total of 1.7 million containers, representing 2.5 million TEU, in its owned and managed fleet, and leases containers to more than 400 shipping lines and other lessees. TGH leases standard dry freight, dry freight special containers, and refrigerated containers. They are one of the largest purchasers of new containers annually, and believe that they’re also the largest seller of used containers, selling up to 100,000 containers per year to more than 1,000 customers. (Source: TGH website)
One reason for Textainer’s popularity with the institutional trade is its hefty 98.6% fleet utilization rate, which increased from 98% in the 3rd quarter of 2011. TGH also increased its net income/share for the first 9 months of 2011 by 40%, and raised its revenue by over 43%. Container rates have been at historic highs, and, while the company thinks that they may have peaked, they feel that these rates will still remain at a high level for the immediate future. Container demand has been very strong, especially for refrigerated containers, which is a result of the expanding global food distribution business.
Dividends: TGH has had a 75% dividend growth rate since 2007, and also raised its dividend every quarter in 2011, going from $.29, to $.35. TGH is currently listed in the Industrials section of our High Dividend Stocks By Sectors Tables.
Note: TGH’s next ex-dividend date may be later than Feb. 17th, due to the fact that they normally announce their quarterly dividend info at each quarter’s earnings call, and their next earnings call will be on Feb. 14, 2012:
Covered Calls: Although TGH doesn’t have the high options yields that we’ve written about in many other articles, you could still double your dividends on TGH, via selling covered call options. The call option and put option trades listed in the tables below both expire in August 2012. Selling the Aug. $35 covered call would also leave room for big potential price gains, if your shares are assigned/sold.
This is a breakdown of the income from this 6-month covered call trade:
1. Dividend income: $1.05
2. Call option income: $1.10
Total Static Income: $2.15 This is your income if TGH doesn’t rise past the $35.00 strike price, giving you a Static Yield of 6.82% for approx. 6 months, or 13.17% annualized.
3. Potential Price gains: $3.47 This is the difference between the $35.00 strike price and the $31.53 stock price.
4. Total Potential Income: $5.62 This gives you a nominal yield of 17.82% during an approx. 6-month term, or 34.42% annualized.
(You can see many more details for these and over 30 other trades in our Covered Calls Table.)
Cash Secured Puts: Selling cash secured put options can be a lucrative way to “sneak up on a stock”, in that you get paid now to wait. Although put sellers don’t collect any dividends, put options often pay 2 or more times what a stock’s dividends may pay during a short term.
Example: In the put option trade below, let’s say that you sell one Aug. 2012 $30.00 put for TGH. You’d get paid $2.05/share, or $205.00 within 3 days of the trade, or often even the same day. (1 option contract corresponds to 100 shares of the underlying stock, be it puts or calls.)
When you sell this put option, your broker will reserve $3000.00 in your account, until expiration, to insure that you have enough funds to buy 100 shares of TGH at $30.00. By selling the put option, you’re obligating yourself to potentially have to buy 100 shares of TGH at $30.00 at or near expiration. In general, most option contracts aren’t assigned until around expiration time, since most option buyers find it more profitable to just buy and sell the options rather than the underlying stock. However, time works against the option buyer, and works in your favor as an option seller, since it steadily erodes the value of an option, the closer it gets to expiration.
Assignment: If TGH goes below $30.00 at or near expiration, you’ll likely be assigned/sold 100 shares of TGH at $30.00, BUT, your net cost is only $27.95, the $30 strike price, less the Put premium of $2.05. Therefore, if TGH is anywhere above $27.95, you still can sell it at a profit, or hold onto it.
Static: If TGH doesn’t fall below $30.00 at or near expiration, you won’t get assigned any TGH shares, and your broker releases your $3,000.00 cash reserve.
(Note: You can find more details on these and over 30 other Cash Secured Puts trades in our Cash Secured Puts Table.)
Valuations: The industry avgs. below for Most Recent Fiscal Year Growth are skewed higher by the 2 smaller firms, BOX and CAP, both of whom had wild, triple-digit EPS growth gains. However, their projected growth for their next fiscal year is much more calm, at 9% to 10%, which may be why the institutional buyers aren’t buying these stocks as much as they had in the past.
Financials: TGH has better management and financial metrics than its peer industry avgs. Two other negative factor for BOX is that it has Debt/Equity of over 5, and Interest Coverage of only 1.8, both worse than industry avgs.
Disclosure: Author is short TGH put options.
Disclaimer: This article is written for informational purposes only and isn’t intended as investment advice.
Author: Robert Hauver © 2012 Demar Marketing All Rights Reserved