Contenders

• American Eagle Outfitters (AEO)
• Anadarko Petroleum (APC)
• Anglo American ADR (AAUKY)
• Berkshire Hathaway (BRK.B)
• Diageo plc (DEO)
• EZCorp Inc. (EZPW)
• E-Trade (ETFC)
• Grubb & Ellis (GBE)

The following four naked puts (sell to open put options) are being considered as contenders but I only intend on including one on the 2010 list. All four represent companies that have been reviewed in this series.

ETFC -- April 2010 puts (EUS-PY) with a strike price of $1.50 are offering 30 cents a share, which is a 20% premium currently. Although that is likely to be less six weeks from now it still is a very healthy 60% internal rate of return (IRR). That means your break even would be $1.20 at that time, when it is trading near $1.60 today.

EZPW -- March 2010 puts (ULP-OC) with a strike price of $15.00 are offering $1.55 a share, which is a 10.34% premium currently. That equals a 41.36% internal rate of return (IRR), with a break even price of $13.45 at that time when it is trading around $15.00 today.

F -- January 2010 puts (F-RK E) with a strike price of $8.00 are offering 91 cents a share which is a 11.38% premium currently. That would equal a 137% internal rate of return (IRR), with a break even price of $7.09 at that time when it is fluctuating just under $9.00 today.

WFC -- April 2010 puts (FHU-PA) with a strike price of $27.00 are offering $2.85 a share which is a 10.56% premium currently, which gives it an IRR of 31.67%. The break even would be $24.15 and when I checked this morning it traded at $28.68. Even if this stock is put to you in April you would be saving $4.53 a share, significantly cheaper than anyone buying now. By the way, I use Wells Fargo for most of these trades, in this case Eric P., who also found this to be a fascinating opportunity.

Naked puts are not available to most investors. It requires demonstrated experience and approval from your brokerage house. The IRR is established by multiplying the holding time, percentage of the year, times a factor that would arrive at a full year, i.e. WFC assuming a one month period from December to January, the factor would be twelve.

On the Fence

• General Electric Company (GE)

FedEx Corp (FDX) was the subject of a positive story in this weeks Barron's (subscription required) highlighting the stock's meteoric rise from its first quarter's punishing lows. Even with the stock trading near a 52 week high of $85.43, out-performing the indices and most other stocks by rising 151%, from the $34.02, Barron's sees plenty of growth potential remaining. They believe that its duopoly with United Parcel Service, Inc. (UPS) will be the benefactor of an economic recovery regardless of its pace based on solid earnings from it growing ground business in North America, and its early air package inroads in China, India and South America. While I can agree with much of their rationale, buying in at its high may not be smart and I also think that the dividend is paltry. I am putting it on the fence because in the final analysis, it will come down strictly to price.

Ford Motor (F) has been the topic of many favorable stories. The company borrowed money in advance of the industry's demise and they also are ahead of the curve in relevant "eco" design, safety, and much improved quality. Ford is likely to be the benefactor of much goodwill both in sales and by investors as the company did not need to be bailed out by tax payers or need bankruptcy protection. They should be taking market share from GM and Chrysler. This is another company that has jumped in anticipation of future profits, but since I do not want to speculate about what those might be I think it is more than fairly valued today trading near $9.00 per share.

Out of the Running

• American Oriental Bioengineering (AOB)
• Annaly Capital Management ( NLY)
  
• Avi BioPharma Inc. (AVII)
• Intuitive Surgical Inc (ISRG)
• Wells Fargo & Company (WFC)

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: Among the positions discussed in this post I own shares of ETFC, EZPW, UPS and WFC. I own options in ETFC, EZW, F and WFC.