Buy Apple and Ford -- Sell Amazon and Trade Sirius
Ford finds itself in the Wall Street doghouse, trading near this year's lows. Ford has strong technical support, just under $10 a share, and strong fundamental support with a price-to-earnings ratio of 5.8.
With shares trading at $10, Ford's dividend yields 2%. Even with recent price weakness, shorts have not piled on expecting the shares to fall further. Short interest is relatively modest at 3.9%. If short interest moves above 4.5% to 5%, I will have to re-evaluate why the "smart money" is expecting smaller profits.
Trucks are Ford's most profitable segment, and it's no wonder why. Ford is the No. 1 truck company. I contacted Curt Beilke, who operates Ford dealerships in northern Wisconsin. According to Beilke, Ford super-duty truck sales are not as strong as he would like to see, but the flagship F150 is hard to keep in stock; expectations and consumer interest in the new Ford Escape are high.
At $10 or less per share, I believe Ford is a value buy. I especially like shorting August $10 strike put options for 70 cents or more in the next couple of weeks. Selling put options carries less risk than buying shares outright. If Ford moves lower, resulting in shares put to me, I will start with a cost basis of $9.30 or less.
On May 18, I wrote Sirius' relatively safe buy zone is $1.80 and that anything over $1.97 is a good exit price (at Tune out Facebook: Tune in Sirius, Pandora). I believe these two price points represent the optimal trading channel at this time.
For a more aggressive approach, $1.85 as the top of the buying zone may be appropriate, albeit using smaller size. Buying at $1.85 will offer more opportunities, but the greater risk requires using a smaller size because the risk reward levels are less rewarding.
I don't expect Sirius to offer much more than a trading vehicle. Current investors who don't want to sell can still profit from the price moves.
Instead of buying shares in Sirius under $1.85 and selling above $1-or-nothing proposition. For example, an investor with 10,000 shares may elect to sell covered calls on 1000 shares and leave the rest alone.