| MARKET CONDITIONS Within 24 days going to make 16.5% with a option on Campbell Soup Co. (NYSE: CPB). It's safe—it's been around since 1869. It's gushing cash and it's shareholder friendly. It pays a 2.5% dividend and buys back tons of stock. |
Strong Earnings and Attractive Growth
Campbell recently reported earnings in May. Its strong performance illustrates why we like this company:
• Fueled by smart acquisitions, sales increased 15%
• Net earnings per share shot up 11%
• Core soup sales increased 14%
• Global baking and snacking revenues rose 5%.
The report was so impressive that the company adjusted its fiscal 2013 guidance upward. What this means is that Campbell told analysts, "Business is going so well that we think we're going to do even better than we previously thought we would." Campbell raised its expectation of earnings per share from 3-5% to 6-7%.
Campbell's growth in overseas markets is another reason for excitement. Last month, we learned Campbell will acquire Kelsen Group, a Denmark-based snack company. Here's why this is big: Kelsen owns a cookie brand called "Kjeldsens." This is like Nabisco or Pepperidge Farm. The Chinese happen to love Kjeldsens. In fact, for the last three years, Kelsen's overall Chinese sales have grown at a compound annual growth rate of 28%.
This is fantastic growth. In addition to the new revenues, smart international acquisitions like this give Campbell new distribution channels. It can then use those channels to get its other products into emerging markets.
Campbell is also shareholder friendly. It has bought back $1.6 billion worth of its own stock over the last three years. Share buybacks act like "secret" dividends. They reduce the number of shares in the market. This makes your shares more valuable.
Over those same three years, free cash flow was $2.4 billion. (Free cash flow is the cash left over after covering business expenses, including reinvestment for maintenance and growth.)
That means Campbell returned 67% of its free cash to shareholders through buybacks. On top of that, Campbell returns even more cash to investors through dividends. Right now, its dividend yield is 2.5%.
With Campbell, we get both stability and growth—two for the price of one. Let's go make our 16.5%.
Action to take: Sell to Open the Campbell Soup Co. August 2013 $46 put (CPB130817P00046000)
We've illustrated the annualized returns for three different limit prices below:
The eager limit price of $0.30
The eager limit price is if you want to make sure you execute this trade as soon as possible. You don't mind sacrificing a little of your annualized gain to just get the trade done. You're telling your broker the minimum you're willing to accept is $0.30. That's an annualized return of 9.9%.
The in-between limit price of $0.50
The in-between price is if you want a balance between the other two choices. You don't feel the need to get into the trade immediately. You like the trade, but you don't want to sacrifice too much of the annualized gain just to get a trade executed. You're telling your broker the minimum you're willing to accept is $0.50. That's an annualized return of 16.5%.
The strict limit price of $0.65
The strict limit price is if you don't mind passing up a chance to execute this trade today or the rest of this week. In fact, you could miss the trade altogether, but you want to make sure you get the highest-possible annualized return with your money. You're telling your broker the minimum you're willing to accept is $0.65. That's an annualized return of 21.5%.
[There are two order types, market and limit. If you enter a market order, you are telling your broker to fill the trade at the current market price, whatever it is. If you enter a limit order, you are giving your broker the minimum price you're willing to accept, even if it means you miss executing the trade or have to wait longer to get it filled.]
We recommend that you always check the current market price of the option before entering your trade. Then you can compare the current price of the option to the suggestions we've given you.
We give you three different limit prices to illustrate the annualized returns, provide you with several choices, and give you more control in executing these trades.
To place this trade, you're going to tell the broker, "Sell one put option on Campbell Soup Co. with a strike price of $46 expiring on August 16th."
You'll receive a minimum of $0.30, $0.50, or $0.65 per share for selling one put option. And since one put option represents 100 shares of stock, you'll get $30, $50, or $65 in cash (less any commissions charged by your broker).
The cash that you will be paid is coming from someone else. He or she is paying you to make a commitment to buy Campbell Soup Co. from him at $46 per share, with a deadline that expires on August 16, 2013.
Plus, the cash you get is yours to keep. You get this cash right after you execute the trade.
The Potential Outcomes of This Trade
If we place this trade, one of two things can happen:
Either Campbell Soup Co.'s stock will be trading below $46 per share on August 16, 2013, in which case, we'll own the stock. You'll keep the money you earned from selling the put option. Your broker will debit your account to purchase 100 shares of Campbell Soup Co.
Or… Campbell Soup Co.'s stock will be trading above $46 on August 16, 2013, in which case, we won't own the stock. We can immediately make another offer on August 19, 2013, and try to purchase Campbell Soup Co. again.
[Options expire on the third Friday of each month. That means August 16, 2013, is expiration day. The next trading day is August 19, 2013. That's the earliest we'd be able to sell another put option.]
In both cases, we'll keep the income we've earned.
How Many Option Contracts of Campbell Soup Co. Should You Sell?
The number of option contracts you choose to sell is an individual decision. It depends on how big your portfolio is and how much Campbell Soup Co. stock you're willing to own at $46 per share. This means one contract will require $4,600.
As a general rule of thumb, you shouldn't tie up more than 20% of your capital in each trade.
