MARCH FORWARD -- 2 FOR THE ROAD AHEAD -- AGM / YGE
Tuesday, March 2, 2010 at 3:37PM by Bill Baker, J.D.
Editor and Publisher, SINL
It's March 2010 already. So what looks good?
Let's start the month with a two of the stocks I presently hold in my portfolio:
1). I have been watching AGM (Federal Agricultural Mortgage Corporation aka Farmer Mac) and buying shares since it bottomed out in March 2009.
AGM closed at 9.10 on 03/02/2010 and is trading at the high end of its 52 week 2.40 to 11.49 price range. The shares are optionable so you can use option strategies to hedge your risk. AGM also pays a small dividend which is frosting on the proverbial cake.
Farmer Mac is a stockholder-owned instrumentality of the United States chartered by Congress to establish a secondary market for agricultural real estate and rural housing mortgage loans, rural utilities loans, and USDA-guaranteed farm program and rural development loans.
According to their website, the Federal Agricultural Mortgage Corporation:
"...........is America's secondary market for first mortgage agricultural real estate loans. Farmer Mac was created by Congress to improve the ability of agricultural lenders to provide credit to America's farmers, ranchers and rural homeowners, businesses and communities...... Farmer Mac facilitates the flow of lendable money from Wall Street to rural America, thus providing a stable supply of mortgage credit to lenders and borrowers."
As I see it, agriculture is the most important, misunderstood, complex sector of the U.S. economy. The United States steel, auto and electronics industries may no longer be the world leaders they once were. However, the U.S. is still the world's breadbasket. The Federal Government needs Farmer Mac to keep this vital sector of the U.S. economy functioning.
2). Every portfolio needs a solar play. YGE, which closed on 03/02/2010 at 12.27, is trading near the middle of its 3.32 to 19.11 52 week range and it is optionable.
Yingli Green Energy Holding Company Limited (YGE) is one of the world’s largest vertically integrated photovoltaic manufacturers. Headquartered in Baoding, China, Yingli develops, manufactures and sells photovoltaic modules to a wide range of markets, including Germany, Spain, Italy, Greece, France, South Korea, China, and the United States.
YGE is a major player in the volatile solar sector. The price of oil, strength of the international economy and competing alternative energy technologies will determine the future price of solar sector stocks like YGE. A weaker economy and lower oil prices could drive down the price of YGE while oil price spikes, increased international solar initiatives and a stronger international economy could puch up YGE's price.
I am not looking for a lot of overall upside in the equity markets this year. So, I think a covered call strategy with a downside bias might be the best way to play YGE. This strategy will seriously limit any upside if the equity markets take off but will protect you from moderate YGE price movements. If you play your cards right, you may even be able to use a covered call strategy to obtain a decent return and still have the stock when it starts moving up. Or, you may end up losing money when the price of the stock declines more than the premium you received on the options.
Based on how the equity markets have been performing, I'm not a big fan of option strangles or straddles for YGE right now because I am not seeing enough upside and downside volatility to make these strategies work. The way things have been going, time decay will probably eat up your option premium before enough upside or downside prive movement occurs to make a profit on your strangle or straddle positio
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