Stock Market News – 11-7-15

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Markets: It was definitely back to “risk on” this week, as the RUSSELL 20000 small caps greatly outpaced the other 3 indexes.
INDEX11715
Volatility: After rising as high as $16.33 on Thursday, the VIX fell 5% this week, to end the week at $14.33.
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Cummins – An Oversold And Undervalued Dividend Stock

By Robert Hauver

The market has fallen out of love with stalwart Industrial dividend stock Cummins, (CMI), sending its shares down over 16% in May.  Lowered guidance from fellow equipment maker Joy Global, (JOY), has also helped to depress CMI’s shares this week. JOY cut its guidance approx. 3.4 to 4.5%, down to a $7.15 to $7.45 range, and trimmed its revenue guidance by approx. 1.8%, based on weaker mining equipment demand from US coal miners.

Here’s the anomaly and the opportunity: JOY’s coal mining equipment business is slowing in the US because of the ongoing natural gas boom, which is causing utility and other power users to switch from more expensive, dirtier coal, to cheaper, cleaner natural gas.  BUT, as the biggest natural gas and hybrid bus engine manufacturer in the US market, Cummins will gain from this shift from coal to natural gas, as more fleet owners switch to these natural gas  and hybrid engines.

How to play it:  Click here to read more…

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

An Undervalued Chinese Dividend Stock WIth High Options Yields & Great Earnings

By Robert Hauver

12/4/10 update: CISG has responded vigorously to negative allegations from a small research firm, concerning its employee incentive “Scorecard” plan and its gross margins. Firstly, many of the plan’s incentive programs are paid for by CISG insurer partners, at no cost to CISG. Secondly, CISG Chairman Hu stated that any and all expenses related to this plan have been properly reported in CISG’s financial reports, and that CISG’s incentive plan was approved by the national Chinese insurance review board. CEO Hu also said in the Dec. 3rd conference call that CISG’s margins can’t be logically compared to the much smaller firms that the analyst used in her report, since newer firms often have much smaller margins. He pointed out that it took CISG 6 years of lower margins until it turned a profit in 2004, and that , as its volume has grown, CISG is able to earn much better brokerage commissions from its insurer partners. (CISG’s volume grew over 10 times from 2005 to 2010.)  CEO Hu also mentioned that the analysts reports may be part of a short selling campaign launched by hedge funds.

CISG has also announced the following:

  • A $100 million share buyback program – This is approx. 12% of their stock, a significant portion, and should serve to bolster CISG’s metrics a great deal, in addition to decreasing the supply of shares in the market.
  • 6-month moratorium on CISG directors/officers selling shares – CISG’s directors/officers will not sell any shares over the next 6 months.
  • CEO Hu and CEO Ge have personally purchased 100,000 shares since Nov. 24th

Original Article:

Looking for undervalued, Chinese dividend paying stocks with strong earnings, that will share in China’s future growth?  Take a look at CNinsure, (CISG), a dividend stock whose Q3 2010 net income rose 43%, and revenue rose 30%. After CISG reported these stellar Q3 earnings, the stock got beaten up in the market, (probably by short sellers – the short float is at 7.10%), before bouncing right back 13% the next day, when the firm’s officers did the right thing, and said that they’ll be buying shares of their company.  CEO Yinan Hu said in a statement that the purchase is an act of confidence in CNinsure’s stock, and said CFO Peng Ge will also purchase shares.  Hu didn’t say how much stock the managers planned to purchase, but said the shares were undervalued. Cninsure President Qiuping Lai attended a Forbes Asia dinner in Hong Kong on Tuesday, and said that business prospects were good, without referring to any specific earnings figures.

During the earnings call, CEO Hu said, “Robust growth of our three existing business lines continued into the third quarter with the life insurance business and claims adjusting business growing 109.1% and 34.3% year-over-year, respectively. The overall commission rate from the property and casualty insurance business increased over the previous quarter, which led to a year-over-year growth of 6.7% in our property and casualty insurance business in the third quarter as compared to year-over-year decline of that in the second quarter. We believe there is still room for further improvement in our property and casualty insurance commission rate.”

Although CISG’s modest 1.21% dividend yield* prevents it from  being listed in our High Dividend Stocks by Sector Tables, you can still earn double-digit high options yields from this stock, through these 2 options trading strategies :

1. Covered Calls –  Selling covered call options now would achieve a nearly 23% annualized static yield, even without adding in any potential price gains:

CISG-CALL-11-26-10

Our Covered Calls Table includes more details on the above trade, which could earn over 30% annualized, if the shares get assigned.