The following chart shows the money you'll receive from today's recommended trade, based on the number of contracts you decide to sell versus the amount of capital you'll be required to set aside for selling these Campbell Soup Co. options.
Campbell recently reported earnings in May. Its strong performance illustrates why we like this company:
• Fueled by smart acquisitions, sales increased 15%
• Net earnings per share shot up 11%
• Core soup sales increased 14%
• Global baking and snacking revenues rose 5%.
The report was so impressive that the company adjusted its fiscal 2013 guidance upward. What this means is that Campbell told analysts, "Business is going so well that we think we're going to do even better than we previously thought we would." Campbell raised its expectation of earnings per share from 3-5% to 6-7%.
Campbell's growth in overseas markets is another reason for excitement. Last month, we learned Campbell will acquire Kelsen Group, a Denmark-based snack company. Here's why this is big: Kelsen owns a cookie brand called "Kjeldsens." This is like Nabisco or Pepperidge Farm. The Chinese happen to love Kjeldsens. In fact, for the last three years, Kelsen's overall Chinese sales have grown at a compound annual growth rate of 28%.
This is fantastic growth. In addition to the new revenues, smart international acquisitions like this give Campbell new distribution channels. It can then use those channels to get its other products into emerging markets.
Campbell is also shareholder friendly. It has bought back $1.6 billion worth of its own stock over the last three years. Share buybacks act like "secret" dividends. They reduce the number of shares in the market. This makes your shares more valuable.
Over those same three years, free cash flow was $2.4 billion. (Free cash flow is the cash left over after covering business expenses, including reinvestment for maintenance and growth.)
That means Campbell returned 67% of its free cash to shareholders through buybacks. On top of that, Campbell returns even more cash to investors through dividends. Right now, its dividend yield is 2.5%.
With Campbell, we get both stability and growth—two for the price of one. Let's go make our 16.5%.
Action to take: Sell to Open the Campbell Soup Co. August 2013 $46 put (CPB130817P00046000)
We've illustrated the annualized returns for three different limit prices below:
The eager limit price of $0.30
The eager limit price is if you want to make sure you execute this trade as soon as possible. You don't mind sacrificing a little of your annualized gain to just get the trade done. You're telling your broker the minimum you're willing to accept is $0.30. That's an annualized return of 9.9%.
The in-between limit price of $0.50
The in-between price is if you want a balance between the other two choices. You don't feel the need to get into the trade immediately. You like the trade, but you don't want to sacrifice too much of the annualized gain just to get a trade executed. You're telling your broker the minimum you're willing to accept is $0.50. That's an annualized return of 16.5%.
The strict limit price of $0.65
The strict limit price is if you don't mind passing up a chance to execute this trade today or the rest of this week. In fact, you could miss the trade altogether, but you want to make sure you get the highest-possible annualized return with your money. You're telling your broker the minimum you're willing to accept is $0.65. That's an annualized return of 21.5%.
[There are two order types, market and limit. If you enter a market order, you are telling your broker to fill the trade at the current market price, whatever it is. If you enter a limit order, you are giving your broker the minimum price you're willing to accept, even if it means you miss executing the trade or have to wait longer to get it filled.]
We recommend that you always check the current market price of the option before entering your trade. Then you can compare the current price of the option to the suggestions we've given you.
We give you three different limit prices to illustrate the annualized returns, provide you with several choices, and give you more control in executing these trades.
To place this trade, you're going to tell the broker, "Sell one put option on Campbell Soup Co. with a strike price of $46 expiring on August 16th."
You'll receive a minimum of $0.30, $0.50, or $0.65 per share for selling one put option. And since one put option represents 100 shares of stock, you'll get $30, $50, or $65 in cash (less any commissions charged by your broker).
The cash that you will be paid is coming from someone else. He or she is paying you to make a commitment to buy Campbell Soup Co. from him at $46 per share, with a deadline that expires on August 16, 2013.
Plus, the cash you get is yours to keep. You get this cash right after you execute the trade.
The Potential Outcomes of This Trade
If we place this trade, one of two things can happen:
Either Campbell Soup Co.'s stock will be trading below $46 per share on August 16, 2013, in which case, we'll own the stock. You'll keep the money you earned from selling the put option. Your broker will debit your account to purchase 100 shares of Campbell Soup Co.
Or… Campbell Soup Co.'s stock will be trading above $46 on August 16, 2013, in which case, we won't own the stock. We can immediately make another offer on August 19, 2013, and try to purchase Campbell Soup Co. again.
[Options expire on the third Friday of each month. That means August 16, 2013, is expiration day. The next trading day is August 19, 2013. That's the earliest we'd be able to sell another put option.]
In both cases, we'll keep the income we've earned.
How Many Option Contracts of Campbell Soup Co. Should You Sell?
The number of option contracts you choose to sell is an individual decision. It depends on how big your portfolio is and how much Campbell Soup Co. stock you're willing to own at $46 per share. This means one contract will require $4,600.
As a general rule of thumb, you shouldn't tie up more than 20% of your capital in each trade.
The following chart shows the money you'll receive from today's recommended trade, based on the number of contracts you decide to sell versus the amount of capital you'll be required to set aside for selling these Campbell Soup Co. options.
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