Discussion in 'Stock picks and trading strategies' started by Rynn, Feb 14, 2008.
Utilities seem undervalued right now, especially ED and GXP. Is there any reason to avoid these?
There are always possible reasons, but here there are no apparent ones.
Id say there is plenty of reason why one should buy them, but the only big reason is that electricity prices are rising and the end is not near. The utility's have flourished last years on rising electricity prices and will continue to do so. These stocks you discuss have solid earnings, great profit, great long term prospect, and at this price they are simply undervalued. They will come back to their price when overall sentiment tips, and then add some on next earnings. They are some of the most stable and sure growth investments IMO.
btw. i have been considering E.ON (EON) and SUEZ (LYOE.PA) as utility's.
Usually I don't hold utilities long-term, because they tend not to move very much, but they are attractive for trading. Typically I will buy in on a limit order and make a 1-2% gain in a few days. Fairly low-risk.
Prices seem unusually low right now, so I might hold a little longer, on the assumption that it will pop back up in a few weeks. GXP has a dividend on the 26th. I would probably sell before then... Historically GXP's dividends have been undervalued (meaning it was more profitable to buy before the ex-date) but that was not the case over the last year.
I do have long positions in utility's because my portfolio is rather to large to risk it all on more volatile, higher potential stocks. Utility's are extremely stable long term growers and then gains arn't to bad, neither are the dividents.Some utility's gain more than 50% on a year for virtualy no risk, surely, depending on youre investment strategy and capital, these can be very interresting investments. At this point you would have a nice short term profit, and i'd easily dare to stack 20k$ in shares on the utility's i mentioned before.
Perhaps covered calls are a compromise between the long-term and short-term approach.
Day-traded a buy-write yesterday with EXC.
Bought the shares first on a dip @ $78.25 — not the LOD, but $0.20 lower than it was when I put in my limit order.
Sold the MAR 80 Calls on a rally for $2.60. This gave me a 3.32% return at expiry for the March call, assuming no change in price; and a 5.56% return at expiry if assigned. [Those equate to roughly 40% and 67% annual 'gee whiz' returns, if you like to think in those terms.]
I figure I gained $0.60/share overall by separating the two transactions, rather than executing both at the same time. Can't always make that work, but it's worth a try with a relatively volatile stock. [In my view, any stock that offers 3%/month call premium is 'relatively volatile'.]
My intention is to hold EXC indefinitely, and swing trade options around the long share holding. We shall see. If I get assigned in March, I'm still happy.
Interesting. With most utilities, the volume of options is so low that I hardly look at them, but EXC does seem to be fairly active.
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