Here’s an additional kicker – there’s a wide range of prices between the $2.85 call option premium listed above, and the ask prices, so you may be able to sell these covered call options at an even higher price, and improve your yield.

For example, I was able to sell these same July $22.50 calls for $3.20 on Friday, even though the bid was only $2.85, which increased the static yield to 25.47% annualized, with a potential assigned yield of over 31%.

2. Cash Secured Puts – Selling cash secured put options could also earn you a 20%-plus annualized yield, based upon the Friday’s $2.55 bid:

CISG-PUT-2010-11-26

You’ll also find more details on this and other cash secured put options selling trades in our Cash Secured Puts Table.  Once again, there’s a wide bid-ask price spread for these options, so you may be able to sell at a higher price, and earning high options yields better than the one shown above.

* NOTE: Many financial websites incorrectly list CISG’s dividend yield as being over 4.5%. CISG has an annual payout, not quarterly. Their 2010 ex-dividend date was in May, and their annual payout was $.26/share.

Outlook:

CISG expects its net income attributable to the Company’s shareholders to grow by approximately 32% for the fourth quarter 2010, vs. Q3 2009, excluding non-recurring investment income incurred by business combination achieved in stages. The Q3 earnings report also states, “We are now building the groundwork for our e-commerce insurance, insurance brokerage, consumer finance and wealth management businesses in an effort to turn our blueprint for the next five years into reality. Examining all the opportunities and challenges, we firmly believe that the Company will be able to continue its strong growth momentum for the next few years.

Profile:

CNinsure Inc., founded in 1998 and headquartered in Guangzhou, is a leading independent insurance intermediary company operating in China. CISG’s distribution network reaches many of China’s most economically developed regions and affluent cities. It distributes a wide variety of property and casualty insurance products and life insurance products underwritten by both domestic and foreign insurance companies operating in China, and offer insurance claims adjusting services, such as assessment, survey, authentication and loss estimation, as well as other insurance-related services to individuals and institutions. As an insurance intermediary, the Company is not exposed to any underwriting risks.

Over the past 11 years, CNinsure has established a robust distribution and service network across China. As of June 30, 2010, it had 55 affiliated insurance intermediary companies operating in the PRC, of which 49 are insurance agencies, three are insurance brokerages and three are insurance adjusting companies. With 46,857 sales professionals, 1,358 claims adjustors and 576 sales and service outlets, its distribution network reaches 23 provinces, including some of China’s most economically developed regions and affluent cities in China, such as Beijing, Shanghai, Guangzhou and Shenzhen.  The company is a member of this year’s Forbes Asia Best Under A Billion List.

CISG stacks up well vs. its Insurance Broker peers:

CISG-COMP-2010-11-26

Disclosure: Author is long CISG shares, and short CISG puts and calls.

Disclaimer: This article is for informational purposes only.

An Undervalued Chinese Dividend Stock With High Options Yields

By Robert Hauver

In spite of this week’s 2% pullback, the S&P is up almost 15% since Sept. 1st, so we went looking for foreign dividend paying stocks that haven’t advanced as much as the general market, but still have strong metrics, low debt, and good growth prospects for next year. We came up with China Mobile, (CHL), a dividend stock which is also the biggest mobile firm in the world.

With over 522.283 million customers, China Mobile, (CHL), has the world’s largest mobile customer base, and dominates the Chinese mobile market, with a market share of approximately 70.6% in Mainland China. The Group’s GSM global roaming services covered 237 countries and regions and its GPRS roaming services covered 182 countries and regions.

The Company’s majority shareholder is China Mobile (Hong Kong) Group Limited, which, as of 31 December 2009, indirectly held an equity interest of approximately 74.22% in the Company through a wholly-owned subsidiary, China Mobile Hong Kong (BVI) Limited. The remaining equity interest of approximately 25.78% of the Company was held by public investors.

With a 3.5%-plus dividend yield, CHL just made it into the Telecom stocks section of our High Dividend Stocks by Sector Tables.  However, it also has some high options yields, which we’ve listed later in the article.  Here’s how CHL compares to its Wireless Industry Peer Group:

CHL-ROE-2010-11-12

CHL also has a low dividend payout ratio of 43.02%.

Although analysts’ 5-year EPS growth projections aren’t very high, CHL does have a low next year PEG ratio, which supports short-term options trading strategies, such as selling Covered Calls and Cash Secured Puts.

CHL-PEG-2010-11-12

The following 2 option trades expire in June 2011:

CHL-CALL-2010-11-12

You can find more details on the above call option trade in our Covered Calls Table.

