Posted by Martin January 03, 2021
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2020 in charts

The 2020 year was an interesting year. It looked like it would be a complete disaster at first, yet it turned around very fast and it became my best year investing so far. Here are some of the achievements in the charts:

· Net-Liquidation Value

It was in August 2019 when my $20,000 account tanked to $1,600 after a series of costly mistakes trading 0 DTE SPX Iron Condors. I could manage the trades and grow the account until July. After that, volatility in the market kicked in and I was not able to navigate the trades through it. Losses were piling up fast. It took a month to completely destroy the entire account.

For the rest of the 2019 year, I was sitting tight and thinking about what should I do about this situation. I knew, that I will no longer trade SPX. It was a dead-end and I was trying hard. Yet, the strategy was in front of me for the entire time. Right in front of my nose, advocating it on this blog but ignoring it.

At the beginning of November 2019, I decided to go back to what I knew best – buying dividend growth stocks and monetizing them. I salvaged what I could and started aggressively buying dividend aristocrats such as PBCT, PPL, and AT&T. And, I started selling strangles around these positions. And the account started going up again.

In March 2020 when Covid hit the markets, the account tanked again. At first, I was depressed and on the brink of completely giving up. But I remember 2008 when everyone was panicking and selling I should have been buying. I was telling myself not to make the same mistake. So, I deposited some cash in the account and started aggressively buying depressed stocks. And as the market started recovering, I was selling puts like crazy.

This action paid off. As the markets continued recovering, my options were mostly expiring worthless for full profit. And I kept reinvesting those profits. Soon I could buy LEAPS against SPY and IWM. And I started selling covered calls against those positions. And reinvesting the profits. And the account continued growing even faster.

Could this be the end of my trading experiments and continuous growth? I believe so. My trading was a zig-zag move so far and not very encouraging:

I am pleased with the new strategy and its results. But I will not be as aggressive in 2021 as I was in 2020. I will be building reserves in cash to protect the trades in case I get assigned (the biggest issue is not the options, they have very little to no risk, but the assignment and not having enough cash to cover it). I will also start depositing $1,000 a month to this account and grow it even faster.

· Dividends

Prior to 2020, I had no stock positions. I only traded SPX. I might have only a few shares as a result of some bright moment in my wicked trading thinking and bought one or two shares here and there. But in 2020, I started aggressively building my dividend aristocrats portfolio. From the dividend perspective, I am at the beginning of my journey. Note, that I am talking about the business account, not my ROTH or IRA accounts where I was investing primarily into dividend stocks and these have nice dividend income already. But this “business account” is a do-over.

Yet, I collected $2.27 in dividends in 2019 and $178 in 2020. My projected dividends grew from $26.15 in 2019 to $525.43 in 2020.

I expect the dividend income to grow as I keep adding more shares to my portfolio. The growth seems high and fast when you look at it but the projected dividend is calculated using the current dividend amount times the existing stock holdings and expected stock holdings or accumulation of the stocks during 2021. I plan on accumulating AT&T, MO, and AFL to reach 100 shares of each company during 2021 (if I get more, the better). If I achieve this goal, my projected dividend will be $1,106.50 in 2021.

I also understand that received dividends will be lagging behind the projected dividends as I will be accumulating stocks during the entire year and I may make some purchases after the dividend ex-day, so the projected dividend will increase yet I will miss that dividend payout in the given period. But I will receive it in the very next period.

· Options

Options income was tricky in 2020. I collected a nice dividend income but the results are skewed due to a few factors:

1) I still hold a few bad SPX trades. These are included in the current net-liq so they will have no impact on the account value. I do not plan on salvaging those trades unless a good and cheap opportunity presents itself. But if these trades expire (mostly call spreads in the money), they will be recorded as a loss in the options income.

2) I am not only selling premiums but I am also buying LEAPS. When I buy a LEAPS call, it will also show up as options cash outflow and could be considered a loss if you do not know that it was a purchase and not a loss. In 2020 I purchased a few LEAPS against SPY and IWM for almost $5,000 dollars. Thus, in 2020, it seems that I have lost $14,976.91 in options premiums. But it is not correct. I yet have to come up with a good recording method to filter out these purchases. Of course, in the following years, I expect these LEAPS to make a profit and it will show up as income in the next year(s).

