Dykstra: For Options, This BUD's for You
Lenny Dykstra
07/20/07 - 10:12 AM EDT
On Tuesday I recommended
Starbucks (SBUX), which delivered a quick win, providing a little jolt of profit in our accounts. Like Starbucks, today's recommendation needs little or no introduction -- its brand is the definition of an American icon.
The maker of the "king of beers,"
Anheuser-Busch (BUD) can trace its origins back to 1852, and today it boasts the two best-selling beers in the world, Budweiser and Bud Light, operating 12 breweries in the U.S. with operations around the globe.
Anheuser-Busch has a pristine balance sheet, with revenue coming in at $15.82 billion, a forward price-to-earnings ratio
of 16.28 and a return on equity (ROE) of 52.04%. To finish it off, we can take some comfort in knowing that the Oracle of Omaha,
Warren Buffett, owns 4.68% of the common stock, or about 35,563,000 shares.
Anheuser-Busch reports earnings on July 25, and in what's hopefully a preview of things to come, Mexican brewer Grupo Modelo, half-owned by Anheuser-Busch and the maker of Corona beer, posted a 12.6% rise in second-quarter net profit, with overall net sales increasing 25.5%.
I will take advantage of the discounted stock price -- the stock has been essentially treading water for six months, recently trading at $50.02 -- and buy 10 contracts of the January $45 (BUDAI) deep-in-the-money calls at $6.60 or better. Use limit orders, and let the stock come in.
Reader Email
Now let's check out some reader emails.
I love your column and your deep-in-the-money calls. I'm a novice with a very limited amount in my portfolio, so I try to pick the DITM calls that you purchase,
but I only can purchase one option -- I find sometimes I cannot get filled at the price you suggest. Is it because I'm purchasing such a small
order? Keep up the great strategy
-- Jill
Even an investor with a limited budget can make money using my DITM calls strategy; you can do so by purchasing fewer contracts to match the size of their portfolio. Please be assured that the small size of your order is not the reason your order is not filled. If you check the price range of the option on the day you place your order, you will notice that the price of the option was priced beyond your limit order.
Thank you for sharing your strategy. Even more than you options picks, I appreciate your patient coaching and encouragement. Your columns have taught me how to stick with a winning game plan, a skill I lacked when I started investing last year.
It is clear that you do not need to write this column for the money. I hope that you choose to continue to write it for many more months or years, so that I and others like me may continue to learn.
Thanks again.
-- Sandra
You bring up an excellent point in your kind email. It is important to trade investments with discipline and without emotional attachment. It is the emotional trader who buys and sells at all the wrong times. We can thank them for making it possible for us to profit, but we don't ever want to join their ranks. I enjoy making money, and I enjoy sharing with those who want to learn.
