A Perpetual Option With a Huge Yield

Option buyers risk up to 100% of their purchase amounts in the hope of hitting home runs. There's nothing wrong with doing that with a small portion of your total investment capital. Those bets only pay off, though, if you get both the direction and timing of the underlying stock correct. Occasionally there are actual shares of stock which trade cheap enough to offer the same kind of outsized profit potential, but without the timing problem. Shares never expire. Some, unlike options, also even pay dividends while you wait for the expected upward movement. Think back to all the shares you thought about during the crisis years which were trading like they were going out of business. Some did fail, but most toughed it out and saw multi-year gains of hundreds or even thousands of percent. Even big-name stocks can experience enormous, hopefully temporary, declines. Many of those shares went on to even larger gains post-2010. Playing stocks after major percentage declines is a lot like buying options. They will either recover, or not. The last name on the list above, Real Estate Investment Trust DDR appears interesting once again. The shares fetched over $20 in 2015, and neared that mark during mid-2016 as well. DDR carved out a new post-2010, intra-day low on Thursday, at $8.11 per share. Is this REIT on the way to bankruptcy? Insider activity strongly suggests the answer is no. DDR's CEO reported buying 60,000 shares @ $8.37 on Jun. 21st. That was more than a $502,000 purchase. Other officers and directors have been accumulating shares all year long. Fourteen out of fourteen insider trades this year have been buys. So far this year company officers have locked in at prices ranging from $13.11 down to $8.37. View Chart » View in New Window » Those followed a series of insider purchases dating back to last fall at prices starting at $15.22 per share. See Insidercow.com for easier to read details. DDR is showing positive funds from operations. The stock pays a quarterly dividend of 19-cents per share. At the CEO's entry price this week, the current yield was 9.08%. Nobody knows the true worth of a stock better than the people running the company. I'm taking insiders' recent multiple commitments of well over $20 million as a vote of confidence. Retail malls may not be stellar growth vehicles anymore, but they are not going away anytime soon. The Great Recession didn't kill them in 2008-09. Damage from Amazon and other online retailers appears more than priced in. Note that DDR traded for $15.60 within this calendar year and peaked north of $15 during each year since 2011. Research from Morningstar takes a very conservative view on DDR's future. Even that somewhat dire viewpoint indicates greater than 32% upside to their present-day fair value estimate of $11.24. Bad news sells. It's always easy to believe the worst while extrapolating poor past performance into more of the same. Brave souls who took shots with the beaten-down names listed earlier, ended up smiling later. Collect your 9%, sit back and wait for things to settle down. Insiders must hold for more than six months in order to keep any trading profits. Buy some DDR. Think of the shares as call options which never expire. At worst you'll get a tax write-off opportunity. At best these shares could at least double from here. DDR's 52-week high? $19.92.

A Perpetual Option With a Huge Yield

Mall operator DDR is seeing lots of insider buying.

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