The headlines are beginning to say it – not yet scream it, though that too will come – that things are being Made in America again.
Funny, they always were. Not toys or low-value added items but the United States has always been, depending on how you measure it, the world’s leading manufacturer, even after we let China destroy certain industries and even during the Great Recession.
And that leadership is on the verge of accelerating. Cheap natural gas – cheap shale gas – has changed everything. Lower labor costs and a flexible labor markets help. So do the rising difficulties of doing business in China.
Wall Street is aware of this, but has yet to drink the Kool-Aid and put its money to work.
The Boston Consulting Group estimates – and they did this work for the public, not for clients with a point of view – that by 2015, the United States will have major cost advantages over other developed nations. In that year, if U.S. manufacturing costs are, let’s say, 100, those in France, Japan, Germany and other nations will be at least at 105 and as high as 115.
You know this now; Wall Street will know this later. Time to get ahead of the Street. Now.
Right now, I like specialty users of gas and oil. Many are MLPs already with great yields – and these too should grow over time. My favorite is Calumet Specialty Products (NASDAQ:CLMT). It has a great yield – just below 8% – and options you can sell (write). Check the chart – the stock sells off a bit when it goes ex-dividend.
When you sell to open calls, do so on the next strike out and the next month out if you can.
I also like big petrochemical outfits reaping the benefits of cheap gas. Dow Chemical (NYSE:DOW) has a cheesy yield, just 3.7%, but sell (write) calls against it every month and you can push that past 10% and enjoy the underlying appreciation of the stock. Again, when you sell calls, choose the next strike out and next month out if you can.
And when you build a new plant, or pipe gas to that plant, or even when you frack some shale, you need steel. Take a look at U.S. Steel (NYSE:X). The stock has run, is retreating a bit, and it’s a good time to build what I call a buy/write position: Buy the stock and write calls as fast you can (essentially a covered call strategy). And you can write them fast – you can sell weekly calls on the stock.
For example, midday on a Wednesday, if X stock is at $23.12, you can sell an X $23.50 weekly call that expires in two and half days for $23 a contract. According to Mrs. Levine, my second grade math teacher at PS 269, that is a 1% or so return, something like 50% a year on an annualized basis. Thank you, Mrs. Levine.
Editors’ Note: Michael is writing a book, Made in America, which will be finished in early 2013, if he can steal enough time away form his day job, running the Options Income Blueprint advisory service.
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