One of our favorite investments in today’s market is the common stock of ALLY Financial (ALLY). This is a company that we have done quite well on over the years, but that has improved the fundamentals of its business at an even faster rate. Our investments in ALLY have generally been centered on buying the stock outright and selling cash-secured put options.
The great thing about selling the cash-secured puts is that we don’t need major movement upwards to have extremely successful trades. It also allows us to dollar-cost-average when the options end up being exercised, at better prices than what we could have bought the stock at during the same time.
ALLY is one of the very few banks that still trades at a discount to tangible book value, while also trading at less than 10 times earnings. ALLY has the potential to grow earnings by a solid double-digit per annum clip over the next five years.
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