The calendar may say spring, but with snow and cold weather
that just won't warm up, people are more than ready for spring to
be here. People want to be planting gardens, watching flowers
bloom and mowing lawns instead of getting stuck on an icy
highway, facing blizzards or shoveling feet of snow at a time.
With more golden rays of warm sunshine falling as each day
lengthens, the snow can only last so long and soon spring will be
in full bloom.
As the snow melts and warm days arrive, people will get their
lawns ready for summer, tilling the garden and planting all the
seeds they were thinking about while snowbound. Soon, people will
be fertilizing their lawns and gardens and giving away extra
vegetables to all their neighbors.
As you pick up fertilizer at the store you may not think much
about the companies that make your plant food or fertilizer, but
there is an investment opportunity there.
The Scotts Miracle-Gro Company (
) has trended higher over the last year from $42 a share to a
recent $60. The company has a $3.7 billion market capitalization
and a 2.9% dividend yield. The stock is highly seasonal, losing
money in two quarters of the year and making money in two
quarters of the year. This should not be surprising as it books
77% of revenue comes in during the warm second and third quarters
(in the northern hemisphere). This is a fertilizer company and
most people don't fertilize their lawn in January. Looking at the
full year's profit numbers, the company made $2.58 in 2013; $1.82
in 2012; and 1.84 in 2011. Analysts think SMG will pull in
earnings close to $3.15 in 2014 on a 3% sales growth and margins
rising about 1% to 36%.
U.S. sales make up 83% of the business while the International
sales make up 17%. Consumer sales make up 90% of the revenue
while Scotts lawn service makes up 9%. The company is dependent
on Home Depot (
), Lowe's (
) and Walmart (
) for 68% of their sales. SMG is also cutting costs and
expects an extra $20 million in cost savings in 2013 and an extra
$60 million by 2016.
We all know adding fertilizer makes the garden grow better or
the lawn look a little nicer. You can get a deeper green color, a
more full lawn and your neighbors will envy you if you treat it
right. The right combination of fertilizers will also make your
garden grow prize-winning produce.
And just like putting some fertilizer on the garden can make
it grow a little more, you may be able to do the same thing with
your investments. There are strategies that can make higher
returns from a stock that doesn't grow as fast as you might like.
You can sell a covered call on the stock and receive premium that
will boost your returns 3%. While a covered call will make you
portfolio a little more productive, it will also limit your
growth, kind of like cutting the grass twice a week so it stays
the perfect length. A covered call does cap the maximum return a
stock will give you, but if you move the strike price up, you can
set this in an area where you will be happy with
Take a look at a covered call on Scotts Miracle Gro (
). With the stock at $60.32, the September 65 call still leaves
this stock a little room to grow and has a 1.75 bid. The 58.57
(60.32-1.75) net debit has an 11% assigned return over the next
six months with a 23% annualized return rate. The stock
needs to rise about 7.7% over the next six months in order to be
assigned. If the stock stays flat you will pull in 2.9% more than
if you didn't sell the call. Using covered calls you won't get
the highest returns of everyone in the market, but you can
reliably boost returns on a variety of stocks.