I hope, this provided a good insight into my 2020 trading and investing efforts. I am happy with the results and I hope, I will continue growing my account in 2021 towards my goal of financial freedom. By 2021 my goal is to reach the $42,344.06 net-liq value of my account. Let’s see, if I will be able to achieve it or even exceed it.

Good luck to you and Happy New Year!

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Posted by Martin February 17, 2018
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Trading options process

In order to trade successfully and stay in your comfort zone, I believe you need to know exactly what to do in any situation of your trade outcome.

No analysis, no oscillator, no market prediction will tell you what the market would do next. It is impossible and if anyone tries to sell you a miraculous winning strategy secret, he is lying. If any such secret exists, the one selling it to you would use it for himself and get awfully rich.

Trading is 90% about psychology and the rest is skills and knowing what to do. In order to trade successfully and have consistent returns, you must do the following:

1) Have a trading plan and strategy. Always know what to do in any situation.

2) Have enough money in your account so you can manage your trades when they need adjustment. The worst case what can happen to you is to be forced closing your trade at a loss due to a margin call.

3) Never predict the market. Always trade what you see is happening and not what you think will happen because it may not happen at all.

4) Trade only a handful of trades you have time to handle and manage. If you still work a full time job, opening 1000 different trades will knock you out in a sharp sell off. You will not be able to manage them when needed.

I am a visual person. It helps to have the process visible. Here is what my strategy decision process looks like:

(note, I took the IT classes about 10 years ago and no longer remember exactly how to create the flow charts properly. So some ways above may not be correct and I apologize for it.)

When trading options, you must be perfectly OK with anything what’s depicted above. If you are OK with any of the point shown above you will not be surprised, angry or anxious about it and you will trade comfortable. And when comfortable you will also become consistent.

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Posted by Martin August 05, 2015
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Strategy

2020 – 2022 Strategy

A lot has changed since I last updated my strategy. The biggest change is that I decided to stop trading all sorts of long or short SPX trades as listed on subsequent pages of this section. Yes, I realized that this type of trading is not for me. But you must give me a credit for trying hard. I refused to accept the nature of this trading and agree that this was not the way to make money long-term. It is fine to make a trade or two when the opportunity arrives and grab a nice profit here and there, but, I was not able to make it a sustainable profitable trade. I had a few successful months and quickly made $20 or $30 thousand dollars just to get it wiped out by one bad trade. And I decided to stop it and go back to what I was always writing about on this blog (but rarely followed myself – sad).

· Dividend Investing – asset accumulation

This is the primary goal and strategy this year – aggressive accumulation of assets. I will be buying dividend stocks, ideally dividend aristocrats, and accumulating them to the point when I reach 100 shares so I can trade options against those positions.

I consider the stocks to be my property, like real estate, which I will monetize by collecting dividends, and trading options around those positions.

We will never sell our property (stocks). Once we buy shares, we will not sell. It is like a home you buy. You do not buy a house just to sell it the next day because someone thinks your windows are not pretty. No, we buy and hold. That’s why we want to buy a good quality stock so we can hold them. We want businesses, which grow their dividends, and their managers and CEOs to act responsibly. A difficult task as I will have to learn a lot about how to choose the proper companies. In the past, I tried to simplify my selection to pick companies that were on the dividend aristocrats list, yet, it didn’t help much either as in 2020 a few dividend aristocrats cut their dividends.

I will use the benefit of zero commissions trading and will be buying shares of the selected stocks one by one. Now, I can buy one or two shares and start collecting dividends, and it will cost me nothing.

· Monetizing stock positions – Options trading

As I said above, I will be monetizing my stock holdings by trading options around those positions. If I save enough cash to trade puts, I will sell put options to buy the stocks (100 shares). The premium from the put option will be immediately reinvested to increase my stock holdings. I will invest in the same underlying stock which generated the income or re-invest into another stock (mostly the ones in which I do not own 100 shares yet, to quickly raise the position up).

If the put gets in the money, I will attempt rolling the put lower and away, but only if such a roll will result in a credit trade. If a roll cannot be done for credit, I will let puts assign.