Selling June cash secured put options would also net you a double-digit annualized yield:

CHL-PUTS-2010-11-12

We’ve added the above put trade this week to our Cash Secured Puts Table, which lists additional details.

CHL Market Analysis:

With revenue and a subscriber base more than twice the size of it closest competitor, China Mobile can afford more spending on technology and products and can launch new services at a lower cost per customer, thereby fetching higher margins than its rivals. A strong brand helps the carrier attract and retain not only high-spending business subscribers, the most profitable segment, but also the best mobile application developers and business partners, which reinforces China Mobile’s competitive edge in service offering and user experience.

The growth prospects for China Mobile remain attractive, as the carrier benefits from rising mobile penetration in China. The current penetration rate of around 50% is significantly below that of emerging markets such as Mexico and Brazil (at over 70%), and this gap should narrow in the coming years, with rising disposable income levels in China. While the urban markets may have become saturated, most of the future growth will come from the vast rural areas, where income levels of 800 million residents are lower than in the cities, but are growing steadily. These rural markets are a sweet spot for China Mobile, which, with its lower cost base, can afford to roll out basic voice plans and entry-level handsets to attract price-sensitive rural residents, and still make decent profits. Its rivals, China Unicom, (CHU) and China Telecom, (CHA) , probably can’t afford to compete aggressively in this market.

However, China Mobile faces a tough fight in the 3G market, where its competitors enjoy considerable advantages based on technology.
(CHL is mandated by the Chinese government to provide 3G services based on a nascent home-grown technology standard called TD-SCDMA(TD), while its rivals can deploy commercially mature 3G technology with a well-established vendor network.)  In the long term, this could erode CHL’s competitive advantage. (Source: Morningstar)

Disclosure: No positions at this time

Disclaimer: This article is written for informational purposes only.

Cummins – An Industrial Dividend Stock WIth Great Earnings and High Options Yields

By Robert Hauver

Cummins, (CMI), is an Industrial dividend stock that just reported Q3 2010 earnings that blew away their Q3 2009 numbers, and also increased its credit rating during the quarter:

CMI-Earns-2010-10-27

The results were favorably impacted by $32 million due to a legal ruling in Brazil involving tax on imports from 2004 through 2008. (Adjusted net income excludes the Brazilian tax gain.)

All 4 of CMI’s market segments had strong Q3 Sales and Earnings Growth:

CMI-Sales-2010-10-27

Cummins COO said, “Many of our U.S. markets remained weak as a result of the slow recovery in the U.S. economy,”, and added, that the company doesn’t “expect to see any meaningful improvement until 2011” in the U.S., BUT, business in emerging markets “has come back much faster than we had forecast.”

CEO Tim Solso stated, “Our strength in large international markets provided significant benefits to the company, and we continue to see productivity improvements in our manufacturing operations.”

Overseas sales increased 69% in the third quarter, led by India, Latin America, South Pacific and the U.K., and now account for 63% of CMI’s consolidated revenues.  North American sales declined 3%.

In response to its third-quarter profit tripling from a year ago, CMI is raising its quarterly dividend by 50%, to $.265/share, a yield of 1.19%, AND raised its full-year financial EBIT guidance to 12.5% of sales on revenues of $13 billion.  CMI also bought back $79 million of its shares in Q3 2010, bringing total shares repurchased to $389 million under its current $500 million authorization.

Apparently, increasing revenue by 34%, tripling its profit, substantially raising the dividend, AND increasing their guidance, still wasn’t good enough for some analysts, who had pumped up expectations for CMI even further, (Hmm, do we  sense “irrational exuberance” in the wind?), and the stock got hammered, falling nearly 8%, from $94.49 to a low of $87.00 after reporting earnings.

Fortunately for contrarians and value investors, such hysteria creates opportunities. This big fall has inflated CMI’s call options and put options, which now offer double-digit yields for covered calls and cash secured puts:

CMI-Calls-Puts-2010-10-27

There are further details on these options trading strategies in our Covered Calls table and in our Cash Secured Puts table.

Company Profile:

Cummins designs, manufactures, distributes and services engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems. Headquartered in Columbus, Indiana, Cummins serves customers in approximately 190 countries and territories through a network of more than 500 company-owned and independent distributor locations and approximately 5,200 dealer locations. Cummins reported net income of $428 million on sales of $10.8 billion in 2009. (Source: Cummins website)

If you’re looking for dividend paying stocks with strong international sales and earnings, Cummins is worth researching further.

Disclosure: Author is short puts of CMI.

Disclaimer: This article is written for informational purposes only.

