9 Barron’s Stock Picks With Bullish Momentum, Price Objectives

Bullish stocks are good candidates for selling cash secured puts, covered calls

By Donald E. L. Johnson

 Cautious Speculator

• Barrons.com lists its stock picks and shows how they’ve done since they were picked by its writers.

• Nine of the 42 stock picks by Barrons since July have bullish momentum and point and figure charts, according to StockCharts.com.

• My Barron’s watchlists on StockRover.com show the stocks’ fundamentals and potential.

• Scroll down to see my cash secured puts trades.

Nine of the 42 stocks Barron’s writers picked between July 1 and December 23 are acting bullish enough to attract investors who buy stocks and sell covered calls or sell cash secured puts for premium income and discounts from current prices. Selling puts is a bullish trade.

First, we looked at the stocks’ Stock Charts Technical Ratings (SCTR). Please click on the images and zoom in for better views.

Deere & Co. (DE), leads with a momentum, or SCTR, rating of 96.3 out of a possible 100. John Murphy, the long-time technical analyst and blogger over at StockCharts.com (paid subscription), says that stocks with a SCTR above 60 is a strong buy. The lowest SCTR for these stocks is Metlife, Inc. (MET) at 71.2, which is very bullish.

Then we looked at StockCharts.com point and figure charts’ bullish price objectives:

Bullish stocks are good candidates for selling cash secured puts and covered calls.

Next, we turned to StockRover.com for valuations, dividend yields, dividend growth rates and analysts growth expectations and price targets for these stocks.

P/FCF is the most important valuation metric because it is  hard for managers to manipulate that number. The average P/FCF for these stocks is a high 29.9. The higher a stock’s P/FCF, the more optimistic the market is about its future. Traders of covered calls and cash secured puts prefer stocks that the markets like.

 These stocks are trading about 9.3% below Wall Street sell side analysts consensus target prices. They’re trading about 18% below the average high target price for each stock.

 With average betas of .95, this is a defensive group, which is comforting in a bear market.

All of the nine bullish stocks pay dividends with an average yield of 2% compared with 2.6% for the 30 stocks in the Dow Jones Industrials index. That means that it should be easy for covered calls and puts traders to generate combined dividends and options premiums of over 10% a year.

 Year to date, my 353 covered calls trades on 61 stocks gave me an annualized return on risk (ARoR) of about 16%. My 253 cash secured puts trades on 79 stocks produced a 16.3% ARoR as of December 23. These returns include a few options that will expire in January. See below.

 When it comes to dividend safety, the average payout ratio on the Barron’s bullish picks is 42.3%.

 Dividend growth stock investors will like many of these stocks. While some aren’t expected to grow their dividends near term, the group overall is expected to grow their dividends by an average of 13.2% compared with 4.5% for the Dow Jones Industrials stocks..

 These are relatively safe dividend stocks. Their dividend payout ratios average 53.2% compared with the Dow Jones Industrials average of 56%.

Investors who might use this watch list to find stocks could enhance their dividend income potential by selling cash secured puts or by buying the stocks and selling covered calls. If they are optimistic that a “Santa Claus” rally can give them some quick profits, they could just buy the stocks and take relatively quick profits or losses, depending on what the stocks and the markets do in January.

Please click on the link to the home page to see my articles on selling covered calls and cash secured puts.

My Trades

Today I’ve focused on selling puts on nine stocks with bullish momentum and point and figure price objectives.

As of this writing, I’ve sold puts on 13 stocks and am waiting for my puts order on Southern Co. (SO) to fill. On these stocks, my average return on risk will be about 0.687%, or 10.445% annualized, if the trades work as I hope they will.

The average stock dividend is about 3.4% based on their net debit prices. This will be important only if I buy the stocks at the net debit. That won’t happen unless the stocks are assigned. Net debit is a stock’s purchase price less cumulative collected dividends and options premiums.

The average open position on these trades is for 10 to 30 days. I sell longer-duration puts when I can’t get the yields I want on shorter durations. And I sell shorter duration puts because I think that reduces my risk of having the puts assigned. I own shares of CAT, DGX, DOW, DVN, QCOM and VRTX.

I also sold Caryl (CG) 2.17.23 (52 days) $35 strike (delta .16, 87% probability of expiring out of the money (OTM) covered calls for $0.35 a share. I sold the February calls to get a 11% ARoR because the January calls weren’t worth the trouble.

I’ll update information about these trades in comments and future newsletters. I reply to questions and comments posted in the comments section below.

 LINKs:

Home Page. See previous articles on other trades, stocks and watch lists. If you read several of these articles, you’ll learn how my strategy is meant to work. No guarantees. Links to useful web sites are on the lower right corner of the home page. Scroll down.

Selling in The Money Covered Calls Can Yield Big Annual Returns on Risk. By Donald E. L. Johnson

20 Ideas for Adjusting Your Stock and Bond Portfolio, by Christina Lourosa-Ricardo.

How to Beat Inflation Tax, Bear Market Tax With Dividend Stocks, Covered Calls, Cash Secured Puts, by Donald E. L. Johnson.

Wars Breed Inflation, Rising Interest Rates, Market Turmoil, By Donald E. L. Johnson.

Ways to use StockRover.com to analyze stocks

Calls vs Puts Options: What’s the Difference?

How to trade the wheel.

A video on how to place options trades on Think or Swim.

Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.