The post Huntington Ingalls Industries – Sold PUTs November 2024 first appeared on ValueInvestingNow.com.
]]>During the morning of November 1, 2024, Huntington Ingalls Industries – HII reported its third quarter results. HII had several financial setbacks causing the market price of this stock to drop dramatically. Within 30 minutes, the stock price dropped $60 from $250 to below $190.
When a stock price drops this much in a short period of time, it is an opportunity to sell PUTs and make some quick cash. The Value Investment Fund sold 500 PUTs @13.70 each. Each PUT costs $1 for the respective transaction fee. The Fund netted $6,350. The strike price is $185 with a June 20, 2025 expiration date. In effect, the Fund is projecting that the market price will be above the strike price of $185 and thus, the PUTs will simply expire at that time.
Here’s the market price for June 20, 2025 PUTs:
If the market price for HII is less than $185 per share, the Fund must spend upwards of $185 per share for 500 shares or up to $92,500 to comply with the terms of the PUTs.
Recall from a prior article, PUTs are an similar to an insurance arrangement. The buyer agrees to pay the seller a certain value to protect their investment if the price goes below a certain point – strike price. During the last five years, Huntington Ingalls Industries stock price has been below $185 for a total of twelve months due to the market setback driven by COVID in early 2020 thru the end of 2020. See this graph for evidence:
The Value Investment Fund has determined the intrinsic value to approximate $200 per share adjusted to 2024 from the intrinsic calculation performed in 2021. This is a highly stable and solid investment with very little downside risk. Simply stated, it is wonderful investment if the market price drops below $195 per share. Furthermore, selling PUTs with long windows of time to recover from current depressed market value is an opportunity to make some quick cash. Act on Knowledge.
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]]>On Friday the 1st of November 2024, Huntington Ingalls Industries’ (HII) shares dropped $60 in the market due to their financial outlook as reported in their quarterly reporting. The current intrinsic value is approximately $210 per share. The Value Investment Fund purchased these shares at $190 each and paid a $1 per share transaction fee.
The Fund utilized its margin account to finance the purchase. This requires a 2% fee on the amount borrowed. Total amount borrowed was $38,000. The Fund utilized its cash to pay the 2% fee of $760 and the $200 fee to purchase the shares. Total basis in the shares stands at $38,960 per share.
The share price ended the day at $189.23.
Huntington Ingalls Industries (HII) is highly stable and relatively secure investment. Furthermore, it is one of the top 2,000 companies worldwide. The downside risk is low; during the last five years, the lowest market price for this investment was $140 per share back in 2020. The upside is a price above $290 per share. Act on Knowledge.
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Today is March 17, 2022. If you are value investor, you need to watch Huntington Ingalls Industries market price closely. Get ready to buy.
Back in November 2021, this site’s Value Investment Fund purchased a $20,000 position in this company. On December 12th, the facilitator posted an article detailing the intrinsic value, buy price and market conditions. In February, the Fund updated the sell point due to the quality of financial performance during the fourth quarter of 2021. Last week, the Fund sold its position in Huntington Ingalls Industries when there was a sudden upward spike with the market price. It turned out as an excellent value investment; one that any value investor desires as a performance investment.
This stock is getting ready to repeat that cycle.
Huntington Ingalls Industries
The current intrinsic value is $188 reflecting the fourth quarter 2021 financial results as reported with Huntington Ingalls Industries’ annual report. The ‘Buy’ point is at or around $179 per share which provides a 5% margin of safety. This is a top notch company and has not experienced a long-term price depression for its market price during the last 10 years. Only once did the price drop more than 30% and that was a direct reflection of an entire market wide price drop due to COVID back in March of 2020. Look at this historical depiction of the market price for Huntington Ingalls over the last 10 years.
Now look at the market price over the last month:
Today the market price opens at $194.36, yesterday the stock price dropped to $189.76. Thus, there is a good chance the market price will drop over the next few weeks to the preset buy price of $179 per share. If the market hits the price, this Fund will again take a $20,000 position. Given the fact that there are currently no other potential buy opportunities in the existing portfolio of 46 possible investments (ones that have been vetted and analyzed), the Fund will buy a second $20,000 tranche.
The sell price is set for $226 per share for the first tranche. If a second tranche is purchased, that tranche’s sell price is set for $251 per share reflecting the multiple times the stock price exceeded $250 per share over the last five years.
Overall, this company is solid, pays a very good dividend and is considered an excellent value investor’s opportunity at $179 per share. Act on Knowledge.
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Today, 03/07/22, at 10:28 AM, the market price for Huntington Ingalls Industries reached my preset sales price of $226 per share netting the Value Investment Fund $225 per share after transaction fees. Initial investment on 11/30/2021 was $20,000 including transaction fees (Purchased HII). Total number of shares purchased and sold was 112.9943 shares. Capital gain from this transaction was $5,423.72. During this 98 day holding period, the Fund earned $133.33 in dividends. Total earnings over 98 days were $5,557.05 for an absolute return on the $20,000 investment of 27.785%. Annualized, this equals 103.48%.