If I do not have enough cash to trade puts outright, I will be just accumulating the stocks until I reach 100 shares. Once I reach 100 shares, I immediately proceed to sell covered calls. Income from covered calls will be reinvested either back into the company by acquiring more shares or another stock to raise shares to 100.

If a call option gets in the money, I will attempt to roll higher and away. This can be done for a credit, or I may allow rolling for debit as long as the debit is smaller than a gain on the stock by raising the profit ceiling. For example, if an original strike was 36 and I rolled the call to 40 strikes, I raised the ceiling by $4 dollars per share. Thus the debit paid must be smaller than that otherwise, I will let the calls be assigned, sell the stocks and start selling puts again.

All collected dividends will also be reinvested to raise stock holdings to 100 shares.

Occasionally, I will be trading other options strategies, such as Poor man’s covered calls (PMCC), Butterflies, or equity spreads, to generate investable income, which will be reinvested back to acquire equities.

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Posted by Martin January 06, 2014
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monthly income options income generating monthly income partial return income stock income

Trading options is dead dangerous! Really?

If you received or read a disclosure from your broker about options trading stating that trading options is dangerous and you may lose money, do not believe it. If you know what you are doing and what to expect from options, they can be very safe and they actually can be less dangerous than trading stocks themselves.

Do you believe me? No? Then read the next text.

Meet the new Monster – selling options

A friend of mine sent me a risk disclosure given to him by a broker which was describing a few trading strategies and tools investors can use. A portion speaking about selling options was especially interesting.

All they were saying about selling options was scary and very discouraging. According to them, selling option contracts causes you taking an enormous risk which can wipe out all your money. Although they agreed that this risk can be partially mitigated by owning the underlying security or having enough cash.

(MORE: Covered Call Trading Plan Update)

Unfortunately such disclaimer is usually very generic and vague. It is aimed to protect the broker and not you, the client. But the primary goal is to scare you so you won’t trade options at all. It is now an industry standard to make a hype around options and mystify them as something a normal investor cannot do at all cost. Per brokers, trading options is something accessible only by rich investors and professionals. The opposite is true. Everybody can trade options and it is in many cases less dangerous than trading stocks.

Under certain conditions, options can be dangerous. For example, you have no clue how to trade them and yet you do it. Or if you decide selling naked calls, you really will be undertaking an enormous risk. But all other basic options strategies such as naked put selling, cash secured put selling, and covered calls are actually less risky than trading stocks themselves.

(MORE: Getting Paid To Do Nothing)

Why brokers came up with such disclosures scaring potential investors to death? It is because of their risk they undertake when their clients use naked put selling using margin. Then, put selling is not your financial problem, it is the broker’s problem. They do not want you to trade options because they are scared of you, and your options trading. Therefore, they will never tell you the truth but they will keep you in ignorance and scared to death. I will try to explain this later.

Why selling options is not dangerous?

Let’s take a look at the two basic options we have – calls and puts. Then you can do four basic trades with those options:

You can buy a call (long) – bullish
You can buy a put (long) – bearish
You can sell a call (short) – generally bearish, but can be a bullish trade
You can sell a put (short) – bullish

Buying calls risk

When you buy a call option, you speculate that the stock price will grow. What you can lose? You can lose 100% of money you paid for the call contract. In order to make money, the stock price must rapidly rise above the strike price of the call option, otherwise your trade will be a loss. The time value (theta) will destroy your option before it can even make some profit.

Well, not for me.

(MORE: Gambling Vs Investing – What’s the Difference?)

Buying puts risk

When you buy puts, you speculate that the underlying stock will go down. Same as with the call option, the stock must move rapidly down in order to make you money. Otherwise theta will destroy your put option. During violent bearish markets this trade makes sense to protect your portfolio and your current positions. Otherwise not for me either.

Selling calls risk

And now we are getting into the “deadly dangerous, risky option selling” (as per the above mentioned broker). There are two trades, two strategies with selling calls.

naked calls
covered calls

To be honest, naked calls can be very dangerous. How do they work? If you sell a call for a stock, let’s say AT&T (T) at strike price of 34 a share and you do not own the stock, you are undertaking an enormous risk. If something great happens with the company, for example over the weekend they announce a very good news, then the following Monday, the stock may open higher with a gap (for example the stock jumps up from $33 a share to $150 a share over the weekend). you will have no time and no option to fix this trade.

