As we enter 2013, uncertainty is growing.
The politicians are more out of touch with the solutions the country wants than a year ago, creating uncertainty and slowing business investment.
This in turn has created or will create a mild recession. It has also made the market more volatile – and created uncertainty about the fundamentals underpinning the economy and individual companies.
And that leaves many investors worried about generating enough income in 2013 with the coming tax increases in a bad economy.
You don’t have to settle for low yields next year and by low I mean anything below 8% or so. You are just leaving money on the table.
Instead, you should be looking for income stocks that have great fundamentals based on growth that will come regardless of the economy.
Look for stocks with great fundamentals that can be used to sell call or put options against to generate income
Secondarily look for names that have weekly options, this increases your flexibility and your yield. The yields are great – be a bit nimble and you can generate between 18%-25% per year selling weekly call and put options.
Here are some income-producing plays for your portfolio, some found within hot sectors in the economy.
Demand for U.S. grown corn and soybeans continues to make farmers the happiest businessmen and women in the country. It is not longer about ethanol – it’s about exports to China. As farmers put more land under cultivation, than out of fertilizer required per unit of output grows, and the fertilizer outfits with a great yield and declining or stable feedstock costs are Terra Nitrogen (NYSE:TNH) with a 7.7% yield and Rentech Nitrogen Partners, L.P. (NYSE:RNF) with a 8% yield.
“Fracking” has finally taken hold of investors’ imaginations but the folks on Wall Street continue to look in the wrong place for growth. There is a need for refinery capacity to clean the dirty heavy oil from shale – that means Calumet Specialty Products (NASDAQ:CLMT), an MLP with a near 8% yield. There is a need to clean up dirty natural gas and gas fluids and that means Martin Midstream Partners (NASDAQ:MMLP) with a nice yield of 9.7%). Last, a company developing fields, Enerplus (NYSE:ERF), another MLP yielding 8.5%.
These companies took a hit when Ben Bernanke continued easing. There are few if any hits in sight. The granddaddy of the industry and my favorite is Annaly Capital (NYSE:NLY) a yield of 12.2% and a balance sheet that now holds commercial assets with a higher return than residential mortgages.
If you have the capital, the best name to sell call options against is Apple (NASDAQ:AAPL). The stock is grossly undervalued compared to the S&P 500 and the company is growing more than 20% a year. Let me help you become a believer.
Sell an AAPL $500 put option that expires in January of 2014 and you collect, per contract, $6,720. You collect immediately in your account. If the put expires worthless in thirteen months your return is 13.44%. And who would not be willing to own AAPL at $500 since the previous high was $705? Or you can sell weekly options every week and perhaps, if you are nimble, double that return.
Worldwide the hunt for oil underneath the ocean is accelerating, The Deepwater Horizon mess is behind them and Transocean (NYSE:RIG), the technology and services leader in offshore rigs, is grossly undervalued and ready to break out. The options have great premiums making RIG a great stock to sell puts to collect double digit income or sell call options if you own the stock.
For the more conservative among you, how about a growth stock with a 4.7% yield that you can also sell call options against, doubling that yield without any appreciation in the stock? Verizon (NYSE:VZ) is a classic stock to own for the dividend and sell calls against. Consumers are spending more and more on wireless and Internet access, VZ is enjoying the ride and VZ provides a nice mix of income streams.
General Motors (NYSE:GM) an income stock? You bet. The average car in the U.S. is now more than 11 years old, credit is available and GM has a very strong product line. There are very rich very rich premiums on the put and call options. A few days ago Uncle Sam announced it was selling a big slug of stock reducing the overhang on the stock and the company has a lot of room to run. If you sold weekly put options every week on GM or calls if you own the stock, you could generate 20% or more per year in yield.