Look at this chart showing the history of Huntington Ingalls Industries‘ stock price over the last six months:
Both the buy and sell points are circled. As documented in an article dated 12/12/2021, Huntington Ingalls Industries, Inc. – Market, Intrinsic & Value Investing Prices, this site’s facilitator calculated intrinsic value at $185 per share, buy price at $177 per share and a fair and reasonable market price for recovery to $220 per share. The author, updated the market recovery point to $225 per share after the annual financial report was released in February, 2022. That price of $225 plus an additional $1 per share to cover transaction fees was reached this morning.
This is yet another example of why value investing is so beneficial to investors. In general, it is a win after win set of results. There are no dramatic successes or stories of super returns on an investment; to earn that type of a return, an investor must resort to speculation. Value investing is about buying high quality stocks at low prices and simply waiting for the market price to recover to a reasonable pre-determined price. It isn’t about making dramatic or huge returns on one’s investment; but, consistency and adherence to the four core principles earns good returns year after year. Act on Knowledge.
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]]>The post Sold PUTS on Huntington Ingalls Industries first appeared on ValueInvestingNow.com.
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Today, the Value Investment Fund sold an options contract (PUTS) for 116.9591 shares of Huntington Ingalls Industries at $5.90 per share netting $4.90 per share. The strike price is $170 per share which is 4% lower than the buy price as set for this particular member of the Military Contractors Pool. The intrinsic value of Huntington Ingalls Industries is currently calculated at $185 per share. Current market price today, January 7, 2022, is $192 per share.
As with all tranches purchased by the Value Investment Club, this particular contract exposes the Fund to a potential outlay of $20,000. The Fund currently carries over $97,000 in cash and has two existing $20,000 potential commitments for two other option contracts (PUTS on Union Pacific and Norfolk Southern Railway). One of those contracts expires on January 21, 2022.
For those of you that are members, PUTS are explained in more detail in Phase Three of the lesson sets on this site.
As evidence of the financial requirements of this transaction, here is a visual depiction of the option:
Bids are $5.90 per share for a June 17, 2022 expiration date. Thus, with a transaction fee of $1 per share (Club’s standard transaction fee for all activity), the Club nets $4.90 per share on 116.9591 shares or $573.10.
The financial obligation if required (market price drops to $169.99 per share) is to pay $170 plus $1 per share for the transaction fee or $20,000 total ($20,000/$171 each = 116.9591 shares).
For those of you reading this post, please review the following articles to fully understand why the sale of this options contract is so lucrative for the Club. The Club WANTS to own this stock at any price less than $176 per share.
Huntington Ingalls Industries – Market, Intrinsic and Value Investing Prices
Purchased Huntington Ingalls Industries
One last important note of interest. Assume this contract is enforced by the buyer. At point of purchase by the Club, the actual net investment into the shares is $171 less the net earned of $4.90 or $166.10 per share. In effect, the Club would own this stock at a 10% discount against Huntington Ingalls Industries intrinsic value price of $185. The margin of safety is $18.90 per share. Again, owning this stock at such a low price will reap long-term value for the Investment Fund. Act on Knowledge.
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“We will build great ships. At a profit if we can. At a loss if we must. But we will build great ships.” – Newport News Shipbuilding Mission Statement
The largest subsidiary of Huntington Ingalls Industries is their Newport News Shipbuilding division. They are the sole builder of the United States Navy’s aircraft carriers. Newport News Shipbuilding has been in business for over 140 years. Huntington Ingalls Industries has three distinct segments of operations. In addition to Newport News Shipbuilding, Huntington Ingalls Industries has its Ingalls division which builds non-nuclear combatant vessels including Coast Guard Cutters. A third division is their Technical Solutions segment which provides intelligence services to the Navy. With 44,000 employees and a backlog of $50 Billion of work, Huntington Ingalls Industries is an excellent inclusion in any value investing portfolio. With this site’s Value Investment Fund, this particular company is included in the Military Contractor’s Pool of investments.
The current market price as of November 20, 2021 is around $185 share. With 40.6 Million shares in the market, its market value is around $7.5 Billion. Therefore, this company is considered a mid-cap investment. However, the company consistently generates increasing amounts of revenue and outstanding profits. For investors, it also pays excellent dividends that often exceed a 2.5% dividend yield. The risk associated with a deep decline with the stock’s price is practically non-existent and more importantly, even if one occurred, the likelihood it will stay depressed for more than two years is remote. Even though this company falls within the mid-capitalization group of investments, it behaves like a large-cap. Simply stated, if a value investor can snap up shares at a good price, odds are, the investment will provide superior returns when the stock’s price returns to a favorable market price. The questions are now: ‘What is Huntington Ingalls Industries, Inc.’s intrinsic value, value investing buy price and the market recovery price for the purpose of value investing?’.