(MORE: Limited Partnership (LP) & Master Limited Partnership (MLP))

Then you are in trouble. You will be forced to sell 100 shares of the stock (which you do not own) and you would have to go and buy it for $150 a share in order to satisfy the call obligation. The loss can be huge. But who would trade such a trade? If you have no knowledge about options you may open such trade as a mistake. Or you need to be a very skilled trader in order to manage such a trade and avoid problems (usually traders cover such trade with a different option creating all sorts of option spreads, so they do not stay fully naked.

This was the only dangerous option trading I know of. And now lets see the “piece of cake” part.

Covered calls risk

There are yet another two strategies with covered calls. Each may have either a bullish or bearish expectations. The strategies are:

total return strategy, or buy-write
partial return strategy

I like the total return or buy-write strategy. How that works? You buy 100 shares of a stock, for example AT&T (T) at 34 a share, and at the same time you sell a call at 36 strike and collect, for example, 1.50 (or $150) premium. Your call contract is covered by 100 shares of the stock from the beginning.

(MORE: I’m Confused… )

What can happen to you? Two things. If the stock stays below 36 strike, the option expires worthless and you can sell another contract. If the stock rises above 36 a share, your 100 shares of the stock will be called away from you. You will have to sell 100 shares of (T) at 36 (strike) a share. You realize a gain by selling the stock ($3,600 – $3,400 = $200 gain) plus collected premium ($200 stock gain + $150 premium = $350 total return).

As you can see, with selling calls you actually make more money, than trading stock itself.

So where is the risk? The risk is in a situation when the stock drops too low. In that case the loss on the stock side is so large that premiums collected cannot compensate for the loss. But if you happen to own a dividend growth stock how often these stocks drop so low that you stop sleeping well at night?

And compare it to a single stock trading. What is the difference between a stock you bought at 34 a share and it dropped over the weekend to 10 a share because of bad news? The risk is absolutely the same as when owning a short call contract. You are losing money in both cases, but with options you are losing less.

(MORE: Retire Before Dad 2014 Financial Goals)

The total return covered call strategy is a bullish strategy and works well against stocks you want to buy and sell with gain.

What about the partial return strategy?

This strategy can be either bullish or bearish. If you are bullish, it works the same way as the total return strategy where you write call contracts against the stock you already own (so no stock buy portion) and you want to sell the stock.

If you are neutral or moderately bearish, this strategy can help you collecting premiums (sometimes called another dividend) while you are waiting for the stock to grow and make you capital gain. This works well in sideways markets.

(MORE: Dividends Aren’t Evil)

The third expectation is If are very bearish and expect the stock to drop significantly. This strategy is a protective strategy and again you write the contracts against stocks you already own.

If you expect the stock to fall down in bearish environment, you may decide to sell a deep in the money covered call. As the stock falls down, the value of the contract is diminishing and eliminating the loss on the stock.

For example, you have a stock (T) which currently trades at $34 a share. The markets are turbulent and you expect the stock to fall to $25 a share where you identified next major support. You sell a long term deep in the money call, for example June, or even January 2015 25 strike call. For such contract you will receive 9.6 or $960 premium. If the stock falls back down to 25 a share, the call option will become worthless and you either buy it back or let expire. You keep the full premium $960, but your stock will show $900 loss. The entire trade protected you and you are about 60 dollars in positive territory.

Where is the risk? The risk is in early assignment. If your expectations were wrong and the stock continues rising, the opposite trader who owns your call may exercise the option early and you may lose money. But that would happen if you originally bought the stock too high or high enough that the collected your premium won’t be able to cover the loss. Otherwise this trade will work the exact same way as total return trade.