Cato Corp., (CATO), An Apparel Dividend Stock With Fashionable Option Yields

By Robert Hauver

Cato Corp., is a fashion specialty retailer which is listed in the Consumer Discretionary section of our High Dividend Stocks by Sector tables. They target value and fashion-oriented females, and operate over 1200 women’s fashion stores, primarily in the southeastern U.S. They just reported that same-store sales are up 5% year-to-date, and that June sales increased 1%.  In their last fiscal quarter, ending 5/01/10, their revenue rose 8.9%, and their net income jumped 44%.

This is a conservatively managed firm, with zero debt, and it fares well in our Industry Comparison Table:

CATO Apparel Industry
P/E 11.81 16.24
Price/Free Cash Flow 11.27 19.98
Price/Book 2.11 2.88
Debt/Equity NO DEBT 28.47%
ROE (TTM) 18.09% 3.66%
ROI (TTM) 17.14% 2.26%
Dividend Yield 3.33% 1.81%

There are attractive covered calls and cash secured put options trades available for CATO.

These two covered call trades yield from 14.7% up to a potential 34.9% annualized:

(July 8. 22, 2010 closing price) Dividends Pre-expiration Expi-ration month/Call Strike Price Call Bid Premium Total Static Yield (Annualized) Potential Assigned Yield (Ann’d) Total Potential Yield (Ann’d)
$22.56 $.37 Jan.2011/$22.50 $2.25 21.7% -.06% 21.01%
$.37 Jan.2011/$25.00 $1.40 14.84% 20.2% 35.19%

For more conservative investors, there’s also an attractive put option trade, with a 22%-plus yield and a lower break-even price, listed in our Put Selling Table.

CATO pays an $.185/share quarterly dividend, with their next ex-dividend date coming approximately Sept. 10th.  They have a 35% dividend payout ratio.

Disclosure: No shares held at this time

Disclaimer: This article is written for informational purposes only.

© 2010 DeMar Marketing. All rights reserved.

Microchip Technology – Turnaround Time For A Tech Dividend Stock? – Oct. 24, 2009

By Robert Hauver

Microchip Technology, (MCHP), a tech stock from our
High Dividend Stocks tables
has the second highest dividend yield, 5.13%, in the semiconductors sub-industry. Like most other chip companies, they’ve been hurt in the downturn, as evidenced by their falling revenue and income for the period ending 6/30/09.

However, better news may be in store for investors when the company reports on Nov. 4th. Barron’s recently reported that “channel checks and corporate booking trends suggest that chip companies will beat 3rd quarter estimates”.  Since chip companies have recently lagged the market, there should be some value in some of these stocks, such as MCHP.

MCHP looks good in Industry Comparisons, besting their peers in several key ratios:

MCHP Semi-Conductor Industry
Current Ratio 11.80 3.88
Profit Margin 24.14% .26%
P/E 24.25 40.67
Price/Free Cash Flow/Share 10.85 38.42
ROE 15.93 .18
ROI 36.46 .16
ROA 8.11 .09
Dividend Growth Rate (5 Years) 64.13% 43.79%

MCHP has a low debt-to-equity load of 23%.

The net annualized yield for selling April 2010 $25.00 covered call options
on MHCP is approximately 19% NET, with MCHP’s price of $25.29 today.

MCHP also has 
put options available.  Just check our  Covered Put Tables
for the current annualized yield for selling puts on MHCP.

Value and Income investors looking for dividend paying stocks in the tech sector may want to follow MCHP’s earnings report in early November.

Disclosure: Author doesn’t own shares of MCHP.

Capstead Mortgage, A REIT High Dividend Stock – Aug. 22, 2009

By Robert Hauver

Capstead Mortgage, (CMO), is a mortgage REIT which invests mostly in residential Adjustable Rate Mortgages that are issued and backed by U.S. government agencies, Fannie Mae, Freddie Mac, and Ginnie Mae.

CMO’s current dividend yield is over 17%.

To see industry comparisons and earnings info, Click here…

The Oldest Dividend Paying Stocks in America – Part 4 July 27, 2008

By Robert Hauver

The final article in this series covers 2 more venerable dividend paying stocks that offer investors secure dividend payouts.  We also examine various strategies for improving their dividend yields.

Colgate-Palmolive, (CL), and John Wiley & Sons, (JW/A), are 2 very old firms that have a long history of paying out dividends.

Click here… to keep reading.

The Oldest Dividend Paying Stocks in America – Part 3 July 18, 2009

By Robert Hauver

In this article, we profile two more of the oldest U.S. dividend paying companies, and examine the best way to increase these yields.

Lorillard, (LO), and Valspar, (VAL), are 2 dividend stocks worth taking a deeper look at.

Click here… to learn more.