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Rock Solid Yields (RSY): Gilded Deluxe and Optional Options
Rock Solid Yields
Juice up Returns with Options.
Sabrient rates Deluxe Corporation (DLX) a Strong Buy for its solid value profile, which makes it one of the better value stocks in today's market despite modest growth and momentum scores. The RSY portfolio loves growth at a reasonable price (GARP) stocks, but value is more important versus growth rates. Weakness in the projected earnings growth gives it a low Earnings Score from Sabrient. But with a Sabrient Fundamental Score of 98.3 (which measures a company's financial health, including its balance sheet, cash flow, revenue, and earnings quality), Deluxe is significantly higher than the average of its industry group, 57.0.
SmartConsensu gave DLX and its 5 other peers in the Commercial Printing Services industry hold ratings. Not a lot of excitement there. DLX's accounting practices are within an acceptable range and risk is average. As a solid value stock, it should outperform the market over the longer-term, and with its dividend yield of over 4%, it pays to hold this one. The middle of August should be its next ex-dividend date.
NakedValue noted that DLX was an Under-the-Radar Low P/E Dividend Paying Stock. That was the good part, but then it described the earmarks of a maturing industry with increasing margins and decreasing sales. Like most companies in maturing industries, endeavors into the on-line services is one of their goals. Deluxe recently purchased Banker's Dashboard which give banks daily access to their financial position through on-line tools.
The PE ratio (TTM) is just 8.42, and forward looking, it is expected to decline slightly. For a more complete analysis of Deluxe's cash flow check out Why Deluxe's Earnings Are Outstanding.
RSY recommends a buy of 200 shares of DLX at a limit price of $24.09 (GTC). This will be the first buy into the Consumer/Non-Cyclical sector, and since this will be less than 5% of portfolio (based on a portfolio of $100,000), RSY also suggests to sell a put of DLX of the Oct 22 '11 at $22.50 at a limit price of $1.25 (GTC).
Juice up Returns with Options.
Let us see if we can juice up the returns with some covered calls on our long positions. RSY presently holds a covered call of Foot Locker Jan '12 at $22.50 which is working out so far. Since RSY is diversified across caps including some micro-cap and small-cap stocks, not all long positions have options available or have such shallow trading that it might not be worth the trouble (such as BRKL). RSY recommends the following to consider:
1. Alliance Resource Partners (ARLP) Mar 17 '12 $80 Call, 1 option contract at limit price of $5.
2. Compass Diversified Holdings (CODI) Feb 18 '12 $17.50 Call, 2 option contracts at limit price of $0.50.
3. TOTAL S.A. (TOT) Feb 18 '12 $60 Call, 1 option contract at limit price of $2.40.
Full disclosure: The author holds or will hold the stocks mentioned in this edition of Rock Solid Yields.
Disclaimer: The Rock Solid Yield portfolio newsletter is published solely for informational purposes and is not to be construed as advice or a recommendation to specific individuals. Individuals should take into account their personal financial circumstances in acting on any rankings or stock selections provided by Sabrient. Sabrient makes no representations that the techniques used in its rankings or selections will result in or guarantee profits in trading. Trading involves risk, including possible loss of principal and other losses, and past performance is no indication of future results.