(MORE: How To Manage Your TSP Like A Stock Professional)

Since I am a visual person I like to see charts and numbers to see the whole picture. If you are like me, here is a flow chart how the entire covered call strategy works:

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Posted by Martin May 11, 2023
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Technical view: Restaurant Brands International Inc. (QSR)

QSR is in stage #2. This could become another Texas Roadhouse restaurant if done correctly. Patrick Doyle is a great CEO and has a very good track record of turning struggling businesses around and making them profitable. I think this could be another opportunity to make this a great investment although the stock is overvalued when compared to the company’s underlying adjusted operating earnings. The weekly chart indicates that the stock moved nowhere since 2017. If my expectations for Patrick Doyle will be correct, this may change.

The company pays dividends, and the current dividend yield is 3.14% (dividend payout per share is 2.20). The company increases its dividends every year by a decent 4.1% (5-year average annual growth), or 1.85% annually. Nothing extraordinary but given the nature of this company, I think it is acceptable.

The business’s revenue is steadily growing at 9.25% annually. That is good news for this company. I consider these positive metrics. We only saw a decline in earnings in 2020:

Unfortunately, the free cash flow is erratic. A one-year average is -13.79%, 2-year growth is +18.51%, and 5-year average is again -7.33%. A bit of a zig-zag performance:

QSR’s debt is large and growing. The company doesn’t have enough cash to cover the debt. That is very negative.

Given the valuation of the company and its financial situation, I think it is not a complete disaster. There are worse investments out there. Nevertheless, this still makes this investment a speculative one. When investing in QSR, invest small amounts of money. I also recommend utilizing options to lower the cost basis and generate income.

Fundamentally, the stock is overvalued, trading ways above its estimated fair value of $52.03 per share:

The stock is now MODERATE BUY

This post was published in our newsletter to our subscribers on Saturday, April 29th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.

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Posted by Martin April 18, 2023
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Technical view: Nuvei Corporation (NVEI)

NVEI is in stage #2. NVEI is my new addition to the portfolio. I was resisting investing in fintech companies as I couldn’t find any diversified enough to give me the comfort of not investing in companies exposed to cryptocurrency only. It is a purely speculative trade. I plan on holding this and selling options against this position (spreads). The stock is now under pressure from a short seller (Spruce Point) who claims a few issues with the company. First, they brag about their correct prediction that the stock would drop by 35% (they called it in December 2021). Then they posted a few issues with the company, such as that Ryan Reynolds didn’t disclose his investment properly and the management had ties to FTX. I think this is not a reason for the additional 50% drop. But I am competing against a bunch of analysts who do nothing the entire day but dig out anything they can about a company of their interest, so I may be utterly wrong. Nevertheless, on the chart, the stock is in stage #2 and may continue recovering if the report turns out to be bogus just to push the stock down (note, short sellers usually post their reports after they open their short positions. And just because they were right once doesn’t mean they will be right again. It may easily be that they remained short and now trying to prevent a short squeeze as the markets, tech, and fintech stock start recovering.

The weekly chart also indicates potential, and the stock may, in fact, recover to the previous levels of $100 – $120 a share. Will it happen? No one knows, but if we take a look at the fair value correlated to the adjusted operating earnings, we see that the stock’s fair value should be around $100 a share by 2025. Today’s fair value is at $63.92 a share, so the stock is undervalued:

However, Spruce Point claims that the stock value is inflated by the company’s buybacks to “channel cash out of business.” If we look at the shares outstanding, this claim doesn’t seem to hold water much. The company was diluting shareholders for years, though nothing significant, just about 2.2% 5-year average dilution. In 2022 it started buybacks at a rate of 1.09%. I do not think that is a reason for fraudulent money drainage claims, and Spruce Point might be just inflating a problem that isn’t there.

The company is increasing its revenue every year. There was a small hiccup in 3Q 2022, but then the revenue improved. The revenue chart below indicates total revenue, not revenue per share, so buybacks do not impact the numbers.

Another claim is that Nuvei’s acquisition of Paya, exposure to cryptocurrency, and inflating customer base will hurt the company and fail. Where does the free cash flow come from if that is the case?

