Update on Our Three Baby Boomers Stocks
Update #081 July 21, 2008
Here is an update on the three Baby Boomers stocks we’ve recommended so far this year.
General Electric (GE)
GE’s last earnings report for the 1st quarter for 2008 disappointed investors and the stock had a dramatic sell off. It’s latest report was better and ahead by one cent of the consensus.
The consensus price target for the stock is still above $37.
Below is the chart for GE:
In our recommendation in June, we did mention that we might be getting in early for GE. It needed to find a bottom and then base. Let’s review the chart:
- It looks like GE is finding a bottom close to $26 and is starting to form a base, a must for a bull market in the stock and market.
The MACD did not confirm the last pullback to the $26 level, a positive for the stock.
- The stock is still bearish as prices are below both the 50 and 200-day moving average. Both averages are trending downward, also bearish.
- The Choppiness indicator looks like its ready to trend. The dominant trend is down, so the stock is not out of the woods yet.
We recommended selling short the GE July $29 put, symbol GESB for $.79
We will assume it was assigned over the week so we will add to the SSI portfolio with a cost adjust basis of $28.21.
Because prices need to base and the stock is off its low, let’s write an option to lower our costs basis. We will write options our stocks to lower our cost basis to enhance our returns.
We do own 200 shares of GE now, but let’s sell only one contract.
“Sell to open the August $29 call, symbol GEWHC at the market.” The current price is around $.37.
We now own 200 shares with a cost basis of $28.91.
If you have not invested in GE, the current price is a good entry point.
Automatic Data Processing (ADP)
ADP is our latest recommendation and not much has changed for ADP.
We did sell short ADPTH at $.70. The option is currently at $.55.
Kimberly Clark (KMB)
So far, KMB has been a disappointment, but longer term we should be fine.
KMB recently guided earnings down by about 4c for the year or about 1%, but the stock was hit by about 10%. The market over reacted. They are expected to report this Thursday, July 24th and the bad news should be in the stock price.
Investors are not only concerned about price inflation but the potential that consumers may trade down to generic brand paper products.
Price targets have also come down from around $70 to the low $60 area. The stock is down around 24% from its high and the above concerns are more than in the stock.
We will remain with the stock, as we believe things could change over the next few years and the stock can move to its old highs. We have reduced our total return expectations from 20% per year to the low teens.
Here is a chart for the stock:
Let’s review the stock:
- We’re not sure if the stock has reached a bottom, too early to tell. It needs to find a bottom and then base.
- The choppiness indicator suggests that the downside trend has exhausted itself.
-It would help if volume was lower, a sign that the selling has dropped up.
We do want to take advantage of this low price and "Sell short a put, the August $55 put, symbol KMBTK at the market".
It is currently selling for about $1.50. If we are exercised we would bring down the average cost of our shares, if not we’ll keep the premium.