Cold Weather Offers Investment Opportunity

Posted: Nov 27, 2014 12:01 AM
Cold Weather Offers Investment Opportunity

Last week, I had the opportunity to once again appear on “Money with Melissa Francis,” which airs on FOX Business. During the segment, we touched on the new marketing initiative underway at Carnival Corp. (CCL), as well as the woes at Urban Outfitters (URBN) and some crafty marketing at Kmart, which is owned by Sears (SHLD). Now, I love a funny or creative ad as much as you do, but when contemplating a company’s revenue, we have to ask whether or not a crafty ad will get you into the store to actually buy the product.

Behind the marketing hype, I see companies that are struggling with their message to consumers. For Urban Outfitters and Kmart, this couldn’t be happening at a worse time of year for them, given the importance of the holiday shopping season to retailers. As an investor and as I share with my graduate students at the New Jersey City University School of Business, it’s very hard to justify getting behind a company that can’t communicate what it does in a clear manner or explain how it differentiates itself and adds value to its customers. Simply put, these companies look lost to me, and that makes it easy for me to give them a quick “no thanks.”

Rather than focus on all of that hot air, my PowerTrader subscribers and I prefer to focus on the breaking news that is going to tilt the stock market in one direction or another. During the last few days, we’ve experienced arctic chills with roughly half the country covered in snow. While there are a number of ways to play these freezing temperatures – from clothing retailers to arguably (AMZN) as we head into the holiday shopping season to Netflix (NFLX), given the more than five feet of snow in western New York — I’ve recommended something different. As the temperatures drop, we’re inclined to turn up our thermostats, and that means good things for electric utilities like Con-Ed (ED), Pepco (PEP), Duke Energy (DUK) or Southern Co. (SO).

One problem I have is this: if there are so many utilities to choose from, how can the trader optimize their position?

That’s the beauty of exchange-traded funds (ETFs) – not only can you buy and sell them during the day, but you can add options to enhance your returns. Looking at the cold weather that way, it became pretty clear to me that pairing shares of Utilities SPDR (XLU) with an out-of-the-money call option offered a great combination of low beta, diversity, dividends and leverage that has the makings of a great trade as we bundle up and get ready to pay higher utility bills this winter.

Looking at the market through my PowerTrend lens and pairing stocks and ETFs with call options is the hallmark of my PowerTrader service. It’s a great way to get the underlying stocks and ETFs while potentially profiting big with options. If you’ve never traded options before, you’re not alone. Did you know that in the last 12 months, more than 70,000 TD Ameritrade (AMTD) clients placed their very first options trade? That’s something to think about… And that’s also why — from time to time on these pages — I’ll share with you my new options tutorial videos, as part of our ongoing PowerTrend Options Education series. Look for the next one soon.

Later this week will be my favorite holiday – Thanksgiving. I say that not only because I have many reasons to give thanks but also because — unlike other holidays that are celebrated by different religions or cultures — I think that when each of us looks around at our lives and our family, we all have something to be thankful for. As you celebrate your holiday and think ahead to next year, I want to invite you on a cruise with Newt Gingrich, Mark Skousen and me, among others. Come spend seven fabulous days aboard the six-star luxury liner, the Crystal Symphony. We will travel from New York to Montreal with a roster of noted historical scholars, political pundits and renowned market experts who will share their insights and perspectives on the current environment in Washington and Wall Street. For further information, including how to sign up, visit

Have a great Thanksgiving holiday with your family, friends and loved ones, and I hope to see you on the Crystal Symphony!

In case you missed it, I encourage you to read my e-letter column from last week about avoiding hype and focusing on products, strategy and management.