The company has more cash in hand than the debt, and it is paying it off. I consider this a good sign. So, if we summarize the claims of Spruce Point that the company:
1. Was draining money from the coffers by questionable buybacks.
2. Was inflating customer base.
3. Was involved in questionable acquisitions
4. Had questionable ties to failed FTX

Where did it get the cash needed to show positive and growing free cash flow and could keep its debt at a reasonable level without borrowing more money? Consider that this is a fintech company in the realm of high-flying tech stocks that are usually leveraged.

So, yes, the company is new, in an interest rates sensitive territory, in the same category as the PayPal company, it may be fraudulent, and yes, it crashed during the latest bear market (which company didn’t crash?). Still, I think the Spruce Point report is not a very convincing one. I have seen better reports.

I still think that the Spruce Point report is to keep the stock price suppressed as they maintain a short position, and they may want to close it at a better price. I don’t think the stock will drop another 50% (though it may, if I am wrong). So I am taking a small position and will see what happens next. I am also placing a stop loss. If the company drops, I will be kicked out. If it keeps moving higher, I will make money. But I think the company offers a good opportunity.

The stock is now MODERATE BUY

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Posted by Martin April 12, 2023
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Technical view: Medical Properties Trust, Inc. (MPW)

MPW is in stage #4. The company recently started fighting back against one of the biggest short sellers. That caused the stock to bounce two weeks ago. But the company still faces strong headwinds as the interest rates rise fast and hospital owners are weak. It is ironic that MPW is one of the largest hospital REITs owning properties around the world but struggles with them.

The weekly chart above shows a rapid selloff after recovery from October lows. There is no sign of relief, at least not yet. The recent bounce may be another bounce in the end. The company now expects another hit to their earnings so this could be a problem and the stock may drop more. However, this could be a good opportunity, similar to 2008-2009 when the stock dropped hard as well:

Definitely, investing in MPW now you need strong guts to do it. If you are worried about the financial situation of MPW, then wait until this clears up.
Recently, there has been a lot of talk about the dividends and that the company will cut them because the current yield is not sustainable. But looking at the financials of the company, there still is no reason for a dividend cut:

As the free cash flow indicates, the company is bringing in approximately $180 bn in free cash and pays out approximately $162 bn in dividends.

MPW pays nice dividends and keeps raising it annually at a steady pace of 3% (5-year average). There appears to be only one cut so far in 2008 and that was obvious:

Earnings were steady, not overly growing but positive except in 4Q 2022. We may see another decline in 1Q 2023:

But this decline may already be included in the recent price as the stock trades significantly below its fair value.

The company’s debt is a concern. But recently they started improving their balance sheet and reducing their debt burden. Hopefully, this trend will continue:

The debt that was due in 2023-2024 was covered by cash and sales of their Australian assets. This can boost the cash flow even in the case of one of their tenants (Prospect) should pay $0 in rent (which is unlikely).

The short selling of this company is so intense (currently sits at 20% short interest) that there may be a short squeeze brewing under the hood. At some point, the short sellers will start taking their profits and that may spark more covering and rapid price action.

Investing in MPW can be risky but it seems the stock hit bottom. If so, the recovery can be rewarding.

The stock is now AGGRESSIVE BUY

This post was published in our newsletter to our subscribers on Saturday, April 9th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.

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Posted by Martin April 08, 2023
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Technical view: Main Street Capital Corporation (MAIN)

MAIN is morphing back to stage #2. The stock seems to be performing well and offers a good buying opportunity. It pays dividends monthly. However, fundamentally, the stock seems to be providing grim data which may have an impact on the stock growth. MAIN was offering great dividends and small growth matching the index (7.16% vs. 7.23% of SPY). This may not be the case unless financial data improve.

The monthly chart shows the stock moving higher slowly over time since its inception. It had a huge setback in 2020 when the stock crashed but the company kept paying dividends. On top, the company paid a few special dividends further boosting investors’ income.

The chart above seems to be indicating a dividend cut in 2021 but other sources do not show it:

MAIN is unfortunately trading above its NAV making the stock relatively expensive:

The company has a somewhat erratic revenue stream but overall, its revenue is growing over time. It however grows 6.75% annually. Five-year revenue growth is 9.47%.

The free cash flow of MAIN is pathetic and the company seems to be burning cash.