Huntington Ingalls Industries – Intrinsic Value
There is no universal formula to determine intrinsic value. There are about six commonly accepted methods (formulas) and each is highly dependent on certain conditions existing to have a high level of confidence with the result. The larger the company, the greater the confidence with certain intrinsic value methods over others. Thus, a value investor seeks out distinct conditions that provide greater credence to one intrinsic value formula over another. The key to determining intrinsic value for Huntington Ingalls is to focus on its core customer, the United States Navy. Newport News Shipbuilding, Huntington Ingalls Industries’ largest subsidiary, has been building aircraft carriers for the Navy since 1930. There has never been a lapse of any duration without a carrier under construction. In effect, this continuous demand for ships makes Huntington Ingalls recession proof. Any kind of consumer impact on the economy has no or very little effect on the long-term contracts related to vessel construction. In addition, these contracts have inflation adjustment clauses along with material shortage impact clauses. Basically, it is easier to forecast revenues and profits with military contractors than consumer oriented operations. Take a look at the last 13 years of revenues and profits for Huntington Ingalls Industries (2021 is estimated based on actual information from the first three quarters as reported).
This graph depicts the relationship between revenues and profits. Basically, the last six years has seen a step-up in profitability that consistently exceeds $500 Million per year. Thus, with 40.6 Million shares, each share is earning at least $12 per share. The recent six years has also seen a shifting to a higher level of revenue. The primary driver of this elevated level of sales is due to full operations of the third segment, Technical Solutions, of Huntington Ingalls Industries. Therefore, it is reasonable, and with a high level of confidence, to predict that overall sales will exceed $8.7 Billion per year for the foreseeable future. Thus, it is also reasonable to expect no less than $500 Million in net earnings each year for several years to come.
When setting intrinsic value, one of the goals of a value investor is set a reasonable range of value to act as a guideline with actual outcomes from the various intrinsic value formulas. Using a simple price to earnings relationship of 13 to 1, Huntington Ingalls is worth at least $155 per share, at 16:1, the price exceeds $192 per share. Thus, it is fair to say that the intrinsic value will fall somewhere between $220 (18:1) on the high end and $140 (12:1) per share at the other end. Those methods that can produce a result within this range are more reliable than outcomes outside of this range when determining intrinsic value.
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Today, November 30, 2021, the market saw a decline of 650 points with the DOW Jones Industrial Average. This pushed the price of Huntington Ingalls Industries lower by 2.32% well below the predetermined intrinsic value of $185. The Value Investment Fund’s buy price is $177 per share. At 1:15 PM, the price dipped to the buy point as set by this site’s Value Investment Fund for this particular potential investment in the Military Contractors Pool of investments. The Fund purchased 112.9943 shares at $176 each (paid $177 including the $1 per share transaction fee). Total invested capital equals $20,000.
The largest subsidiary of Huntington Ingalls Industries is their Newport News Shipbuilding division. They are the sole builder of the United States Navy’s aircraft carriers. Newport News Shipbuilding has been in business for over 140 years. Huntington Ingalls Industries (HII) has three distinct segments of operations. In addition to Newport News Shipbuilding, HII has its Ingalls division which builds non-nuclear combatant vessels including Coast Guard Cutters. A third division is their Technical Solutions segment which provides intelligence services to the Navy. With 44,000 employees and a backlog of $50 Billion of work, HII is an excellent inclusion in any value investing portfolio. With this site’s Value Investment Fund, this particular company is included in the Military Contractor’s Pool of investments.
Currently, there are 47 potential investments among seven pools. Every single one, with the exception of Huntington Ingalls Industries, is selling at or near their respective historical highs. Thus, opportunities to buy low are non-existent in this current market. Having an opportunity such as this is a welcomed relief. The sell point for this stock is preset for $251 per share netting $73 per share gain after fees (another $1 per share fee at the sale of the stock). It is expected that it will take approximately six quarters to recover to this preset market recovery price point. The following illustrates the expected average annual return assuming different number of quarters to reach the market recovery point of $251.
# of Quarters Actual Return Annualized Return
2 41.24% 82.71%
3 41.24% 54.94%
4 41.24% 41.24%
5 41.24% 32.99%
6 41.24% 27.52%
7 41.24% 23.59%
8 (Two Years) 41.24% 20.60%
Even if it takes two years for this stock to hit a $251 market recovery price point (last recorded in the first quarter of 2020), the return on the investment is still exemplary at 20.6%. Furthermore, over the course of two years, it is expected that this stock will pay out approximately $9 in dividends. Thus, the effective annualized return will exceed 23%.
Any time recovery period of six or less quarters will generate a desirable 30% plus return on the investment (dividend inclusive). The downside risk of the investment remaining at a depressed price for multiple years is insignificant (less than 3%). Huntington Ingalls Industries is simply an outstanding buy at this price.
Now a value investor exercises the fourth principle of value investing – PATIENCE. Act on Knowledge.
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