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Author: PaulEngr Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 46821  
Subject: Update Date: 8/19/2012 10:18 AM
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Slow board so I thought I'd kick things off...

I'm definitely bullish on basic materials stocks. I own shares in AA, NUE, and CLF. I'm a firm believer that come November, we'll see a market up tick just like we always do every 4 years due almost entirely to investor sentiment. Basically, a little more than half the country is happy because "the right guy" (in their collective opinion) is now in office. So my goal is to hold them until at least February and then re-evaluate holding them at that time.

In the mean time, sell covered calls! I sold $40 8/17 calls on NUE @ $0.53. It closed on Friday at $39.97. I don't normally try to pick it that close!

I believe AA is going nowhere in the short term and sold a $9 call for $0.26 that expired worthless as well. Spread was a more comfortable $8.75. In both cases I've been looking for a September or October call but at least right now I'm not seeing anything even into the $0.25 mark which is my cutoff for covered calls (no more than 60 days, no less than $0.25).

The housing market seems to be slowly coming back to life. Bought M/I homes back when nobody else wanted it at $14.77. It's now pushing $19. My target price was $20. Not sure if I should just take the run up and sell or re-evaluate. My $20 call also nicely expired worthless though I was worried there for a bit that I was going to leave money on the table.

Then we get into my more speculative plays. The first group is NC (North American Coal) which is actually a mix of coal and manufacturing, and BTU (Peabody). Both of these stand to increase significantly in value in a couple ways. First, now that the Panama expansion is completing, there is likely to be a huge surge of business in sea coal now that the relative shipping distances to Asia are similar and the U.S. coal quality is better. NC also has another dragline coming online in a new operation for Mississippi. It will be interesting to see the results of that one because they are going for new technology (retrofitting from DC to AC) and I'm the electrical project manager right behind them. They are supposed to be done in August 2013, and ours in December, 2013. Hopefully they will get all the bugs worked out for us! NC continues to troll the low grade lignite type businesses around Mississippi, Texas, Louisiana, etc., for power production. I know that there are calls that "coal is dead" across the country but despite the current White House office holder's wishes, it won't happen overnight. I'm banking on a rise from this as well, especially if we see a management change in Washington in November (though not getting my hopes up).

Then we get to the most speculative one of the bunch: MCP. There are three fold problems with this one. First, it's something of a startup so it's really unstable. Second, moly prices have been absolutely awful recently so their competitor Thompson Creek has had the same issues. Third, investors have been punishing them severely for simultaneously spending the usual amount of money in startup as their California operation comes online and buying yet another side business in an effort to integrate vertically. I'm going to hold my breath for another quarter before I pull the plug.

Then we come to the fourth strategy: dividends are king! Here, I've got quite a list: KMP, SDT, RNF, CPLP. SDT was pretty good back when I bought it and has remained pretty good but their dividends took a big nose dive earlier this year (still at >11%) but I'm getting the impression from running the numbers that the dividends are once again in jeopardy and thinking about selling. KMP is "only" around 6% right now. They make money as long as natural gas volumes are up irrespective of the price...so no danger there at all unlike SDT that depends on natural gas and oil prices. But I'm a bit concerned about the stock being overvalued right now and not sure that I should sit out a couple quarters and park my money elsewhere. RNF is another story entirely. This is an ammonia plant. Ammonia plants are making huge profits right now due to the low natural gas prices, and RNF cannot possibly be in a better position. My employer has a plant in a similar position as well and they just can't make it fast enough. The dividend is great and thus there is little chance of it being in jeopardy. I expect this stock to pop next Spring on top of the dividend.

Finally we come to CPLP which is again speculative as all get out. The shipping industry has been terrible in the past couple years with the economic slow down world wide. CPLP fortunately has most of their business (oil tankers) tied up in long term contracts. Dividend so far does not seem to be in too great a danger and there's some chance of improvement. It remains to be seen if the world economy improves over the next 6 months. I honestly can't tell if everyone has already banked on European collapse as a foregone conclusion or if they are all just hoping against the inevitable.

Most of these positions also for the most part stand to improve paradoxically if the dollar tanks. The Euro and Yen have lost about 20% of their value relative to the dollar over the last few months so it seems likely to be just a matter of time. It's just too tempting for our government to reduce their debt by continuing to devalue the currency no matter who is in the White House.
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