Another concern is growing debt and little cash to cover it:

The company may cover the lack of cash by issuing more shares and issuing new debt. In the raising interest rate environment, this may backfire and break the company’s financials. Thus, investing in this company requires caution and not investing all of your money.

The company may be a bit expensive based on the NAV valuation (currently, it trades at a premium). Still, I believe this is compensated for by dividends well enough to be investing.
Fundamentally, the stock offers good value at the current price. It appears safe to buy here.

Price vs FCFE/AFFO shows, at least for now, that the company makes enough money to cover the dividend:

The stock is now AGGRESSIVE BUY

This post was published in our newsletter to our subscribers on Saturday, April 2nd, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.

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Posted by Martin March 29, 2023
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Technical view: Amazon (AMZN)

AMZN is in stage #1. There is still a buy signal for this stock, but the trend stalled. At least we are not going down anymore, again, at least not now. But the weekly chart just flashed a strong buy signal. Let’s see if it holds. The trend may soon morph into stage #2.

AMZN’s revenue growth is impressive, and it is growing at an 8.58% annual growth rate. Its 10-year growth is 21.51%:

Amazon’s cash flow was a bit wacky and in 2021 it was even negative. But the reason for it was that the company was heavily investing in its infrastructure – building new distribution centers, new delivery ways, etc. These heavy investments in transportation and distribution centers will pay off in the future.

These expenditures had an impact on the company’s EPS which was negative last few quarters. But again, I think this is a temporary setback caused by investments.

Shares outstanding are quite high indicating dilution to shareholders. The company has been diluting constantly since 1999 but the rate of increase is fairly small. The 10-years dilution ratio is 1.16% only.

The company has enough cash on hand to eliminate all its debt:

The company is still overvalued in the short term, but it is trading below its 2025 fair value. Unless it changes, it is trading at a level where it is worth buying.

The stock is now AGGRESSIVE BUY

This post was published in our newsletter to our subscribers on Saturday, March 25th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.

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Posted by Martin March 22, 2023
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Technical view: Ares Capital Corporation (ARCC)

ARCC is in stage #4. The stock appears to be consolidating and it could eventually bounce but the trend is weak, and we still have a strong sell signal. The weekly chart is trendless with no signal, but it indicates that there may be no more selling, at least for now.

The company recently saw a significant reduction in revenue, so the price decline may have been justified. However, in the Q4 of 2022 revenue started to increase again:

Free cash flow is a bit erratic and not the way I would like to see:

Another significant concern is rising debt and not enough cash on hand to pay it off. This can eventually backfire and the company will have to address it in some way:

The dividend growth is also irregular but growing. If this metric worsen, I may take this position off of my portfolio:

It is typical for a REIT to issue new shares to provide financing to obtain new properties, but here we see rising shares outstanding and the debt hand in hand. Honestly, I do not like it.

Fundamentally, the stock is undervalued and trading way below its fair value and normal P/E, providing a margin of safety making this investment relatively safe. However, in the next 2 years, Wall Street expects revenue declining by 5% in 2024 and 14% in 2025. This may impact the stock price. It may be moving sideways or keep declining.

The AFFO data are scarce for this company but it appears that it has enough cash flow to make the stock price undervalued.

The stock is not a grower so do not expect capital appreciation, rather this stock should be bought for dividend income only. Thus, the strategy should be set to buy when the stock is selling low and hold during high prices. Currently, any price below $17.50 can be considered a good entry price.

The stock is now MODERATE BUY

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2020 in charts

· Net-Liquidation Value

· Dividends

· Options

Trading options process

Strategy

· Dividend Investing – asset accumulation

· Monetizing stock positions – Options trading

Trading options is dead dangerous! Really?

Meet the new Monster – selling options

Why selling options is not dangerous?

Buying calls risk

Buying puts risk

Selling calls risk

Covered calls risk

What about the partial return strategy?

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· Net-Liquidation Value

· Dividends

· Options

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· Dividend Investing – asset accumulation

· Monetizing stock positions – Options trading

Share this:

Meet the new Monster – selling options

Why selling options is not dangerous?

Buying calls risk

Buying puts risk

Selling calls risk

Covered calls risk

What about the partial return strategy?

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

Share this:

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Recent Comments

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